newsworthy
AS IF IT HADN’T ALREADY BEEN
drummed into shippers’ collective heads,
the message coming from the National
Industrial Transportation League’s (NITL)
annual meeting in Fort Lauderdale, Fla.,
in mid November was more of the same:
Years of tight capacity and higher rates lie
ahead, with no guarantee of superior ser-
vice in return.
The story is nothing new: Capacity levels
have reached a crisis stage. There isn’t sufficient labor to
move what is available. Shippers need to brace themselves
to pay more and to pay up repeatedly, perhaps for the
rest of the decade. And they will be willing to do so, espe-
cially for truck service, according to John G. Larkin, lead
transportation analyst for investment firm Stifel. In this
environment, “capacity assurance becomes a competitive
advantage,” Larkin said during a panel discussion.
Larkin said he expected truck rate hikes to be in the mid-
to upper-single digits for years to come. These increases
will be the cumulative result of a rise in freight demand, a
worsening driver shortage, and compliance with ever-in-
creasing federal safety regulations. According to Larkin,
compliance with safety regulations will remove an addi-
tional 5 to 15 percent of capacity from the market as small
to mid-sized carriers get squeezed out of business.
Sizable wage increases will do little to lessen the driver
shortage because truck driving’s unappealing image keeps
job-seekers away regardless of the higher pay scales, Larkin
said. Instead, there will be more mergers and acquisitions
in the fragmented truckload sector as carriers look to buy
their way into an existing driver work force rather than
prospect for labor from scratch, he said.
The situation is not much different in the less-than-
truckload (LTL) sector, which is benefiting from continued
strength in manufacturing and more rational pricing to
push through rate increases with more frequency. During
the same panel discussion, Ken Hoexter, transport analyst
for Bank of America/Merrill Lynch, said 2014 would mark
only the third year in the past 20 that most LTL carriers
have instituted two rate hikes in the same year.
One pressure point that may be lessening is equipment
availability. Consultancy FTR said that North American
heavy-duty truck “net orders”—the number of new orders
minus order cancellations—hit 45,795 units in October,
the second-highest month for orders ever recorded. While
many of those rigs will replace older equipment, it is hard
to believe that some fleets aren’t now adding trucks for
growth rather than just for replacement.
Added incentives to buy now, according to Larkin,
include the soaring resale value of used trucks with three
to four years of road time and the superior fuel efficiency
of the newer engines, which can get as much as nine miles
per gallon.
PAIN FELT ACROSS ALL MODES
Like trucking providers, ocean carriers are also seeking to
raise rates on any trade lane they can, but they are being
thwarted by ship overcapacity as well as weak demand
from struggling European economies on the world’s largest
lane, Asia-to-Europe. Still, worsening congestion at U.S.
West Coast ports and concerns over labor unrest, as the
International Longshore and Warehouse Union (ILWU)
dickers with ship management over a new contract, have
led trans-Pacific carriers to impose “congestion surcharges” on the eastbound trades of up to $1,000 per forty-foot
equivalent unit (FEU) for cargoes scheduled to be unloaded
on or after Nov. 17. The charge, roughly equivalent to the
benchmark rate for moving an FEU container eastbound,
is being assessed on boxes still on the water, a scenario that
few people can recall occurring.
The congestion problems are forcing shippers to switch
some of their seagoing shipments to air freight. That, in
turn, is driving up air demand and rates, which is compelling large freight forwarders like UTi Worldwide and Ceva
Logistics to arrange for massive air charters just p. 16
NITL attendees get a glimpse of
chickens coming home to roost
