Analyze this

In a recent report, market analyst Legg Mason (www.leggmason.com) told the financial community what shippers have known for quite some time: "In general, there is more freight than trucks and more trucks than truck drivers."

Indeed, the shortage of drivers has become a major problem for the industry, and two issues will have to be addressed to improve the situation. One is that salaries must be attractive. The other is what is characterized as lifestyle issues. At times more money doesn't offset the desire by drivers to be at home what they consider a reasonable amount of time. The current Hours of Service rules allow a driver to be on the job up to 14 hours a day, but fail to ask: How many drivers actually want to work a 14-hour day?

In seeking for relief, shippers are seeking to use more smaller carriers for two reasons, notes market analyst Bear, Stearns (www.bearstearns.com):
c smaller carriers have more capacity available than the larger carriers
c the larger truckload carriers are more focused on the retention and collection of accessorial charges.

In line with seeking capacity from smaller carriers, equity research firm Morgan Stanley (www.morganstanley.com) points out that Class 8 truck orders in February were at 32,000, well above the industry's replacement rate of 18,000 - 20,000 per month. Morgan Stanley suggests that smaller truckload carriers are adding capacity, offering a sliver of hope for some increased capacity from smaller truckload carriers in 2006 if analyst theories translate into reality.

Bear, Stearns points out that in reaction to concerns about their transportation networks, some shippers have increased safety stocks by one or two days. While this may revert to leaner stocks if and when capacity returns to the market, at this time caution is leading to more product being held.

One alternative that holds potential for shippers is expansion of private fleets. "Over the long term," notes Legg Mason, "shippers may find it most convenient to secure scarce capacity by establishing their own private transportation operations."

As far as intermodal shipments, analysts are recognizing what shippers already know — railroads have capacity issues, too, and don't reach all points that may be needed to reach final customers.

Despite a number of other considerations in making transportation purchasing decisions — reliability, timeliness and the like — price is always a factor, though not always the primary determinant. Legg Mason notes that carriers believe that rates will move up dramatically this year, "between 5% and 10% again this year before settling into a normalized 2% to 4% range in 2006 and beyond."

Understanding the issues has led shippers seeking truckload capacity to re-think options and to reach for non-traditional solutions. With monolithic answers being dead ends, having a number of options seems the surest way to success in truckload shipping.

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