Keep on trucking-in theory, at least. In practice, a
trucking shortage is threatening to force metals industry
players to pay big time for transportation services as
competition for available trucks heats up.
Those wishing to make spot metal purchases from traders in
the physical market-be it to ramp up production or to restock
inventories that had been depleted during the economic
downturn-face longer delivery times and higher premiums due to
tightness in the domestic trucking market.
"There's definitely a shortage of trucks, and it's going to
affect premiums probably for the rest of this year and into
next year," one Midwest copper trader told AMM.
According to traders, getting their hands on trucks in
recent months has been no easy task, and end-use consumers are
caught footing the bill.
"Starting about two to three months ago trucking began to
get extremely difficult," one primary aluminum trader said.
"It's literally that bad, and it's not a fuel-related issue
this time. Now it's just very much an issue of
With available trucks few and far between, freight rates
have climbed some 50 to 70 percent over the past few months,
the trader said, noting that one route that had cost $750 now
runs upward of $1,100.
The higher freight rates have resulted in firmer premiums
across the commodity spectrum. "The cost of getting metal out
has become very, very high right now," the aluminum trader
Where physical premiums typically included a penny per pound
to cover freight, rising trucking costs have added up to 50
percent on top of that. "You can't ship anywhere for less than
a penny and a half (extra)," the trader said.
Aluminum premiums were in a range of 6.5 to 6.75 cents per
pound in early August compared with a historic average of
around 4.5 cents. Likewise, spot copper premiums were 5 to 6.5
cents per pound at the end of July vs. 5 to 6 cents a month
earlier after hovering in the 3.5- to 4.5-cent-per-pound range
since the start of the year.
Competition for a fixed fleet of existing trucks is
currently the main driver behind rising costs. "We have both
standing arrangements and use numerous truck brokers. In
effect, some of us are fighting over the same things," the
Midwest trader said. "It is costing more, so we're going to
have to raise our rates as well."
Higher shipping rates have been brought on by the
recession's impact on fleets, and traders said they don't see
any short-term solutions.
Despite charging more for their services, trucking companies
that weathered the recession might not be in a financial
position or be willing to add capacity, and the prospects for
new entrants to the market are grim. Carriers often operated
below cost on the spot market last year as truck tonnage fell
some 9 percent in 2009, sustaining tonnage losses first seen in
Even as rising manufacturing output and stronger retail
sales increased shipments through the first half of 2010,
carrying capacity remains at or below 2009 levels, sources
said. And with tight credit and volatile energy costs, the
ability of carriers to make the investments required to expand
their fleets is limited.
Those looking to get metal on trucks also must compete with
seasonal demand from other commodities, including shippers more
willing to pay the higher price. Throughout the summer,
agricultural demand in particular complicates the carrier
supply issue as produce growers race to get their perishable
goods to market.
"Produce has to move to market right now," the copper trader
said, noting that the seasonal agricultural sector can't
The trucking shortage, while more pronounced in certain
regions, has taken on a nationwide character, traders said.
"The South has been particularly bad, but even in the Chicago
area we've had difficulty getting trucks," the aluminum trader
The trucking companies themselves are unsure of how to best
adjust their capacity structure moving forward. "Capacity is
way down, and things seems to have gotten busy," a source at a
Northeast hauler said. "It is difficult, so of course the rates
have gone up."
Spot trucking rates are the first to increase, and often
serve as a harbinger for long-run increases in base rates. The
margins on trucking rates are forecast to increase for the
first time since 2008, according to data from Nashville,
Ind.-based trucking logistics firm FTR Associates. And if
trucking companies do add equipment, these costs will be
reflected in the rates.
"Demand did pick up somewhat and capacity did drop off," the
Northeast hauler source said. "A lot of trucking companies and
owner-operators have gone out of business in the past
Indeed, by some estimates close to 2,000 trucking companies
went out of business last year and companies continue to go
under even as conditions appear to be improving.
As for how, or even if, carriers will respond in the short
term, "that's a good question, and I'm not sure I have an
answer for it," the hauler said.