Truck demand accelerates

Truck freight demand across the nation may now be starting to spike, a situation that could add another layer of angst for shippers and freight brokers already confronting a capacity-constrained marketplace.

According to TransCore, a Portland, Ore.-based load-matching network that tracks freight activity in 64 U.S. traffic lanes, first-quarter online load postings by freight brokers hit records for each month in the quarter. Ken Harper, the firm's senior marketing and communications manager, said TransCore's load-posting data extends back at least 10 years and probably longer. Harper declined to disclose specific numbers, saying they were proprietary to the firm and its clients.

The flurry of posting activity by brokers indicates that shippers, who traditionally work through brokers to locate truck capacity, are experiencing a sharp acceleration in business that requires them to quickly secure space through the spot market instead of via the contract route.

At the same time, Harper said TransCore is seeing "very high load searches" by carriers mostly looking for loads to fill what might normally be empty return, or "backhaul," movements.

For shippers, opting for spot market pricing has, in recent years, often been a better deal than signing a one- or two-year contract, mostly because spot market rates have been depressed due to sluggish demand and overcapacity. However, spot rates have been climbing in the past year as a pick-up in demand intersects with significant capacity reductions from the four-year freight downturn and subsequent economic recession.

By contrast, contract rates have remained relatively static, due in part to the impact of so-called legacy contracts that have yet to come up for renewal.

According to TransCore, spot rates are now higher than contract rates on one-quarter of the lanes the firm tracks.

Meanwhile, carriers have both pricing and operating leverage, and don't seem hesitant to use it. Increasingly, they are working directly with large shippers and skirting the brokers they relied on to supply loads during the lean times.

A recently released first-quarter survey by M&A advisory firm Transport Capital Partners LLC found 87 percent of carriers said they had used fewer broker services during the past three months. "This is a dramatic turn-around since May of 2009, when two-thirds reported using more brokers," said Richard Mikes, a partner at the firm. "The freight supply-demand balance has shifted dramatically to the carriers, and they are using their capacity to serve the needs of their long-term customers."

Lana R. Batts, another TCP partner, added that carriers will "service their long-standing shippers first because of not only higher-paying freight, but also steadier volumes and the desire to assist these shippers as a priority." By working directly with shippers, carriers can also avoid the 15 to 20 percent broker mark-ups that cut into the profitability of each load they receive from brokers, said Batts.

The capacity situation remains fluid. According to Harper of Transcore, capacity for dry vans, on which most of the nation's truck freight moves, has stabilized. The situation was different several weeks ago, when dry vans were reported in very short supply notably from the East Coast into the Midwest, as carriers were spread thin and refused to move loads on lanes where they weren't receiving compensatory rates. By contrast, capacity of flatbed trucks remains extremely tight, with little change expected in the near future, Harper said.

Ben Cubitt, a former top shipper executive and now senior vice president of consulting and engineering for Transplace, a third-party logistics service provider based in Frisco, Texas, said Tuesday that the capacity crunch in the Midwest has "eased off significantly" in the past few weeks. However, Cubitt said he expects any slackness to be absorbed during the next few weeks and predicted an acute capacity situation in the Southeast as produce season approaches.

Charles W. Clowdis Jr., managing director, transportation and supply chain advisory services for consultancy IHS Global Insight, said he has advised shippers to "nail down rates for as long as the carrier is willing to do so." Clowdis said that shippers should be ready to contractually guarantee a specific number of loads for a defined time frame and be prepared to pay penalties if they fail to deliver.

Clowdis added that for the first time in years, company logistics chiefs will need to budget for more transportation spending, rather than assuring their CEOs and CFOs that they can hold spending to the same (or lower) levels in the upcoming year.

While the pendulum may swing away from the brokers for a while, some experts think they will do just fine. Evan Armstrong, president of Armstrong & Associates Inc., whose Milwaukee-based firm follows 3PLs and brokers more extensively than any other consultancy, said the proliferation of spot market transactions will offer "significant opportunities" to brokers skilled in handling those types of deals.

Armstrong also said companies will continue to outsource a non-core function like transportation to outside specialists, a secular trend that will continue to benefit 3PLs and brokers.

"Not many shippers are walking in to their CFOs and asking for millions of dollars to establish their own in-house transportation management operations," Armstrong said. "In addition, almost all truckload carriers have at least one 3PL customer on their top 20 account list."

According to Armstrong data, demand for 3PLs to perform U.S. transportation management services grew at an 11.8-percent compounded annual rate from 1995 to 2010. This year will show more of the same, Armstrong predicted.