There appears to be a limit to how much cost carriers can push through to shippers. Truckload carriers are experiencing some of the tightest capacity in the 11 years Morgan Stanley’s transportation research group has been publishing its proprietary Truckload Index. But higher costs – led by fuel – are increasingly coming out of carriers’ margins, not shippers’ pockets.
Peak seasonal demand for truckload capacity was complicated by relief efforts in the aftermath of hurricanes Katrina and Rita. Anecdotally, shippers and carriers suggested the high rates being paid by the U.S. government for capacity to move goods to the relief area was siphoning off capacity. The current Morgan Stanley report recorded comments the government was paying $2.00- to $4.00-per-mile rates for relief supplies vs. the market level of $1.75 per mile. And, with carriers reporting the government is paying detention rates of $600 to $1,000 per day, equipment is remaining out of service for days at a time.
The dual effects of the relief efforts and peak demand are short term. In addition, Morgan Stanley reports more capacity is coming on line as a result of recent carrier orders.
Though truckload carriers recover 80% or more of the cost of fuel increases from customers, they are forced to pay for empty miles. Among publicly traded carriers, most capacity is under contract to shippers, with an estimated 10% available for spot shipments. Carriers are sticking to this position suggesting, says Morgan Stanley, they are in a better position holding onto contracts rather than shifting to a spot pricing approach.
Shippers looking for capacity are turning to less-than-truckload carriers. At least some of the 8.9% rise in volume for LTL carrier Con-Way Transportation is freight diverted from truckload, says Morgan Stanley. However, the analyst firm suggests the increasing length of haul at Con-Way indicates some market share gain from unionized national LTL carriers ABF and Yellow-Roadway.