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Although it may seem hard to believe, 2010 is half over. It is astonishing to reflect on where truckload carriers were at this time last year…some barely hanging on with too little freight generating too little cash. Some carriers slashed prices, further exasperating their bottom line. Many carriers parked equipment and decreased their fleet size, choosing to hunker down and wait out the recession. Whatever the strategy, those who survived 2009 have been able to enjoy an increase in freight levels in 2010. But carriers are still in a delicate position and cannot and should not consider themselves out of the woods yet. This is why.
As we have previously discussed, the increased freight volumes of 2010 have challenged carriers to recruit and retain drivers. Predictions are that the looming regulations of CSA 2010 will cause the driver shortage to get worse before (or if) it gets better. So what are carriers doing? Offering hefty sign-on bonuses and other teasers to entice drivers their way. Some carriers decreased driver pay in the past few years, and they are now increasing pay scales back to prior levels. While this may solve some immediate recruiting issues, the main concern is that carriers are hastily increasing their cost structure before freight rates have had a chance to settle in at profitable levels. With so many carriers barely recovered from 2009, increasing their largest cost, driver and owner operator pay, may cause more harm than good.
Freight rates have continued to rise in the spot market throughout most areas of the country. Based on this, the idea of carriers increasing costs as discussed above may not seem like such a bad idea. The problem is that many carriers are under contract with customers with rates that were set in 2009 when shippers were able to negotiate very competitive pricing for their truckload freight. Furthermore, although the increased freight volume has been a welcome relief to carriers, the economy is still in a precarious position. Some economists are warning of a double-dip recession, or certainly a slowing of growth for the remainder of 2010. Carriers have to position themselves to weather another economic storm if one is indeed on the horizon.
The problem, of course, is that no one knows exactly what will happen, even for the remaining months of 2010. This is why it is so important for carriers not to ride the swinging pendulum caused by fluctuating freight volumes, pricing and costs. Too often, once costs increase, it can be difficult to realign them if volumes and pricing do not solidify. Carriers need to stay focused. Swinging on the pendulum may just cause financial upheaval…and who needs that.
This week’s news in the truckload market can be summed up in two words: Capacity Shortage. The shortage of available equipment is particularly felt in the South where the produce season continues to take capacity. This happens for two reasons; first, there is more freight moving during this season, and second, produce freight can pay a significantly higher rate for carriers. Couple this with the increased volumes of all freight moving in the first five months of 2010, and the result is a definite challenge in finding enough trucks.
The best approach a shipper can take to maneuver through this environment is to plan ahead and communicate future loads to your core carriers as soon as possible. Carriers are better able to plan when they know what freight they have to offer their drivers. As shippers work with their carriers, be aware if your carriers will “abandon” you during produce season. A carrier’s low rate may be appealing in the off season, but if that carrier is not committed to you throughout the year, that low rate will not help you move your freight.
This week has also seen the spot market for freight rates continue to push higher. This is an important indicator to watch. This obviously impacts the immediate cost of freight, but also, the industry is watching to see if this is a precursor to a more permanent increase in rates. Naturally, this depends on whether or not the increased volumes will continue through the year, but all indicators seem to point in that direction.
We will continue to watch these developments and report to you as they unfold.
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