A “trucker’s market” is likely for 2018, says prominent industry analyst

After much anticipation, “a trucker’s market” is due to finally arrive in 2018, says Stifel Nicolaus trucking analyst John Larkin, although he cautions that supply and demand is tight across the industry as the domestic economy continues to grow at a slow, steady pace.  

“The primary driver of the supply/demand tightness is the economy-wide shortage of skilled, blue collar labor,” he says. “It has become very challenging to find drug free, compliant drivers given today’s driver wages.  While driver pay scales began to rise in the 2nd half of 2017, the starting point for wages was so low, that it may take multiple wage hikes before we see any alleviation of this chronic challenge.”  

Larkin notes that on December 18, 2017 the Electronic Logging Devices (ELD) mandate will be fully implemented, and that this may “add insult to injury,” further compressing an already tight market.

Meanwhile, truckload rates are soaring.  Larkin recalls that he first witnessed “an inflection” in spot rates in mid-2016.  He adds that normally contract rate increases follow with a six-month lag.  Recently however, this cycle extended for over a year.  

“The 3Q17 hurricanes were the catalyst that tightened an already tightening market,” he says, “giving carriers the confidence to push for and receive upper single digit rate increases.  And, with the advent of the ELD mandate, additional rate increases may be forthcoming.”

This may be especially true for those shippers that treated carriers harshly in the 2H15 and 2016, says Larkin: “Some shippers abandoned their collaborative approach and then resorted to old fashioned rate reduction demands.  

As a consequence, the positive rate environment will cut across all the truckload sectors (i.e., dry van, reefer, flats, bulk, et. al.) and could have staying power unless autonomous trucks are pressed into widespread service. This scenario, adds Larkin is “unlikely.”

Also, a chance that an apprentice program – allowing 18 year-old-driver apprentices into the industry – comes into play is a longshot next year.

Less-than-truckload rates

Larkin observes that the less-than-truckload (LTL) industry, which is much more consolidated than the highly fragmented truckload sector, has seen rates rise modestly over the past couple of years, even as truckload carriers succumbed to widespread pricing pressure.  

“But, reports have surfaced recently suggesting that LTL capacity is becoming scarce in some regions of the country,” he says.  “It seems that LTL carriers are picking up some overflow freight from the truckload industry.”

In addition, LTL carriers are benefitting from the growth of e-commerce and the automation of manufacturing. Larkin says that with no new entrants, he expects some acceleration in LTL rate increases

Larkin’s final conclusions:

The tight supply/demand dynamic, outlined above, has developed prior to the implementation of any pro-business initiatives advocated by the Trump Administration and implemented by Congress.  With lower corporate tax rates, a comprehensive infrastructure plan, less onerous health care regulations, and, perhaps, an energy self-sufficiency initiative  — demand could well accelerate beyond its current levels, further tightening supply and demand while, perhaps, driving another round of sizable rate increases in the 2H18.  All in all, it should remain a truckers market for the foreseeable future, provided we do not slip into, what some would say, is an overdue recession.