Capacity Remains Tight; Prices Will Rise

Truckload capacity has gone from nearly balanced in January 2003 to very tight, say shippers surveyed by Logistics Today and Morgan Stanley in the seventh semi-annual Freight Pulse Survey. Equipment availability ranked at 5.2 on a scale of 1 to 10 in January 2003. It remained at 5.2 in the subsequent survey six months later, but demand started to outstrip supply by March 2004 and has become seriously constrained (7.7 on the scale) as of September.

In verbatim comments, shippers said they were unable to find capacity in some lanes for any price. Overall pricing has been affected by tight capacity, and shippers report they expect truckload rates to rise 6% for the year.

Annual truckload price inflation has hovered at under 1%, said Morgan Stanley analyst Chad Bruso and shippers projected increases of 2.1% in January 2003 and suggested prices would rise 1.8% in the next survey in June 2003. That optimism was dying out by March 2004, and shippers said they expected truckload prices to rise 3.7%, double the rate they forecast in June of the prior year. Tight capacity has led shippers to nearly double estimates of truckload price increases again, and in the just-completed survey, they reported an expected 6% rise.

At the time of the survey, the peak shipping season was underway. Shippers saw few alternatives to deal with the tight capacity during this peak, and 49% reported their only alternative was to pay higher rates. Conducted in mid September, the survey indicated 17% of shippers had not planned an alternate strategy. Another 13% said they were shifting volume to intermodal, and 12% were using more regional less-than-truckload carriers. Greater use of private and dedicated fleets was an alternative for 5% of shippers.

The capacity situation in the truckload sector led Morgan Stanley to ask shippers for their perception of the capacity/demand balance in intermodal. Though it is the first time for the question and there are no data for comparison, shippers rank intermodal capacity at 6.7, nearly two points into the “tight” side of the scale. This is a sharp contrast to what the equity analyst firm’s industry watchers said has historically been an overabundance of capacity.

Increased use of intermodal has contributed to congestion problems for some railroads, but even more telling is the 4.1% price increase shippers expect to pay for intermodal service. This is more than double the 1.9% they reported in March 2004 and nearly six times the 0.7% increase shippers forecast last June.

Both the national and regional less-than-truckload segments are viewed as having excess capacity, yet shippers report they expect to pay rate increases in the 3.8% to 3.9% range, respectively. This is marginally above the 3.1% national LTL increase forecast by shippers in June and the 2.7% increase expected from regional LTL carriers.

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