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Analyst discusses state of lruckload, LTL

Truckload and LTL demand are "extraordinarily weak" and while capacity has been declining rapidly, it is not keeping up with the drop in demand, according to John Larkin of Stifel Nicolaus Transportation Research.


During a webcast hosted by Logistics Management Magazine last week, he noted that on the truckload side, small fleets have been downsizing for the last three years, but large fleets have been declining only since mid-2007.


LTL equipment showed a year over year decline of 3.1 percent in November for the ninth month in a row.


"With Alvan Motor Freight, Inc. and Jevic Transportation failing earlier last year, and with YRC Worldwide's aggressive downsizing program, it is no surprise that we have seen capacity come out of the LTL industry," Larkin said. "All of the terminals and service centers, however, still remain in place, so the LTL capacity reductions aren't exactly the permanent capacity reductions that we see on the TL side."


In addition, Larkin said, numbers from Donald Broughton at Avondale Partners on trucking company failures lead Stifel Nicolaus analysts to estimate that in 2008, roughly 130,000 to 140,000 trucks came out of the industry due to company failures. That amounts to an additional 6.5% capacity reduction on top of the 6.5% related to carriers downsizing their average fleet size.


Class 8 truck sales have plummeted and remain low, as the average fleet age rises again after falling for three and a half years.


Another trend Larkin notes was that "some of the bigger truckload carriers are deciding that the TL business is not a very good business to be in; it tends to be very cyclical, very seasonal, very labor intensive and very capital intensive. Companies such as J.B. Hunt, Werner Enterprises, and Covenant Transport, to name a few, have downsized their core trucking fleets fairly dramatically."


J.B. Hunt downsized its truck count 36 percent from the beginning of 2007 through the end of 3Q08. Werner Enterprises downsized its fleet 11 percent in the same time period, and it noted in a recent press release that it had taken another 500 trucks out in 4Q08, and an additional 150 trucks so far in 1Q09.


Truckload rates so far have remained flat, Larkin said. "There seems to be some feeling that big shippers are afraid there won't be enough capacity as the economy recovers, and so they are willing to keep rates consistent, or perhaps even increase rates slightly for some of their favorite carriers. The spot market, however, is awful right now. We have heard many spot rate quotes of around $0.80/mile, which probably doesn't even allow the capacity provider to cover his variable costs, much less his fixed costs."


In conclusion, Larking noted that "we are currently in uncharted waters," making it very difficult to predict the future. However, he believes that by the end of this year, the freight environ-
ment may be feeling a little bit better. "I also think that ultimately, once they retake pricing power from shippers sometime over the next 12 to 18 months, carriers will be in a very strong position by 2011, if not earlier."