FTR’s Trucking Conditions Index drops to a three-year low

Like recent months, a combination of easing trucking-related market factors helped to drive down the most recent edition of the Trucking Conditions Index 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 May, the most recent month for which data is available, the TCI was 4.91, which was off 25 percent compared to April’s 6.7 and stands as a three-year low for the TCI. The March TCI was 7.3.

Among the factors cited by FTR for the TCI’s May decline were softer capacity (due in large part to the temporary suspension of the motor carrier 34-hour restart regulations), pricing, and fuel prices (with diesel prices down over the last five weeks). What’s more, like many industry stakeholders, FTR expects TCI levels in the coming months to be elevated into more positive territory, when the “anticipated regulatory drag in 2016 and 2017 dramatically tightens capacity.”

That was echoed by Stifel Nicolaus analyst John Larkin in a research note. Larkin noted that truckload carriers, whom lost 20 percent of total capacity during the recession, are reluctant to add capacity due to challenges related to driver recruiting and retention, with a bigger supply shortage is likely on tap in 2017 and beyond when additional federal safety regulations begin to kick in, including CSA; HOS rule changes; the electronic logging device (ELD) requirement, which Larkin said is expected to require mandatory compliance by late 2017; speed limiters likely to be implemented by late 2018, and revised drug testing, among others.

It is widely believed in industry circles that the ELD mandate will have the most significant effect on market conditions, with Larkin noting that roughly one-third of drivers potentially falsify their driving logs.

FTR said that improvements in trucking productivity and reductions in fuel prices have kept costs in check until now but with the recovery now fully maturing, it explained that fuel and other costs like labor, are likely to increase and put more pressure on rates in early 2016.

This was supported by Stifel’s Larkin, whom explained that following a brief respite in 2016, there should be enough capacity reduction by 2017 to support a another round of across-the-board, mid-single-digit rate increases going forward provided the economy continues to grow at least modestly (say 2% per annum, or better).

“While the market has notably softened, conditions for fleets are still quite positive and indicate how well they are able to manage the current headwinds,” said FTR Director of Transportation Analysis Jonathan Starks in a statement. “One significant benefit is that fuel costs have dropped substantially and have yet to significantly rise. A sharp rise in diesel would be very troubling for many of the marginal carriers. Another benefit has been the slow growing freight environment, which has allowed fleets to re-engineer their lanes in order to take better advantage of drivers’ hours. While the capacity situation has definitely eased since last year, it is still well above historical levels and should keep contract rates, at minimum, stable with a potential to grow stronger by early 2016. Overall, the market is stable, and we see that path continuing until we get into 2016, when recession and regulatory risks begin to rise significantly.”