Freight transportation consultancy FTR’s Trucking Conditions Index (TCI) showed signs of improvement, the company recently reported.
The TCI reflects tightening conditions for hauling capacity and is comprised of various metrics, including capacity, fuel, bankruptcies, cost of capital, and freight.
According to FTR, a TCI reading above zero represents an adequate trucking environment, with readings above ten indicating that volumes, prices, and margin are in a good range for carriers.
For July, the most recent month for which data is available, the TCI headed up to 5.99, an improvement over June’s 2.92, and May’s 1.69, which is its lowest reading going back to 2011.
Reasons for July’s improvement cited by FTR included moderate economic growth, and a regulatory agenda that will tighten capacity utilization, with the firm adding that building regulatory drag over the next 18 months should increase pricing and margins for fleets that have capacity. And it added that TCI readings for the remainder of 2016 and into early 2017 are expected to be in the same range at July.
“The freight market is doing slightly better than just treading water, but there is still a disconnect between activity in the spot and contract markets,” said FTR COO Jonathan Starks in a statement.
“This is a result of the slow growth environment that we are in right now. You use your contract carriers whenever you can. There just hasn’t been enough extra freight to spill over into the spot markets. Plus, shippers were able to use the big drops in spot rates to help put pressure on their contract carriers. I believe that those conditions will soon be turning, especially for van freight. Van loads on the load boards are up this summer, and capacity has noticeably tightened. It isn’t extremely tight, but compared to last year it is a welcome relief for carriers. That should soon take root in contract rates, especially as shippers and carriers prepare for their 2017 negotiations.
Starks said that one note of caution is in the flatbed segment, as the big reductions in oilfield activity has continued to put too much carrier capacity back into the spot market, and pricing is still weak for this segment. And he noted that until oil prices move higher or housing and business investment rally, the long-haul flatbed market is going to continue to struggle for volumes and rates.”
Stifel analyst John Larkin observed on a conference call hosted by his firm this week that trucking continues be in a very difficult rate environment in 2016, especially on the spot market side of the sector, with current spot market pricing likely not sustainable.
Larkin added that smaller trucking companies are downsizing and dropping out of the market altogether, or experiencing some financial pain.
On the contract pricing side, which he said “held up beautifully in 2015,” has accelerated this year, with some shippers tossed aside talk of collaboration and reverted to aggressive pricing practices.
“Some of the big fleets are downsizing, which fits in nicely with smaller ones doing the same thing and ultimately will bring supply and demand into balance, as capacity-sapping regulations are rolled out from 2017-2019, that will further tighten supply and demand and improve the pricing outlook, but we don’t expect pricing to be any better than it is right now, until, at the earliest, in the second quarter of 2017, and it is not clear it will even improve then.”
Extract taken from
By Jeff Berman goo.gl/EYazzq