Taking its lead from its previous edition, trucking conditions continued to be soft over all in the early stages of 2016, according to the Trucking Conditions Index (TCI) report from freight transportation forecasting firm FTR.
The TCI reflects tightening conditions for hauling capacity and is comprised of various metrics, including capacity, fuel, bankruptcies, cost of capital, and freight.
According to FTR, a TCI reading above zero represents an adequate trucking environment, with readings above ten indicating that volumes, prices, and margin are in a good range for carriers.
For February, the most recent month for which data is available, the TCI was 8.27, which is down from January’s 9.05 and December’s 10.88. FTR said this level matches up with the firm’s forecast of a decline in truck loadings from a 4 percent average to date during the economic recovery to 2 percent for all of 2016. But the firm explained there are also some things working in the sector’s favor, including high capacity utilization and positive rate assumptions, too.
Looking ahead, FTR expects the TCI to see gains into 2017 in advance of expected trucking capacity tightness brought on by “expected regulatory capacity constraints,” which could likely segue into 2018, too, barring a recession or temporary spikes in fuel prices as a result of low U.S. oil production.
“The market has certainly softened in 2016, yet there are still enough positive indicators to keep the freight markets afloat despite the weakness,” said FTR COO Jonathan Starks in a statement. “Freight loads are looking to slow this year, but 2 percent growth is still a reasonable environment for truck operations. What it doesn’t do is create pressure on capacity, which is what would be needed to improve the rate environment. A key focus will be whether the manufacturing sector can stabilize and begin to grow again. I believe it will, but it may still be a quarter or two before fleets start to benefit from that activity. The rate environment has deteriorated but unless the market sinks further we should expect to see contract rates begin improving in the second half of the year. Spot rates have been on a steady decline, but have recently turned back up and should show year-over-year increases sometime this summer.”
He added that the wildcard right now will be how fuel prices behave, explaining the market has had the luxury of operating with decreasing fuel prices. But if prices rise quickly it could have a big impact on cash flow, especially for the smaller carriers, he noted, and if that happens FTR would expect to see a jump in fleet bankruptcies, which have been at a record low over the last year.
The potential pending capacity shortfall, due to the ELD mandate, has been a major topic of discussion in trucking circles.
Many trucking observers maintain that the need for ELDs is obvious, with most explaining that the industry has been reliant on paper logs for far too long. And there could likely be economic benefits through ELD usage, as observers say it could likely reduce the effective number of miles a driver could log, further tightening trucking capacity at a time of ongoing limited truck driver supply, rising pay, and higher overall fleet costs.