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Home » Truck rates to climb post-Sandy; analysts divided on duration
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Truck rates to climb post-Sandy; analysts divided on duration

January 7, 2013
Mark B. Solomon
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The rebuilding efforts in the Northeast and mid-Atlantic following the Sandy mega-storm in November will push up truck rates through the first half of the year. What happens beyond that is a matter of educated opinion.

There is little doubt that pricing will firm considerably in the near term as the market responds to increasing demand for construction equipment, especially now that Congress has approved $9.7 billion in emergency funding for post-Sandy rebuilding. Lawmakers are expected to take up a measure on Jan. 15 to funnel another $51 billion in aid to the stricken area.

Nöel Perry, founder of transportation consulting firm Transport Fundamentals and principal in fellow consultancy FTR Associates, said the post-Sandy cleanup will generate higher-than-normal demand for transportation for the next six to nine months. Perry, writing in late December in an FTR newsletter, said the cumulative effect of the rebuilding will add $13 billion of transportation revenue, with $5 billion coming from an increase in volumes and $4 billion from a tightening in capacity.

Another $3 billion in revenue, Perry said, will be generated as shippers use more expedited trucking services, time-definite deliveries that are priced at a premium relative to other trucking services. An additional $1 billion will come from truckers charging more for being taken out of normal routes and pulled into the New York market. Trucks normally operate on predictable routes to minimize the effect of so-called empty miles; taking them out of their normal routes will reduce productivity but will result in higher rates, Perry wrote.

Trucking will reap most of the benefits from the increase in demand, though rail intermodal will share in the bounty because it has abundant capacity in the New York metro area, Perry wrote. The peak impact of the post-Sandy rebuilding, he said, will be felt in the second quarter. The spring months are historically the high seasonal demand period for flatbed services as warmer weather allows for more construction in markets like New York, Chicago, and Philadelphia.

Mark Montague, analyst for consulting firm DAT (formerly known as Transcore), said capacity for flatbed services, which are used to move construction materials, should tighten somewhat in the early part of 2013 due to the effect of post-Sandy reconstruction. In response, flatbed rates, which traditionally spike in the second quarter, could jump even higher in 2013, he said.

However, Montague said that beyond a short-term spike, flatbed and refrigerated rates should only rise, on average, about 2 to 3 percent in 2013. Much will depend on the performance of segments of the economy like autos, lumber, and construction that rely heavily ton flatbed services, he said.

Rates for dry van services, which make up the bulk of trucking operations, will be extremely volatile this year, with no clear upside or downside trend, Montague said.

Charles W. Clowdis Jr., head of supply chain advisory services at the consulting firm IHS Global Insight, said rates for all trucking services have risen about 8 percent since Sandy. A similar impact was seen in the immediate wake of Hurricane Katrina in late August and early September of 2005, according to Clowdis.

Clowdis echoed Montague's forecast that all truck rates will end 2013 a little higher than where they started and that a short-term surge will give way to a fallback in prices through the year.

"The market will sort itself out over the next seven to 12 months with no huge, long-term rate spikes," Clowdis said in an e-mail.

The American Trucking Associations (ATA), the trade group representing large truckers, said its seasonally adjusted tonnage index in November rose 3.7 percent from October's seasonally adjusted tonnage figures. The November data was largely impacted by Sandy, which hit early in the month. The November gain was the first since July 2012, the group said.

Bob Costello, ATA's chief economist, said in late December that most of the projected increase in flatbed activity will not occur until the spring. Costello warned, however, that overall tonnage growth will be slower this year than last as paychecks shrink for all households due to the end of the payroll tax holiday and an increase in tax rates for high-earning individuals and households.

Additionally, slowing factory output and reduced consumer spending will have an impact on tonnage during 2013 because trucks account for most of the deliveries in the retail supply chain, Costello said. Improved housing starts and auto sales will not be enough to offset a drop in factory activity and domestic consumption, he said.

Transportation Trucking Rail Intermodal
KEYWORDS FTR IHS Markit Economics
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Marksolomon
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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