Has Market Pendulum Swung Back to Shippers?

Truckload carriers complained of reduced productivity from their fleets as a result of new Hours of Service rules that were enforced starting in January 2006. The carriers were seeing only seasonal increases in volumes, reported equity research firm Morgan Stanley, which, combined with the lower productivity, should have pushed the supply/demand ratio in Morgan Stanley’s proprietary Truckload Index to remain tight. However, explains the research firm, fleets continue to buy new equipment at rates that are double the industry replacement level.

Class 8 tractor orders in January were running at a rate of 44,000 vehicles, 9% above the prior record level and double the generally accepted industry replacement rate of 18,000 to 20,000 vehicles per month. Many smaller fleets reported an improving driver market allowed them to continue equipment purchases because there was less likelihood the vehicles would be idled due to lack of drivers. Small- to mid-sized carriers account for 80% of truckload capacity, Morgan Stanley analysts point out.

But while LTL carriers fight softer demand and mode shifting, truckload carriers face the lower productivity that followed changes to Hours of Service regulations. Because drivers are paid by the mile in the truckload sector, Morgan Stanley suggests carriers face higher wage costs to offset lost earnings resulting from the rules. Released in August 2005, the rules have only been enforced since January, which accounts for the lag in seeing productivity effects, suggests Morgan Stanley.

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