The Ever Changing Truckload Transportation Market
Trucking company bankruptcies in the United States more than doubled in the second quarter, soaring 118% from last year. Rising fuel prices and cut throat competition pushed 970 carriers out of business and 88,000 trucks off the road according to Donald Boughton, a stock analyst with Avondale Partners.
Recent reports suggest that the tide may be turning, specifically in the truckload sector of the market. With truckload carriers exiting the market or parking trucks, there appears to be a better balance between supply and demand. Over the past few weeks, volumes have appeared to increase as a result of the back to school shipping activity and the cutbacks in available capacity.
Respondents in Wolfe Research’s August “State of the Freight” report showed a material decreasing bias toward perceptions of “overcapacity” in the TL market during the second quarter. After almost two years of overcapacity, the TL market has reached a state of equilibrium, as indicated by shippers during the second quarter, with 38% of shippers describing an environment of overcapacity, 35% describing an environment of tight capacity, and 27% indicating a sense of balanced capacity. The 38% of shippers who believe there was TL overcapacity during the second quarter compared to 80% in second-quarter 2007and 75% in first-quarter 2008. The seasonally strong second quarter certainly saw capacity shift back toward equilibrium after about two years of a TL market awash with trucks.
A large majority of the shipper respondents now expect TL capacity to tighten over the next 12 months, with 73% anticipating tighter TL capacity year over year versus just 12% who expect TL capacity to increase in the next 12 months. This represents a material shift in expectations of capacity growth from second-quarter 2007. The forecasted bankruptcy rate is expected to decline during the balance of this year.
Some truckload carriers are gaining business by shifting from marginally profitable longhaul lanes to regional trucking. In fact larger truckload carriers (with annual revenues of over $30 million) hauled 4% more loads in the first half of 2008 compared to 2007. Smaller carriers experienced a sales dip of 6%, according to the American Trucking Associations’ Trucking Activity report. The gap appears to be widening.
“Major truckload based carriers have determined that the conventional, longer-haul, irregular route business is not attractive,” stated John Larkin, an analyst for Stifel, Nicolaus & Co. The regional trucking business is producing a higher revenue per mile and greater yields since there are less out of route or empty miles, and it is more energy efficient than the more lengthy irregular route movements.
This is taking market share from the smaller fleets. To compensate, some of the smaller fleets are going after longer haul business. Their higher operating costs and unprofitable backhauls are driving the smaller and weaker carriers out of business more quickly as they struggle with the sluggish economy.
Another factor causing this change in focus is the impact of intermodal transportation on long haul freight shipping. Since intermodal transportation is more fuel efficient than truck, this is causing cost conscious shippers to make the switch according to Jason Seidl, an analyst with Dahlman Rose. This is another one of the trends highlighted in Wolfe Research’s August 2008 “State of the Freight” report. For some of the larger fleets, they are turning to their brokerage division and intermodal transportation to capture the longer haul freight.
In anticipation of a tightening of capacity, the survey suggested that shippers are expecting modest increases in truckload freight rates over the next six months. To achieve rate stability, increasing numbers of shippers are negotiating multi-year rate agreements to lock in rates over the life of the contract.