Capacity Still Tight Despite Slower Economy

If the U.S. economy has slowed by 1%, it appears motor carrier capacity dropped 2% in the second quarter of 2006, leading to continued tightness in the motor carrier sector largely due to a continued driver shortage. Demand is down due to the Federal Reserve’s success in slowing the economy, said Stifel Nicolaus. The analyst firm reported consumer durables were among the hardest hit commodities, but they do not account for the lion’s share of the freight volume in the U.S. That means volumes remained relatively solid.

With steady volumes and tight capacity, freight rates generally offset rising costs, permitting carriers’ margins to grow. Stifel Nicolaus points to J.B. Hunt, which expanded its margin by 15% in “unplanned activity.” This includes spot transportation buys and deadhead miles. “Certainly, we believe shippers would not have paid those rates had plenty of surplus capacity been available relative to demand,” said the market report.