Trucking Prices Will Begin to Rise Once Again

Trucking prices will begin to rally this quarter, while remaining vulnerable to fluctuations in the oil market. Trucking is one of the first modes of freight transportation to see prices gain traction due to the drop in oil prices. As expected, slight price declines came through in the second quarter of this year. Now the industry is poised to begin increasing prices once again on the basis of healthy demand and continued difficulty in finding qualified drivers. On the other hand, softness in oil prices makes a rapid recovery unlikely. Instead, prices will slowly return to 2014 peaks over the next year.

Carriers are making measured increases to their fleets, but the availability of drivers continues to create an upper bound for supply growth. After impressive truck sales last year, 2015 is on track to see another 12.4% increase in sales. New truck orders have recently slowed, but the surge in orders at the end of 2014 will keep truck manufacturers busy through the end of the year. The upswing in sales is part of the regular replacement cycle, but it has been reinforced by expectations of cost increases to come in 2017 when new safety and environmental regulations will come through.

Data released by the U.S. Bureau of Labor Statistics in June showed aggregate hours worked in the trucking industry were up modestly from the year prior. This meager growth is made less impressive, however, by the fact that more stringent hours of service rules were in effect at this time last year. High turnover rates are a persistent problem for truckload fleets. However, the American Trucking Association (ATA) has announced that annualized turnover rates dropped 12% in the first quarter of this year. Turnover at less-than-truckload fleets is considerably lower, but it also showed some improvement.

trucking prices

Demand for trucking remains stable. After slow growth earlier this year, July tonnage data came in strong. According to the ATA’s Seasonally Adjusted Tonnage Index, tonnage shipped year to date is up 3.4% over the same period last year.

Between shipments of stone, steel, cement, asphalt and lumber, the construction industry accounts for a large part of trucking demand. IHS calculates an aggregate measure of construction activity called core construction that represents residential, nonresidential and government construction. On an annualized basis, real core construction rose an impressive 16.6% in the second quarter of this year, and it is expected to maintain 9% annualized growth for the third and fourth quarters. Expectations remain high for 2016 as well.

Grains and other crops also make a significant contribution to trucking demand. After a strong harvest in 2014, there will be no significant increases to farm output this year, but output will remain elevated. After disappointing in the first quarter, consumer spending edged up to 3.1% annualized growth in the second quarter. Meanwhile, consumer sentiment, as measured by the University of Michigan’s Consumer Sentiment Index, remains high compared to last year, but it has fallen from January’s peak. Of greater concern for the future of trucking demand is the elevated inventory levels we are seeing at present. If businesses cannot unload current stockpiles, transportation demand will likely slow.

Bottom Line: Prices in trucking are expected to rise this quarter due to rising demand and tight supply.

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.