Truckload rates are likely to rise anywhere from 2 to 6 percent in 2012 and even as high as 8 percent in coming years, depending on the strength of the recovery and the effect of new truck safety regulations, according to a transportation analyst.

New federal regulations are likely to have a cumulative impact on trucking productivity, reducing the number of available drivers and placing constraints on capacity, said John Larkin, managing director and analyst at Stifel Nicolaus.

Less-than-truckload rates will rise more quickly in 2012 and beyond as well, Larkin said, because excess LTL capacity has been wrung out of the marketplace. He said LTL rates could rise in a range from as low as 3 percent to 10 percent annually.

“There is quite a broad range of potential price increases that we think are possible going forward,” Larkin told shippers at a Jan. 31 National Industrial Transportation League event. On a compound basis, “we are talking about major moves in pricing.”

Larkin focused on the potential cumulative impact of new truck driver work hours rules, onboard recorders, CSA, truck speed limiters and more stringent drug testing and medical exams that are slated or expected to be introduced in coming years.

Most of those requirements have the potential to reduce the number of drivers and truck productivity anywhere from 2 to 5 percent, Larkin said. More stringent drug tests and medical exams could cut the driver pool by 5 to 12 percent, he said.

“If the regulations take more capacity away, or if the economy accelerates and generates more freight, we are basically going to have too much freight and not enough trucks to handle it,” meaning price increases will accelerate, he said.

“Some shippers are very nervous about running out of capacity and are beginning to exchange rate increases for capacity commitment going forward,” Larkin said. “In my opinion, we are just seeing the tip of the iceberg of this problem.”

Source:  Journal of Commerce Feb 2012

TANDEM LOGISTICS NEWS FEED (2/10/2012):  According to ATA data, tonnage in 2011 rose 5.9 percent over 2010 figures, the biggest annual increase since 1998. Tonnage in December rose, on a seasonally adjusted basis, by 10.5 percent over 2010 levels, the largest year-over-year gain since December 1998. On a sequential basis, December’s tonnage rose 6.8 percent over November activity, the largest month-to-month gain in seven years, ATA said.

TANDEM LOGISTICS NEWS FEED (1/24/2012): Freight volume increased throughout 2011, but the excitement of new business was accompanied by a constant drumbeat of concern about capacity shortages. That’s because the industry lost as many as 325,000 trucks, representing 18% of available capacity, from 2007 through 2010,* according to industry analyst Donald Broughton of Avondale Partners. Although fewer carriers and trucks left the market in 2011 than in any recent year, according to Broughton, higher truck prices, lower availability of credit and other factors slowed the rate of replacement.

One result of the capacity shortfall was an increase in freight rates during 2011, especially during periods of high demand. Rate increases did not, however, lead to higher profit margins for most trucking companies. The Stephens TL Index was down 24% for the year, and its LTL Index slid 21%, making 2011 “the worst year so far this century” in terms of stock performance for publicly traded carriers, according to the investment analyst’s January 11 Industry Note. Stephens blamed barriers to asset utilization, including regulations, an anemic economy and driver shortages. Small carriers were hit hard, too, as costs continued to outpace revenue growth for 97% of the for-hire carriers who have 20 trucks or fewer.

Despite high unemployment in 2011, carriers were not able to add enough drivers to meet demand. For-hire trucking added just over 40,000 jobs in 2011, a 3.2% increase, according to estimates by the Bureau of Labor Statistics, but the total number of jobs has yet to exceed 1.3 million, which is 10.8% lower than peak employment of January 2007. Regulations such as the CSA safety program did not have as much impact as anticipated, but the program scrutinizes drivers more closely and holds carriers responsible for their employees’ performance behind the wheel. Mandatory Electronic Onboard Recorders (EOBRs) are also blamed for discouraging drivers, who might be less willing to take long haul assignments. Driver wages are relatively stagnant, so the recession isn’t entirely over for them.

