DC Velocity - March 2011

especially with trucker costs rising at what Leathers calls “unprecedented levels.” For now, Werner and its customers are trying to wring as much productivity as they can from their existing operations in an effort to delay the day of reckoning, he says.

But productivity measures like
leveraging existing assets rather than
investing in new vehicles could soon
run their course. Equipment utiliza-
tion has increased by about 10 percent
in the past year and is now in the 90 to
92 percent range, according to FTR. A
move into the high 90s, Perry says,
would be “stretching the system” and

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would force up rates as carriers either try to make do with their old rigs or try to recoup the costs of replacing older vehicles with newer, more expensive models.

In a report issued last month, FTR predicted equipment utilization would approach 100 percent later this year due to rising freight demand and “ conservative fleet attitudes” toward adding drivers and equipment. “As a result, carriers will have greater latitude to both raise rates and to be more selective” in freight selection, the firm says.

According to preliminary data from consultancy ACT Research Co., orders for heavy-duty Class 8 commercial vehicles in January rose to 27,300 units, a 320-per- cent increase over January 2010 figures. Still, most experts believe that virtually all of today’s newly purchased equipment will be used to replace aging trucks rather than add to existing fleet capacity.

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WINDOW OF OPPORTUNITY Truckload shippers, for their part, seem prepared—or resigned—to fork over more money to move their goods. A February survey of 500 U.S. and Canadian shippers by Morgan Stanley & Co. found that nearly 80 percent of respondents expect rate increases of about 4 percent over the next six months. The survey also indicated that robust freight volumes should support higher truckload prices. On the other hand, an easing of capacity constraints following a short-lived tightening phase in the late summer and early fall of 2010 may act as a brake against higher rates.

Another factor that could have a dampening effect on truckload rates is competition from intermodal service; the survey found that intermodal continues to gain share against truckload because respondents perceive intermodal as delivering superior value for each dollar spent.

William Greene, Morgan Stanley’s lead transport analyst, is skeptical that truckload rates will soar any time soon. “Reduced [truckload] supply will support some level of pricing gains, but without a strong economy, it’s hard to believe carriers can obtain the mid to high single-digit pricing required” to increase margins, he says.