DC Velocity - February 2013

Truck rates to climb post-Sandy;
analysts divided on duration

The rebuilding efforts in the Northeast and mid-Atlantic following Superstorm Sandy in November will push up truck rates through the first half of the year. What happens beyond that is a matter of educated opinion.

There is little doubt that pricing will firm considerably in the near term as the market responds to increasing demand for construction equipment, especially after President Obama in late January signed a $50.5 billion relief measure into law.

Noël Perry, founder of transporta-
tion consulting firm Transport
Fundamentals and principal in fel-
low consultancy FTR Associates,
said the post-Sandy cleanup will
generate higher-than-normal
demand for transportation for the
next six to nine months. Perry, writ-
ing in late December in an FTR
newsletter, said the cumulative effect
of the rebuilding would be to add
$13 billion of transportation rev-
enue, with $5 billion coming from
an increase in volumes and $4 bil-
lion from a tightening in capacity.

dictable routes to minimize the effect of so-called empty miles; taking them out of their normal routes will reduce productivity but will result in higher rates, Perry wrote.

Trucking will reap most of the benefits from the increase in demand, though rail intermodal will share in the bounty because it has abundant capacity in the New York metro area, Perry wrote. The peak impact of the post-Sandy rebuilding, he said, will be felt in the second quarter, historically the period of highest seasonal demand for flatbed services as warmer weather allows for more construction in markets like New York, Chicago, and Philadelphia.

SHORT-TERM SPIKE

Mark Montague, analyst for consulting firm DAT (formerly Transcore), said capacity for flatbed services, which are used to move construction materials, should tighten somewhat in the early part of 2013 due to the effect of post-Sandy reconstruction. In response, flatbed rates, which traditionally spike in the second quarter, could jump even higher in 2013, he said.

However, Montague said that beyond a short-term spike, flatbed and refrigerated rates should only rise, on average, about 2 to 3 percent in 2013. Much will depend on the performance of segments of the economy like autos, lumber, and construction that rely heavily on flatbed services, he said.

Rates for dry van services, which make up the bulk of trucking operations, will be extremely volatile this year, with no clear upside or downside trend, Montague said.

Charles W. Clowdis Jr., head of supply chain advisory services at the consulting firm IHS Global Insight, said rates for all trucking services have risen about 8 percent since Sandy. A similar impact was seen in the immediate wake of Hurricane Katrina in late August and early September of 2005, according to Clowdis.

Clowdis echoed Montague’s forecast that all truck rates will end 2013 a little higher than where they started and that a short-term surge would give way to a fallback in prices through the year.