If confidential comments by executives at three large third-party logistics service providers (3PLs) are any indication, the long-awaited trucking recovery may be on a very fragile footing, if it's present at all.
Analysts at the Baltimore-based investment firm Stifel, Nicolaus & Co. met last week with executives from three "sizable" 3PLs, all of which are privately held. The firm would not identify the providers other than to say that they manage, in aggregate, about $2.5 billion of truckload freight per year.
The 3PL executives gave the analysts some sobering food for thought. For example, although truckload volumes are above very weak 2009 levels, the executives said none of their customers expect much incremental volume growth as 2010 unfolds. In addition, truckload capacity is not disappearing from the market at a rapid clip, the 3PL executives said. Those observations may come as a surprise to those who thought that enough supply had been taken off the roads so as to spark significant rate increases once demand picked up and began outstripping supply.
As for the rate outlook, the 3PL executives said that while ad hoc, or "spot," pricing had improved over the past four to five months, contract rates "remain under continued assault." One of the 3PLs told the analysts that carriers are cutting rates by an additional 5 to 6 percent on re-bid contracts this year.
The Stifel analysts said some of the 3PL comments square with reports from other sources that volume growth over the past six months has been driven by factors like inventory replenishment, the $8,000 first-time home buyers' tax credit, and the "cash for clunkers" auto trade-in program. All of those trends are seen as providing a relatively short-term benefit to the industry, giving a temporary boost to freight volumes but offering no long-term remedies for soft demand trends.
The Stifel analysts say the 3PL executives' comments have substantial credibility because the companies' private status means they have no incentive to "prop up their stock prices by putting positive spin on nearly every comment."
A long-time industry watcher who recently met with three large carriers agreed that truckers are far from being out of the woods. The carriers are "still eating anything they find on the road, and at depressed prices," the executive said.
According to an index of truckload rates published by research firm Trans-Research International Inc., the rate for goods moving from Atlanta to Los Angeles in 53-foot dry van trailers was $1.30 per mile. That was just one penny per mile above the average rate paid in 2004. The figures don't factor in the impact of fuel surcharges, higher insurance premiums, and the cost of complying with two federal government mandates to upgrade truck engines to meet tougher environmental guidelines.
On March 25, the American Trucking Associations released a report showing that seasonally adjusted tonnage for February declined 0.5 percent from January levels. The February results represented a 2.9-percent increase over very weak numbers in the same month in 2009.
Bob Costello, ATA's chief economist, said the February tonnage figures might have been skewed by the series of severe winter storms that virtually paralyzed the East Coast. "I continue to hear from motor carriers that both the demand and supply situations are steadily improving," Costello said, adding that the industry is on a "path to recovery," albeit a slow path.