When it comes to trucking market conditions, change is in the air

The saying “change is in the air” has a bit of an old school feel to it in some ways. It could be in reference to many things, of course, but in this instance it could be edited just a tiny bit to “change is here.”

The changes I am referring to you are neither sudden, nor unexpected, and they related to the trucking market. For more than a while, we have seen slow and steady economic improvements that have manifested themselves in many ways through things like improving retail sales, United States-bound imports, modal volume, and some signs of sustained GDP growth.

Now, take those factors and consider what is happening in trucking, with things like the recently implemented electronic logging device mandate, still-tight capacity coupled with increased demand, the ongoing difficulty regarding hiring and retaining truck drivers, and carriers now having the upper hand on the pricing side, and it creates a whole host of market pressures, some good and some not so good, depending on which side of the shipper-carrier fence you reside on.

Again, none of these things are catching anyone by surprise, but they are here and making their presence felt, especially in the way of higher rates for shippers. In many ways, rates and the other events taking place are making the market feel pretty similar to 2014, which was the last time when carriers were in this position of power, if you will.

A recent research note from Cowen analyst based on analysis from estimable trucking expert Noel Perry of Transport Futures made the case for continued gains for the trucking market, albeit not forever.

Seidl wrote that Perry believes that “momentum will continue for the trucking market through 3Q18, but is likely to let up late in the year. Capacity tightness will increase before it eases. He sees more upside potential to 2018 GDP estimates and more downside risk to 2019.”

Addressing the impact of ELDs on the trucking market, Perry said productivity and capacity have been impacted going back to last fall, while also noting that there will likely be a significant reduction in productivity as the adoption percentage of ELDs rise, which he said will happen by April, when the “soft ELD enforcement period” ends and carriers can then face fines or be removed from service for a period.    

Turning to rates, Perry opined that spot rates are likely to peak in July, with subsequent momentum carrying those “elevated rates” deep into the second half of this year before trending down closer to the end of the year and remaining down in 2019. On the contract side, he said rates will likely peak this fall and stay at that level through next year, with contract rates, excluding fuel, to see gains in the 5%-10% range.

Perry’s insight provided a starting point for the many things going on in the market, and I decided to finish the conversation, or at least further connect the dots, by talking with Mike Regan, Chief Relationship Officer for TranzAct Technologies.

If you know Mike, you know he is a straight shooter and is not one to mince words either. And that was clear during our conversation.

“The impact of the ELD mandate so far is every bit as consequential as people thought it would be, and the impact to date as people get assimilated to an ELD environment is more significant than was anticipated,” he explained.

Regan said the big impact is not being seen with rigs being pulled off the road, but with former one-day lanes having now become two-day lanes, which has led to a situation in which drivers that were previously making 500 mile runs that are now taking two days, as they don’t want to run the risk of being fined.

On top of that, Regan said this creates a situation that sees drivers and carriers needing to assess their parking situation, as they reach the end of their allotted cycle on their lanes.

As these things relate to pricing, industry stakeholders have maintained that this has led to steep and consistent rate increases in a pretty tight time frame, a difficult market environment for shippers to be sure.

So, what happens now and what can be done to mitigate things in order to protect shippers from steep rate gains?

Reagan said one key step for them is to take a look at things like, how they are utilizing carrier equipment, how the carrier is getting paid, among other things.

“If you are not paying attention to your practices and processes, you are going to be in trouble,” he said.   

The expected 5%-to-10% gain in contract rates cited by Perry was viewed as within range by Regan. And he added that comes with a variable that nobody is definitively sure of: 4% GDP growth.

Should that figure come to fruition, Regan simply said: “Good luck!”

So, back to that change thesis mentioned at the outset of this column. What happens now is largely unknown or at the very least to be determined or continued. These are not the only issues the market is up against at the moment, but it certainly requires our attention all the same.