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How truck capacity went from 'crunch' to 'calm'

Oct 16, 2015 at 08:40 AM CST


A year ago, U.S. shippers worried about a truck “capacity crunch” as the economy expanded rapidly, freight demand increased and the driver pool appeared ready to dry up.

Today, those same shippers are enjoying a “capacity calm.” Truck capacity may not be abundant, but it is adequate, shippers said at the JOC Inland Distribution Conference last week.

“We haven’t had trouble getting equipment,” Candace Holowicki, director of global transportation and logistics at industrial manufacturer TriMas Corp., said at the conference in Memphis.

That’s partly because TriMas has U.S. distribution operations in areas where the energy boom has gone bust, freeing up truck capacity that had been dedicated to oil and gas, she said.

“Capacity is adequate out there,” said Bradley Parkhurst, transportation sourcing leader at Owens Corning. “It’s a different position than from last year. I’m a little surprised.”

So are the trucking executives who ordered a record amount of fleet equipment last year expecting freight demand would take the high road in 2015 after accelerating in 2014.

“We have not been seeing the volume growth in truckloads to support the amount of trucks coming into the marketplace,” Kenny Vieth, president and senior analyst at ACT Research, said.

For the past six months, U.S. Class 8 tractor sales have been above 13,000 units a month, which Vieth said is the point where sales exceed replacement and freight requirements.

“It’s not that carriers bought too many trucks,” Vieth said. “They bought the trucks they thought they would need for the business forecast by the customers.” Those forecasts proved optimistic.

Large truckload carriers began expanding their fleets in the second quarter of 2014, often to bolster specific services. That pushed the JOC Truckload Capacity Index up 7.4 percentage points year-over-year in the second quarter to 89.1, the highest index reading since 2008.

That indicates capacity levels at large truckload carriers are about 11 percent below peak 2006 levels. That’s a long way from a capacity glut. If a truck is parked, it’s more likely for lack of a driver than lack of a load. When it comes to capacity, truck numbers alone don’t tell the whole story.

Any measurement of capacity needs to take the availability of qualified truck drivers into account, as well as factors such as available hours for drivers, truck speeds and congestion.

When the 2013 hours of service rules were introduced, they “cost the truck industry more than they were able to make in rate increases,” Mark Montague, industry pricing analyst at DAT Solutions, said. Changes to the restart provision reduced productivity 2 to 5 percent.

When the requirements that tightened the restart were suspended last December, drivers had more time to drive per week, and capacity was pumped back into the market.

The significant buildup of inventories, both retail and manufacturing, before, during and after the West Coast port crisis earlier this year has also had an impact on truck capacity levels.

As those inventories are drawn down, fewer new orders means more available space in the current tractor-trailer fleet. Add new trucks and trailers to the mix, and capacity ticks up faster.

J.B. Hunt Transport Services provided more evidence for increasing truck capacity in its third-quarter earnings report. The intermodal trucking operator added 377 tractors between the second and third quarters, raising its total tractor count above 14,000. The company’s Dedicated Contract Services division fields the largest number of trucks, 7,167, up 6.1 percent year-over-year.

Many of those trucks were purchased to fulfill new contracts and for private fleet conversions, the company said. J.B. Hunt’s truckload division expanded its fleet to 2,100 tractors, a 14 percent increase from a year ago but still 60 percent fewer tractors than the division had in 2006.

Shippers at the Inland Distribution conference were not looking to batter down rates or jump to lower-cost carriers now that the market is becoming more competitive. They remember how the quickly the market tightened from 2013 to 2014, and wonder whether they’ll see the same in 2016.

“I wouldn’t assume this will continue,” Holowicki said of the “capacity calm” of 2015. “We’ll enjoy it while it’s here, but next year we assume there will be more weather issues,” she said.

There was less short-term transactional friction between carriers and shippers on display at the Inland Distribution conference and more interest in long-term collaboration. Shippers are getting more calls from prospective carriers offering lower rates, but changing suppliers may come at a high cost, especially when complex supply chains depend on high levels of service.

“We meet with our carriers on a regular basis, discuss lanes they’re losing money on and come up with alternatives,” James P. Markey, vice president of logistics for tire retailer TBC Corp. “We’re just ‘riding the ridge,’ if you will. There are a lot of negative things that could influence capacity going forward. I have carriers who have trucks sitting idle because they can’t find a driver.”

There are still pending regulations, such as the electronic logging mandate for truck drivers and mandatory use of truck speed limiters, that could put a big crimp in truck capacity. It wouldn’t take much, Markey and other shippers believe, to turn the current calm into a crunch.

Contact William B. Cassidy at [email protected] and follow him on Twitter: @wbcassidy_joc