Page 37 - ATR 6 2013 digital

a percent higher than it was compared
to the same period in 2012. Carriers
retired and trucks weren’t replaced
when freight volume decreased during
the Great Recession and when the price “if we iNdeed geT This rush of regulaTioN laTe
of trucks increased as a result of EPA NexT year, i ThiNk There’s goiNg To be quiTe
regulations. a crisis, aNd wheN ThaT crisis occurs There
Now for the good news. Both
economists agree a capacity crunch is will be goods ThaT doN’T make iT To The shelf.
coming at some point in the future that aNd wheN ThaT happeNs, cusTomers will pay
will cause shipping rates to rise. The almosT aNyThiNg To geT a Truck.”
cause of that crunch is simple supply-
and-demand economics: The nation’s —Noël perry, parTNer, fTr associaTes
insufficient supply of trucks will meet
an increasing demand in the improving
economy.
Costello said coming economic Costello said. “But I suspect it’s going to past and therefore don’t need to be
growth will be driven in part by catch a lot of people off guard. It’s just replaced as often. Some publicly traded
increased consumer spending. As the going to pop one day.” companies are averaging about three
economy has recovered from the Great If and when it pops, shippers will years, giving them a sizable competitive
Recession, consumers have been active be looking for carriers, but carriers will advantage in fuel efficiency and main-
in high-tonnage sectors by buying hous- have neither the drivers nor the trucks tenance costs. Some smaller fleets are
es and replacing aging cars. Now that available to service them. Perry said struggling with the high costs of new
housing growth will slow and auto sales carriers have been operating at high trucks and find it difficult to obtain
have peaked, consumers will be ready levels of utilization at the expense of financing. “Bottom line, there’s a lot
to purchase smaller items. That should the industry’s surge capacity. If there’s a of pent-up demand, but margins have
be good news for dry van haulers that surge, rates will increase. to improve, and if they don’t improve
experienced a flat first three quarters of “If we indeed get this rush of regu- fast enough, you could see where some
2013 and disappointing back-to-school lation late 2014, I think there’s going to of these smaller fleets go out of busi-
sales. He expects volumes will increase be quite a crisis, and when that crisis ness because they’ve just simply gotten
but tonnage growth will slow after a 5.2 occurs there will be goods that don’t nickeled-and-dimed to death on their
increase in 2013. make it to the shelf,” he said. “And maintenance costs,” he said.
Perry is less optimistic when it when that happens, customers will pay So profit margins will compress in
comes to dry van haulers. He believes almost anything to get a truck.” the short term because of higher driver
much of the year’s economic growth For the carrier industry, this will wages but then expand in the long-term
will be in the service sector rather than represent unusual territory. According because of economic growth and the
in consumer purchases. to Perry, the industry has seen sig- coming capacity crunch. What could be
The two economists agree the nificant rate increases only four years wrong with this picture?
economy has yet to fire on all cylinders. in its history: 2004-2006 and 2010. Unfortunately, there are some wild-
Perry cited a weakening export market Otherwise, it’s made money by becom- cards. Perry believes that financial mar-
and stagnant incomes as causes of slow- ing more efficient. Carriers and ship- kets are becoming wary of the Federal
er economic growth in 2014. “We’re pers have trained each other to expect Reserve’s purchase of long-term bonds,
talking about three percent freight rates to fall when a shipper asks for a and when that happens, interest rates
growth, but it’s not as good as the five discount or threatens to find another could rise. He said a 100-150-basis-
percent we’ve had before,” he said. carrier. “Four years out of the last 100, point interest rate increase is a “high
Costello said the economy hasn’t we’ve been asking for aggressive rate likelihood” over the next couple of
been terrible, but it has been incon- increases,” he said. “We don’t know years, but there is “a smaller, but dan-
sistent. Freight loads surge and fall, how to do it very well.” gerous possibility of a 3- or 400-basis-
making carriers reluctant to commit Not only is the nation’s fleet small- point increase.” One hundred basis
to adding assets. When the economy’s er than it needs to be, but it’s also older points equals one percent.
choppy performance stops, shippers than it’s been in the past. Industrywide, “In the next year or two, there’s
will be looking for carriers. “I think the the average age of a truck is now seven a significant risk of interest rates ris-
economy is going to be better this year, years, said Costello, though trucks
but the key is it’s got to be consistent,” aren’t driving as many miles as in the 

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