Truck Availability Shrinking as Freight Demand Increases

This story appears in the March 15 print edition of Transport Topics.

Truck availability has tightened sharply in recent weeks as steadily growing freight demand draws even with total truck capacity, which shriveled during the recession, industry experts said.

The shift in freight markets that have been plagued by excess capacity for some 18 months embraces a range of shipments from durable goods to groceries and is occurring in California, the Midwest and other states, carrier officials and other sources said.

“We’ve had 3½ years of the truckload recession,” John Steele, chief financial officer of Werner Enterprises, said on March 9. “So, it is difficult for shippers to understand and comprehend that the market is turning, but it is clearly, clearly turning.”

Five other freight executives, along with other industry experts, also said last week that truckload capacity is tightening.

A weekly index published March 4 by Internet Truckstop hit its highest level since September 2008, signaling that demand outpaced supply for the first time since then.

Douglas Stotlar, CEO of Con-way Inc., said March 9 that the capacity squeeze is showing up in lower freight margins for brokers and stronger demand at the end of the week as shippers scramble to cover their loads.

“We are seeing much stronger demand on the steel side,” Steve Williams, Maverick USA chief executive officer, told Transport Topics. “A lot of capacity has left the marketplace. Customers are concerned even in this market that there are not enough trucks.” Maverick is a flatbed carrier with a large base of steel-hauling business. The flatbed sector has been amongst the hardest hit by the dearth of freight, as the construction and auto-building businesses all shrank during the recession.

A.C.T. Research last month estimated that the total Class 8 fleet has shrunk by 210,000, or 13%, in three years.

The durable goods market, including autos and appliances made from steel, is now strengthening along with consumer confidence, Williams said.

“There is pent-up demand,” he said. “As people get their confidence back, they may not buy a new house, but they will remodel. The demand is coming from replacement equipment, not new home construction.”

“Customers are starting to stick their head out of the ground,” Vincent Gulisano, chief customer officer at Greatwide Logistics, told TT last week. “Activity levels are up dramatically; capacity is tightening.”

Greatwide said utilization rates for dedicated business jumped to 80% now from 65% at this time last year.

A trucking sales executive who requested anonymity said, “My gut tells me it’s both reduced capacity and higher demand that is tightening the market. A lot of our retailers have cleaned up inventory and are buying again.”

Demand is strongest in Texas, California, parts of the Midwest, Pennsylvania and Alabama, as well as Georgia, the Internet Truck Stop report said.

“We’ve seen more typical seasonal improvement from January to February to March, if not a little better than normal,” Steele said, in contrast to last year when volume fell from January to March.

Freight is approaching 2006 levels, with particularly strong retail and grocery shipments, said Steele, who estimated that 75% of the market improvement resulted from reduced capacity and 25% from stronger demand.

“We have already passed that place” where supply and demand are in equilibrium, said Andy Cole, chief executive officer of Total Transportation Services Inc., with demand in spot markets slightly ahead of supply.

“There has just been so much capacity taken out of the business, not just with carriers going out of business but with trucks being parked against the fence and carriers not replacing equipment,” Cole said.

But others questioned how far the overall supply/demand balance has shifted.

“Equilibrium is not here yet, but carrier vital signs are clearly headed in the right direction,” analyst Thom Albrecht of BB&T Capital Markets stated in a March 9 investor note.

Exports and federal stimulus programs are helping flatbed carriers, with demand for their services strongest in the Midwest, Albrecht said.

“There are more loads than trucks most days in southern California, Utah, Arizona and Nevada, and the strength is spreading into Denver and the Midwest,” he said.

Albrecht estimated van excess capacity at 3% to 4%, far below the peak of at least 15% at this time last year, and forecast the excess could dissipate in three months.

“Capacity has tightened significantly,” said Lana Batts, managing director of Transport Capital Partners. “What in the world is going to happen in May or June when there is more business?”

Batts predicted that carriers are going to “get back a pound of flesh or more” in rates from shippers that took advantage of excess capacity to squeeze fleets for every penny.

Carriers will slowly gain pricing power as reduced tractor capacity, lower availability of both capital and drivers, and growing demand will create a capacity shortage over time, analyst John Larkin of Stifel, Nicolaus & Co. said in a March 9 report.

“Recent improvements in truckload demand will continue steadily over the next several years,” Larkin wrote. “Clearly, we are not entirely out of the economic woods yet.”