[121011.EN.LOG] US Trucking Weathering The Economic Slowdown

The past couple of months have brought forth dismal economic news. Stubborn high unemployment rates, a GDP that shows little growth and mounting concerns of a double-dip recession and so on. The US economy has indeed slowed since the beginning of the year; however, trucking companies still remain optimistic as demand for services continue, although at a slower pace. Still, the concerns of trucking companies remain the same as earlier in the year: capacity, rates and regulations.

Year-to-date through August, truck tonnage is up 5.2% compared to 2010. According to American Trucking Association's Chief Economist, Bob Costello, "The number of trucks operated by the truckload industry is still down about 12% from the height in late 2006, yet tonnage levels are about the same as in late 2006. 

Additionally, most carriers are finding it very difficult to hire new truck drivers, which mean they can't add too many trucks." According to the CEO of Old Dominion, less-than-truckload freight demand remains healthy, despite fears of another recession. Old Dominion's CEO said business was in line with predictions of slow growth. "We were seeing normal seasonal sequential trends from July to August and the beginning of September. The month ended on a good note for us."

Although many carriers have noted either a rise or at least a steady level of demand, the majority of carriers plan to add little, if any, capacity. Even though the Institute of Supply Management's ISM manufacturing index increased 1% month over month during September to a reading of 51.6 from 50.6 in August, carriers remain cautious. This is mainly due to a weaker start of the peak shipping season and the uncertainty of the US economy.

During the first half of the year, carriers were able to successfully implement rate increases. Recently, carriers such as UPS Freight, Con-Way and ABF announced general rate increases of 6.9% effective August 1, whereas FedEx Freight increased rates by 6.75% effective September 6.  However, in their outlook for the rest of the year and into next year, carriers expect rates to remain flat due to the sluggish economy.

CSA (Compliance, Safety and Accountability) is increasing in importance to carriers as it continues to be fully implemented. Carriers have recently noted difficulty in attracting and maintaining qualified drivers as a result of the ruling. Carriers are increasing wages and improving benefits in order to compete for drivers.

A revision to the Hours-of-Service regulations is expected to be published by the government this month. The revision which includes reducing the hours on the road from 11 hours to 10 hours has drawn mixed reactions throughout the trucking industry. Some industry insiders have suggested the revisions could further reduce capacity 3%-6%.

Looking ahead, the trucking industry will continue to weather the slow growing economy. Some carriers, such as Old Dominion have been successful in gaining market share while others struggle to maintain costs. Little capacity is expected to be added over the coming months. Carriers may attempt to raise rates again but may not be as successful as they had been in the past. 

Finally, regulations will continue to affect the driver pool, which in turn may give reason for carriers to increase rates as they raise wages to attract and maintain qualified drivers.

Source : EFT, 07.101.11 (Content provided in partnership with Transport Intelligence).