Trucking Failures Slow in 3Q on Rates, Fuel, Report Says
By Rip Watson, Senior Reporter
This story appears in the Oct. 20 print edition of Transport Topics.
A total of 9,090 trucks were taken off the road due to fleet bankruptcies in the third quarter, a slight decline from the second quarter, as rising freight rates and falling fuel prices helped keep some marginal fleets afloat, Avondale Partners analyst Donald Broughton said.
Broughton outlined the findings from his latest quarterly report for Transport Topics last week, saying that, in the third quarter, 355 fleets, each with an average of 25 trucks went out of business. In the second quarter, data showed the failure of 375 fleets, also with an average of 25 trucks each.
“This certainly still is a significant number of trucks,” said Broughton, noting that it represented an increase of about 90% from the third quarter of 2013.
During that three-month period, 4,985 trucks were culled at a time when rate increases were tepid and fuel prices were higher. That included 235 fleets, with an average of 21 trucks apiece.
“We are seeing a little bit of abatement because pricing has been strong, used truck prices are strong and fuel not only has been benign but is coming down in price,” he said.
The latest assessments on each of those key factors illustrate the favorable trends.
Truck pricing, as measured by Cass Information Systems and Avondale, was 7% higher year-over-year in August. Used truck prices remain near historic levels, with Class 8 sleeper values topping $60,000.
U.S. Energy Department statistics show the retail diesel average fell 2% last quarter to $3.834 a gallon. By last week, diesel slipped further to $3.698, marking the 25th consecutive week without an increase.
While those factors were helping, Broughton said, Federal Motor Carrier Safety Administration orders to individual fleets to install an electronic logging device are taking their toll on marginal operators.
“Those fleets don’t have the lane density or the technological savvy to cope with that change,” he said, outlining the following painful cycle of slipping productivity.
“Drivers quit because they can’t get the miles,” he said. “Then companies have to put 10% or 15% of their fleets against the fence because they don’t have drivers. Then they have to raise rates and driver pay to compensate, but the drivers still don’t get the miles so even more drivers leave. Then they fail.”
In fact, Broughton believes that the “vast preponderance” of failures in recent quarters is due to the productivity reductions from ELD requirements and 2013 hours-of-service rule changes.
He said the report also illustrates a widening gap between the “haves” and “have nots” in the industry. He said larger, well-capitalized truckload fleets are well-positioned to gain more market share.
One favorable industry indicator is the Bloomberg News analyst survey projection that 13 of 15 publicly traded truckload operators will report higher third-quarter profits. The smallest of those carriers’ revenue is about $100 million.
American Trucking Associations statistics show the continued increase in shipments among fleets with $30 million or more in revenue.
Meanwhile, smaller fleets’ shipment totals have been sagging.
Over the first seven months of 2014, ATA reported larger fleets’ freight volumes rose 2.1%, while smaller rivals have declined 2.3% compared with 2013.
Broughton also told TT that the latest report has shown a return to a typical seasonal pattern in which third-quarter failures dip below the second-quarter total. That, in turn, was lower than the weather-affected first-quarter total of 10,650. Last year, the failure pattern was atypical, rising sequentially in each quarter.
The analyst, who has been doing a failure survey for two decades to gauge overall trucking capacity, expects more of the same on the failure front.
“We are going to continue to see carriers exit the industry as they try to cope with the FMCSA mandates,” he said. “I don’t see any change ahead. One of the alarming facts is that [failures] could get worse before they get better.”
In fact, the analyst believes that the current situation could signal a more severe effect on failures when ELDs become an industrywide mandate. In the meantime, fleets can either adopt the devices on their own or be ordered to do so by FMCSA.
Broughton conceded that further increases in freight rates and continued favorable fuel trends might also keep marginal fleets on the road, if those factors continue.
“Those factors arguably could slow the rate of failures,” Broughton said. “The more that rates go up, the more companies could be saved.”
However, he cautioned that “rates can’t rise fast enough to save everybody. I don’t see that scenario as very likely.”
