Lower shipping volume in some parts of the economy are offset by gains in other sectors

April 2017 - The over-the-road transportation industry endured a difficult environment throughout 2016. As their customers faced reduced demand, inflated inventory, port bottlenecks, capacity overload, increasing driver shortages, stricter regulations and more, truck manufacturers were forced to lay off workers. 

Carriers were compelled to cancel orders for new rigs and trailers as freight rates and load volumes dropped, according to Trucks.com. Fortunately, the shipping market has steadied and is showing signs of growth, according to Jonathan Starks, COO of FTR. 

“The hiring market seems to have stabilized and is actually showing some growth,” says Starks. “Rate negotiations are still pointing toward shippers having a slight edge but, overall, the market is much more balanced than at this time last year.”

Like Kenny Vieth at Americas Commercial Transportation (ACT) Research Co, Starks cited the new electronic data log mandate and suggested that “many shippers are using the current environment as a chance to try and lock in reasonable rates before regulatory changes are implemented at the end of this year.”

The rule on “ELDs are expected to drop productivity by as much as 6 percent,” says Starks. “This is a big enough number to significantly impact the amount of available truck capacity and therefore the rate environment.”

Largely due to bloated stock levels, a backlog of unbuilt orders for trucks continues to accumulate. For fleet owners themselves, “the inventory overhang that retailers and wholesalers have been dealing with since 2015 seems to be less of an issue.” On the other hand, “This issue has not fully gone away and we are still stuck with more inventory than we typically would expect. But, at least for the immediate future, this seems to be the ‘new normal.’”

Excess trucking capacity tends to prevent carriers from being able to push freight rates higher. 

Still, following a poor stretch, the end market view of demand for products being transported by trucks and trailers looks encouraging. Plus, according to DAT Solutions LLC., “the national average [freight rate] of $1.91 per mile was 3 cents higher than in January 2016, including a 9-cent increase in the average fuel surcharge.”

“After an extremely weak two-year period, the flatbed market is finally gaining some traction, especially in the spot market arena,” says Starks. Flatbeds are required to transport large bulky items like steel coils, bar and pipe as well as many kinds of building products like wood framing, drywall and cement mix. 

“This is stemming from a resumption in residential/housing activity and the reengagement of the drilling market now that oil prices are back above $50,” Starks says.

In contrast to the automotive industry, which hit peak sales last year, Starks predicts a strong year for building materials. 

“Building materials are expected to be much stronger in 2017 after a weak year,” says Starks. “Automotive activity is topping out and isn’t likely to see much growth in 2017.” 

Should Jonathan Starks’ forecasts materialize, carriers should see incremental improvement in volume and, eventually, freight rates, as the year progresses. MM