US truck rates to rise on supply-demand imbalance: analyst

TRUCKING capacity in the US has fallen from the surplus of a few years ago, a development that will likely increase freight rates, according to Charles Clowdis, transport analysts with IHS Global Insight.

"Many carriers have exited the market during the economic downturn because of declining volumes as well as heavy debt service demands," he said.

"Owner-operators, those still in the marketplace, will also offer less capacity as the economy recovers," he said. "It is also extremely likely that a repeat of the driver shortage will return and intensify as drivers turn instead to construction and other jobs as the economy recovers. Higher pay for drivers will also necessitate rate hikes," Mr Clowdis said.

"Many carriers, both truck load and less-than truck load, have not replaced their fleets on a schedule that puts the most fuel-efficient equipment requiring less maintenance into service," he said.

But Mr Clowdis warned that pressures to lower CO2 emissions will also require investment in more fuel efficient engines, while decreased fuel efficiency will add to costs that will be passed on to shippers.

"Terminal and infrastructure facilities also will require investment to restore efficiencies in operational areas and handle increased tonnage," said Mr Clowdis. "In effect, carriers must increase their margins to at least eight per cent. Those carriers that have held their rate levels stable will also be pressured as their competitors offer increased capacity to the market."

Looking ahead a situation of limited capacity combined with rebounding consumer demand will prompt carriers to more aggressively seek rate hikes, which the industry anticipates will be in the range of seven to 10 per cent.

"Rates will also be driven upwards by the need to service debt incurred by many of the carriers that resorted to borrowing, to sustain themselves during the downturn, some at high interest rates. Shareholders that have been patient will also expect improvement in share prices and dividends driven by better earnings. These demands must be met through increased rate levels."

The wild card, he said, would be a rise in crude oil prices, which would in turn lead to fuel surcharges increasing proportionately.

(Source: www.schednet.com)