Capacity Crunch Continues

If sales of directories can provide any indication in where market demand centers, Tom Fugee at Transportation Technical Services has a ringside seat. Demand is high for the company’s directories, but what’s interesting is where the demand is focused. Directories of shippers are selling slower in 2004 while demand for carrier directories and the company’s directory of owner operators is extremely strong. Carriers aren’t looking for shippers, comments Fugee, they’re looking for drivers.

Further anecdotal evidence came from the Mid America Truck Show, he continues. There were 81 recruiter exhibitors at the show looking for drivers. That should have served as an early warning of the coming driver shortage and capacity crunch, reflects Fugee.

As TTS started compiling its directory of carriers, Fugee notes the large carriers are reporting some growth, but it is the small-to-medium carriers who are indicating strong growth. Medium-to-large carriers don’t appear to be having as much luck. They are caught in the capacity squeeze and may be finding it more difficult to come up with the wages drivers are demanding or to place orders for equipment. Smaller companies, which are often more agile, may be best suited to pick up freight the larger carriers have turned away and still make a profit on it. Earlier industry reports indicated both larger and smaller carriers were seeing yield improvements from the capacity crunch.

Larger carriers became more selective about the freight they would handle, which allowed them to improve network utilization and reduce empty miles while pushing shippers to meet price increases and fund fuel surcharges. The freight those carriers lost on price or other issues often moved to smaller carriers who, though they had less price leverage, were able to improve their own density and pricing.

Volumes continued strong after a slight softening in July and show signs of remaining strong. The market analyst firm Legg Mason indicated retail projections were for only modest growth. Wal-Mart, for instance, had predicted only a 2% to 4% rise in same-store sales in the third quarter. That said, retailers have continued to add stores during the year, so overall retail volumes are rising even if same-store sales look modest. On the manufacturing side, domestic manufacturing is showing “solid performance,” said Legg Mason.

With very little new capacity entering the market, truckload demand remains strong, says equity research firm Morgan Stanley. Its proprietary Truckload Index remains at a seasonal all-time high. In addition, early indications from FedEx and Yellow’s less-than-truckload businesses (which are not covered in the Truckload Index) show demand in the LTL sector remains strong.

Intermodal growth hit 8.5% in the second quarter and has averaged an 8.1% growth rate for the last three quarters. The Intermodal Association of North America (IANA) says absolute gains reached 130,000 more loadings in the second quarter when compared with 2003.

Domestic intermodal volumes posted record gains for the second consecutive quarter and have increased for eight of the last nine quarters. International containers carried 55% of second-quarter loadings, according to IANA.

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