When Less Bad is Good

This has been a year when so-called “good news” actually has come in the form of less-bad news, as in “freight levels fell less last month than they did the month before” or “fewer jobs were lost last week than the week before.”

One of the latest installments of this less-bad-is-good is in the form of a new survey that shows that truck fleet failures during the third quarter were cut almost in half, when compared with the results of the third quarter of 2008 (see story, p. 1). Of course, the fact that the 2008 quarter was the worst in the history of the survey takes a bit of the shine off that news.

That 405 fleets went belly up during July, August and September is still a sign of the weakness in our industry, and freight levels and rates remain exceedingly weak.

But the removal of 14,135 tractors from the national fleet when those companies closed their doors, coupled with the continued idling of a good portion of the remaining tractors by surviving fleets, has gotten the balance between supply and demand close to even, according to the producers of the bankruptcy report, Avondale Partners.

Now that freight demand is no longer falling, the firm said, coupled with the cut in freight-moving capacity, the first signs of a rebound in rates are on the horizon. In total, Avondale’s Donald Broughton wrote, “it is enough to suggest that the weakness in contract pricing soon will be over.”

Broughton said he based his belief on reports that the price gap between contract rates and spot rates has been narrowing. He said that, early in 2009, spot prices were as much as 35% below contract rates but that the gap now has closed to as low as 15%.

He also predicted that fleet failures would rise early in 2010, as registration and insurance fees come due, coupled with the consequences of deferred maintenance and higher repair bills, which could force ailing companies to close their doors.

These closings could well lead to a further cut in fleet capacity at a time when economic growth in the nation accelerates as the recession recedes, and could help push rates back to more profitable levels for the survivors. And then, maybe the good news actually will be good and not simply less bad.