Get ready for a new capacity crunch. The economy is showing signs of a long-awaited expansion, and a surge of new freight is expected soon. In fact, demand for freight transportation may already be on the rise, but it’s hard to tell because fleets and logistics companies are still digging out of supply chain bottlenecks — and some snow — from the latest storm.
You may be thinking that industry analysts have been predicting a capacity crisis in trucking for years, but it didn’t materialize. You’d be right about that. This time around, though, there are some critical differences:
Pent-Up Demand – It will take a while for the weather-related delays to work through the supply chain. Inventories are low, and production has been slowed or postponed for months. These factors contribute to pent-up demand for transportation and logistics services.
Economic Recovery – Even though production was delayed by recurring storms, the Institute for Supply Management reported increases in new orders and in materials inventories in February. New home purchases are up, as well, which should help boost construction in Q2.
Lost Productivity – Carriers parked their trucks intermittently throughout the winter, when they could not operate safely in storm-ravaged areas. Those lost hours and days are not coming back, so fleets will do their best to make up the revenue with improved utilization and higher rates.
Driver Shortage – Qualified drivers are retiring and young people are not clamoring to take those positions. Driving a big rig is hard work, and over-the-road drivers don’t get home much. Individual fleets can add incentives that improve the attractiveness of driving as a lifestyle choice, but those efforts will likely have a greater impact on turnover in those fleets than on total driver employment. In other words, the threat of a driver shortage is not going away.
Return on Assets – Every time I’ve talked to a manager of an asset-based transportation company, whether it’s a private fleet or a for-hire trucker, I ask whether the company is planning to expand its fleet size. The answer, almost unanimously, is “not yet.” The return on assets has to achieve a certain level before these companies feel confident enough to expand very much. Truck sales are up, but most of these new units are replacing aging equipment.
Bottom line – Capacity will be short, and carriers will have a greater degree of pricing power. This situation will definitely last through Q2, and it will probably continue for the rest of 2014. After that, many analysts predict further economic expansion, but the impact on transportation is harder to forecast. We’ll know more in a few months.
Meanwhile, the pricing environment will be volatile. I strongly recommend that you keep an eye on spot market capacity and rates in your lanes, as local or regional trends will play an outsized role due to weather-related impacts. If you don’t have DAT RateView yet, contact our support team now and ask for a demo: 800.551.8847. You can also keep up with truckload trends at DAT Trendlines, which is updated weekly.