Many of the 25,000 small truckload carriers are adding capacity, which could lead to overcapacity in the market by 2006, says equity research firm Morgan Stanley. Class 8 truck orders for January were at 32,000, well above the replacement rate of 18,000 to 20,000. This was the third month in a row that orders were over 30,000 and the 14th month that orders exceeded the replacement rate.
As capacity is added in the truckload sector, shippers are expected to shift more of their larger less-than-truckload shipments back to truckload carriers. At the same time, LTL carriers are making investments, but the larger, nationwide carriers are unlikely to apply much of their capital spending to expanding their network. Privately held carriers, which comprise nearly half of the LTL industry’s capacity, are expanding, some aggressively.
But with capacity returning to the truckload sector, the trend toward larger LTL shipments could begin to moderate and more of those large shipments will return to truckload carriers. Morgan Stanley estimates that 4% to 6% of the volumes moving through the LTL networks are the result of shifts from truckload during this period of tight capacity. The average shipment for LTL carriers it studies increased 6% in the fourth quarter of 2004, said Morgan Stanley. That result is similar to what it registered during the whole year. Meanwhile, growth of shipments weighing less than 10,000 pounds (the core of the LTL industry) slowed from 10% year over year in the second quarter to 4% in fourth-quarter 2004.
Some of the shift in volumes was related to the hours of service rules that went into effect on January 4, 2004. Multiple stops became more expensive for shippers as carriers found themselves facing tighter driving times. Many of those shipments won’t return to truckload, says Morgan Stanley. But as volumes started to slow in the first quarter of 2005, the growth of LTL shipments weighing more than 10,000 pounds was also slowing.