Capacity constraints led to some new tactics in supply chain management at shipping companies. Shippers turned to their contract carriers first, but when those companies couldn’t provide enough trucks, 36% more freight was funneled to intermediaries and to the spot market.  For-hire truck tonnage increased by 5.7% for the year, according to preliminary data from the ATA, so the spot market grew faster than the industry overall. Surveys indicate that for-hire carriers are entering into shipper contracts for shorter terms, too. Some carriers even reserve capacity for the spot market, especially during peak seasons, to take advantage of higher rates.

The Road Ahead: More Trucks in 2012, but Maybe Not Enough

The outlook for capacity in 2012 is mixed. New Hours of Service rules were not as bad as anticipated, and CSA did not have as big an impact as expected, according to a research report quoted in Heavy Duty Trucking. Fuel prices are declining, at least for now, relieving some cost pressure on carriers.

In one sign of an optimistic outlook, carriers are buying new trucks again. Class 8 truck sales rose 46% in December, compared to weak November sales, bringing the expected total to 312,000 units for the year. That represents 13% or one eighth of the 2.4 million Class 8 trucks that were on the road in 2010, according to the American Trucking Associations, but a large portion of the new vehicles are likely to be replacing outdated trucks rather than adding to fleet size.

Commercial trailers also enjoyed robust year-end sales, with 29,000 units in November setting a record for the highest single-month volume since March 2006. These surges could indicate optimism on the part of carriers, who were reluctant to increase fleet sizes throughout 2011.

At the same time, any economic growth could lead to increased demand for freight transportation. An upswing in construction, in particular, could squeeze flatbed capacity, which was already tight throughout much of 2011. Expect shippers and intermediaries to look for creative solutions as the year progresses, shifting some freight to rail intermodal for the longest hauls and delivering imported goods by sea directly to the Gulf andAtlantic Coasts, closer to the centers of consumption.

Source:  Michelle Green, Transcore 1/23/12

TANDEM LOGISTICS NEWS FEED (1/15/2012):

DOE says, Diesel Fuel Prices will be $3.85 per Gallon.

Diesel fuel prices will average $3.85 a gallon this year and rise to $3.93 next year, the Department of Energy said in its monthly short-term energy outlook.  In most cases it’s believed the DOE is conservative on their diesel fuel price forecast.

The January 2012 forecast matches December 2011′s  outlook, and the projection for next year was DOE’s first for 2013.  It would be very good for the U.S. economy if they are correct about the diesel fuel pricing.

Fleet fuel averaged $3.84 last year, and in its most recent weekly survey released Monday, DOE said. Diesel fuel prices rose 4.5 cents to $3.828 a gallon for a national average.  Fleet fueling first gain in seven weeks, that is a good thing.  It keeps diesel fuel cards a little less active.

Oil will average about $100 per barrel this year, up $5 from 2011. Benchmark U.S. crude will rise to $106 by the end of next year, assuming U.S. real gross domestic growth of 1.8% this year and 2.5% in 2013, the outlook said.

Source:  Sokolis Group – January 12th, 2012

TANDEM LOGISTICS NEWS FEED (1/02/2011):

Intermodal volume for major U.S. railroads soared 22.9 percent year-over-year in the week ending Dec. 24, a likely signal that businesses were moving to replenish their lean inventories heading into the New Year.

The gain over the 51st week of 2010 reported by the Association of American Railroads included a 24.7 percent year-over-year expansion in intermodal containers, the loads largely made up of containerized import and export goods.

The overall intermodal business slowed down somewhat, slipping 6.6 percent from the figures the AAR reported the week before. But that is in line with normal seasonal trends and the gain over the same week a year ago suggests rail customers are stocking up with more confidence heading into 2012.

Figures on carload traffic also signal some confidence in the industrial economy.

Carload traffic for the Class I railroads grew 11.9 percent year-over-year in the week ending Christmas Eve, the second straight double-digit increase.

Source:  JOC