Freight rates in the $350 billion to $500 billion-a-year truckload market have started 2012 by heading in the same direction as they did for most of 2011: higher.
According to analysts at Portland, Ore.-based TransCore Freight Solutions, spot market and contractual rates in January for the three main types of livery—dry van, refrigerated, and flatbed—are rising at close to the same pace they were at the end of 2011. Last year, spot rates rose 7.4 percent over 2010 levels, while contract rates increased by 6.5 percent, according to the consultancy, which tracks rates on 18,000 lanes in 135 U.S. markets and an additional 2,000 lanes in 14 markets in Canada.
TransCore analysts expect contract rates in 2012 to rise between 5 and 6 percent, and spot rates to increase by nearly the same level as in 2011. They caution, however, that forecasting full-year data in mid-January is an inherently risky exercise.
Most striking about the TransCore data is the unusually strong growth in flatbed rates. As of Jan. 9, the spot market rate for flatbed equipment stood at $1.68 per mile, a 9.1-percent increase from $1.54 a mile at the same time in 2010. Flatbed rates historically gain strength in the spring and peak around mid-year. Flatbed spot rates in 2011 peaked in June at $1.76 per mile.
What's unusual here, according to TransCore analysts, is that flatbed rates remained strong well into the fall of 2011 and showed strength again in January, a seasonally soft month. TransCore analysts say reasonably mild January weather in much of the nation could be contributing to the January gains. However, given that flatbeds are mostly deployed to carry freight used in housing and construction, the rate strength could be a sign of firming demand in those economically battered sectors.
Another factor driving up rates for all three equipment types is the continued scarcity of supply. TransCore analysts say shippers and brokers continue to have trouble finding consistent supply sources. Users are increasingly being forced to look to the fourth or fifth carrier choices because they can't obtain capacity at reasonable prices from their top three carriers. They're also being pushed into the spot market due to surges in demand that their contract carriers cannot accommodate, the consultancy said.
Capacity crunch continues
The tight capacity situation is unlikely to loosen up anytime soon. Transport advisory firm Transport Capital Partners said Tuesday that nearly three-quarters of carriers surveyed during the fourth quarter planned to add between zero and 5 percent capacity for the foreseeable future. This comes after a near 20-percent reduction in fleet capacity during the recession.
For the past half-year, carriers have been consistent in their refrain that, without a significant bump in rates to offset higher operating and investment costs, the most they can do is replace aging equipment—as opposed to expanding their fleets.
"Carriers tell us that rates are not covering investment risks nor are they close to covering the cost of the record prices of new trucks," said Richard Mikes, a TCP Partner and survey co-coordinator.
As the supply chain grapples with tight capacity, demand remains solid. TransCore reported about 60 million postings on load boards in 2011, the second-busiest year since it began keeping records in 1996. Only 2005, a period of relatively strong economic growth fueled by a credit and housing bubble, saw more postings, TransCore said.
Based on conversations with shippers and intermediaries over firming freight demand, TransCore analysts surmise that the nation's gross domestic product may grow at a 3- to 4-percent clip in 2012, faster than the 1- to 2-percent growth rate many analysts and economists expect.
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