Higham: Freight Rates Soaring, Capacity Tightening
A perfect storm of issues are affecting available truck capacity, causing freight rates to soar and growers to scramble for capacity.
April 20, 2011
A perfect storm of issues are affecting available truck capacity, causing freight rates to soar and growers to scramble for capacity. Interstate Transport's Tim Higham explores the challenges many growers are facing.
For those growers reaching into the common carrier pool this year, in order to move material to customers they are finding trucks impossible to find - at any price in some regions. A perfect storm of issues are just beginning to show their effect on available truck capacity, causing freight rates to soar and growers to scramble for capacity.
This week, I have been inundated with calls from growers nationwide looking for help. One grower, who did not want to be named, stated: "I have loads sitting on the dock for days while we look for trucks. I am at the point where I will pay anything to service the customer or I will lose them. The problem is that whatever I offer to pay, it does not seem to be high enough. There is always someone more desperate willing to pay more."
In an April 6 online seminar, an FTR Associates economist stated that truckload capacity shortages will gather further momentum this year and continue through 2013 as the economy recovers and as new regulatory restrictions will limit the driver pool. FTR senior consultant Noel Perry estimates that because of the economic upturn and the federal government's push for improved safety, "a couple hundred thousand more drivers will be taken out of the marketplace between now and the end of next year."
The problem in the horticultural market is magnified due to a host of factors that are changing the truck market in a permanent manner. In addition to the usual challenges such as the spike in spring shipping needs, the new CSA regulations are pushing carriers out of the market. It just happens that the carriers being pushed out are often small fleets with less than 10 trucks - the very carriers willing to take spot-rated, multi-stop plant loads.
In addition, fuel prices are causing small fleet operators to take huge losses unless they can find a way to be more efficient by reducing deadhead miles. Shippers often think the fuel surcharge they pay covers the additional cost of diesel, but the carrier is not compensated for the deadhead miles they drive between loads. They have to pay for that fuel out of their own pocket. I have spoken to well over a dozen small fleet owners that closed the door this year who stated that high diesel prices pushed them over the edge. Many of them were running older, non-aerodynamic equipment that's getting less than 5 mpg, and the rising cost of diesel made continuing to run their trucks a poor decision.
But the problem isn't just high costs and increased regulation. For the first time anyone can remember, banks will not loan money on equipment to truckers. Even those carriers that are holding their own are being given loan or lease terms that are unworkable. One Florida based trucker told me, "My trucks all came to the end of their five-year lease this year and I was told they would be happy to give me new equipment, but I had to pay six months of payments upfront. That came to almost $200,000 on eight temperature-controlled rigs. I was told they are being much more picky in their underwriting and credit department. Five years ago, I put nothing down but the first month in advance. The only choice I had was to turn in the keys."
Perry, the FTR Associates economist, says: "We expect the rest of the year to have relatively strong truck shortages and to include further price increases." Perry predicts prices will continue to rise through next year and into 2013 even if trucking capacity catches up with demand. He adds that truck tonnage will average 5 percent growth this year through 2013.
With a declining carrier base to move the available freight, that will further exacerbate shortages. Preliminary FTR data shows March Class 8 truck net orders totaled 28,871, a 20 percent increase over February preliminary orders and a 155-percent increase over the same period in 2010. The data shows that the current strong new truck orders are primarily from large, financially stable carriers, and are replacing aging equipment, not adding to net capacity.
Tim Higham is the CEO of Interstate Logistics Group, the largest dedicated logistics provider to the horticultural market. You can eMail him at thigham@InterstateLG.com. Learn more at InterstateLG.com or call toll free at 866-281-1281 x1323.