By Eric Myers
As I tend to do before writing this article each year, I look at what I wrote last year. I generally don’t make a lot of predictions, but I see that at the end of my article last year I predicted a moderate uptick in trucking metrics. At the time, I had no idea that we would have the political environment we currently have, but the indicators for a healthy trucking industry were there. Just as a broken watch is right twice a day, even I can be right about an industry that swings like a pendulum. The challenge is to know how fast we are swinging.
So, what is happening with trucking in spring of 2017?
Freight volume is up. The Freight Transportation Services Index, published by the Bureau of Transportation Statics, measures the amount of freight carried by for-hire carriers each month. Any number over 115 on the index is considered “good” and anything over 121 is considered “excellent.” Last year, only February and March saw the index go below 121; it hit 120.9 and 119.7, respectively. Freight volume has been strong for the last several years. The experts who I read say that volume should remain steady for the next several months with up to 6 percent growth.
More importantly freight rates are up. DAT (www.dat.com) tracks spot market freight rates, which is freight posted on a load board coming from a freight broker and hauled by mostly small carriers and owner operators. While these rates are generally lower than contract rates, they give us a good indication of where the market is. Dry van rates were at $1.96 per mile two weeks ago compared to $1.85 at the same time last year.
Experts say that rates should continue to increase 10 percent to 16 percent through 2017 based on the following reasons:
• Fuel prices will continue to edge up slightly, giving truckers a larger fuel surcharge, which they add to their rates
• Capacity is currently meeting demand. As a commoditized industry, supply and demand have the biggest impact on rate. Right now, there are basically the right amount of trucks on the road to haul the freight that needs to be moved
• Manufacturers’ inventories are down. The Institute for Supply Management’s Inventory Index has risen slightly the past few months, but had been down for several months before that. With less inventory on hand, manufacturers rely on more frequent deliveries.
• Consumer confidence remains high. There was a slight dip in April, but the consumer confidence index has been rising since last year. That converts to people buying more stuff, which is good for trucking.
What are trucking companies thinking about?
The American Transportation Research Institute (www.atri-online.org) annually publishes Critical Issues in Transportation. In the most recent version, the implementation of Electronic Log Devices (ELDs) rose to the No. 1 issue. Hours of service (HOS) regulations moved down to No. 2 and trucking regulations' cumulative impact on the industry moved to No. 3. Lack of parking was No. 4.
Electronic logs are supposed to be in all interstate trucks by December of 2017. The report was published in October 2016. Anecdotally, when I talk with trucking companies, the implementation of the ELDs is not as big of an issue. Almost all large fleets are already using electronic logs. Smaller fleets are adding the units. The market is forcing compliance as I am seeing freight brokers send out notices to their carriers that they will not work with carriers who do not have ELDs by a certain date. Originally when the ELD regulation passed, many thought it would create a capacity shortage since many truckers would not or could not comply. The average price of the ELD units is about $600, so cost is not an issue. The Owner-Operator Independent Drivers Association (OOIDA) is still fighting this issue. They have asked the U.S. Supreme Court to hear the case. In my opinion, I doubt the Supreme Court will hear the case and if they do, the regulation will be upheld.
Numerous studies have been completed on the adequacy of truck parking and these studies have some common findings, including an expected growth in truck activity, severe shortages of parking for trucks, lack of information on truck parking opportunities and challenges due to limited delivery windows and specific rest requirements. There is a National Coalition for Truck Parking that brings together stakeholders from transportation organizations, the freight industry and other groups to advance safe truck parking. While it may take time, I believe the market can solve the issue.
Although slowly, the pendulum is still swinging to the positive side in 2017. Absent any major economic shifts, I believe the general strengthening of the trucking industry will continue for several more months.
Trucking is still an industry with relatively low barrier to entry. If capacity tightens enough and rates increase enough, current companies will expand or new companies will open.
I see that “Smokey and the Bandit” is returning to the big screen in honor of its 40th anniversary. If you are fortunate to be near one of the 700 theaters where it will play the weekend of May 22, go enjoy one of the movies that spotlights trucking.
Eric Myers is president of Diversified Transportation Finance in Park City. Diversified works with trucking companies of all sizes to provide working capital and equipment financing.