Transport Capital Partners survey calls for rates and volumes to expand in tandem

No matter how deep or shallow you read into it, data more often than not does a pretty good job of putting things into perspective, especially in terms of market conditions.

A recent survey from Transport Capital Partners (TCP) explained the current state of various motor carrier market fundamentals in terms of volume and rates, to give shippers an up-to-date snapshot on things as the calendar turns to April.

Given the current state of tight trucking capacity, it is not a huge surprise to see that TCP’s first quarter survey is positive overall due to many factors, including:
-continued optimism for volume growth for the last six quarters;
-74 percent of surveyed carriers citing an expectation of volume growth, with volume expectations up 74 percent from the fourth quarter of 2013 from 44 percent to 77 percent, and volume expectations up 48 percent on an annual basis; and
-continued expectations among carriers expecting rate increases

Regarding rate increases, TCP explained that based on its findings rate expectations are on the same terrain as volume expectations, noting that four out of five carriers expect rates to head up over the next year, which is 62 percent better than the fourth quarter of 2013.

And the firm also said that spot market rages (as also reported by LM) has seen gains over the last two months, due in part to tight capacity and most annual and longer-term agreements being negotiated during that time.

Due to these factors, TCP noted that “the first and second quarter will likely see mid-single digit increases rather than the low single digit growth earlier sentiment by carriers based on carrier comments.”

When based on carrier size, TCP’s findings showed some disparity in terms of how many carriers expect rate gains in the next 12 months. About 85 percent of large carriers (revenues over $25 million) expect rates to climb, whereas about 70 of smaller carriers (revenues under $25 million) felt the same way. When looking at average freight rates over the course of the last three months, roughly 45 percent of smaller carriers and 50 percent of larger carriers indicated rates increases, with a roughly 50-50 split among small and large carriers saying rates were the same, and a scant few on both sides pointing to rate increases.

In a recent interview with LM, TCP Partner Richard Mikes said that even with rates and tight capacity working largely in favor of carriers, increasing driver pay is something which has a causal effect on how carriers view the market.

“You can measure capacity by a number of things,” said Mikes, “but in a tight market if drivers are losing 5 percent of their time that is being conservative—and they then need to be paid 5 percent more. That is a real cost driver and carriers cannot simply hire 5 percent more drivers to drive the same truck. There is a real possibility that some portion of that some capital needs to be allocated to new trucks for future investment and growth. “

Carriers at the moment, explained Mikes, are of the mindset that current conditions really look good, but with the caveat that drivers and driver availability—and CSA and HOS—are the controllers of capacity in the trucking sector.

And with the increased pressure coming from government regulations, carriers really have no choice but to increase driver compensation, which will serve as a major catalyst for rate increases, he said.

With the new HOS rules only having been intact since January 1, Mikes said shippers have been receiving calls from carriers that previously were able to make previous delivery schedules on time and now they are either getting delayed or carriers are being forced to turn down the load.