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Trucking rates seen remaining high for months

Sep 22, 2017 | 02:57 PM | New York | Millicent Dent

Tags  trucking, Hurricane Irma, Hurricane Harvey, Mark Montague, Noel Perry, ELD, Millicent Dent

Trucking rates are likely to remain elevated into 2018 due to a combination of factors stemming primarily from Hurricanes Irma and Harvey, according to two industry analysts.

“Historically it takes between 15 to 20 weeks for (rates) to return to normal after events of this magnitude,” but other factors outside of the hurricanes will likely cause rates to remain high for even longer, Noël Perry, a truck and transportation economist at FTR Transportation Intelligence, told AMM.

Mark Montague, an industry pricing analyst at DAT Solutions, told AMM that he expects markups to last until July 2018, noting that any moderation of rates following the aftermath of the hurricanes will probably coincide with the ramp-up of the construction season in February or March.

Perry also heard that trucking and transportation company J.B. Hunt is going to announce a 10% rate increase, which is “substantial in a market where prices have been going down," he said. "It’s probable that if Hunt is doing that, it’s clearly related to the storms.”

The spot rate index is “up by more than that,” Perry added. 

All of J.B. Hunt’s intermodal containers and boxes “are in service and demand currently outstrips supply,” Stifel Nicolaus & Co. said in a September 22 report, but added that “contract rate increases are not likely to be fully realized until the third quarter of 2018.”

The higher rates are mainly due to the loss in productivity that has resulted from a change in drivers' normal routines since they are needed to transport goods to impacted areas in Texas and Florida. “Because work is unusual and out of normal sequence, the productivity of the industry as a whole goes down. So things get tight and prices go up,” Perry said. 

Hurricane Harvey, which hit in and around Houston, was particularly crippling from a supply chain perspective because the city is an important freight, import and export hub serving key markets in Texas and national freight markets, Montague said. While operations in Houston that had been paralyzed immediately following the hurricane have largely resumed, other cities are still taking on additional responsibilities. This is shifting the supply chain.

The shift of trucks from their normal routes has also tightened the number of available trucks for non-hurricane related needs, Perry said. 

The industry's rates don't typically escalate since there are usually large numbers of trucks available, “but what we know about the industry is that when there’s a shortage, then rates go up pretty quickly. It’s like taxi cabs on a rainy day,” he added. 

Shippers are willing to pay “almost anything” for available capacity, Perry said. “The cost of a missed shipment to most shippers is actually very high. It could be in the millions of dollars.” 

But organizations such as the Federal Emergency Management Agency are using trucks to move disaster relief supplies into affected areas, Montague said, contributing to a reduction in the number of available trucks. 

These organizations will likely continue to use trucks for “weeks” because they’re now starting to move supplies to southern Florida in order to reach the Caribbean. “It’s nowhere near over,” he said. 

There also will likely be a shortage of drivers because demand in the construction industry will rise as the rebuilding process in Texas and Florida ramps up, Perry added.

Another component that is likely to hurt the trucking industry’s productivity and increase rates is the US Transportation Department’s Electronic Logging Device (ELD) mandate, which is set to be enforced on December 18, 2017, Perry said. Under the new rule, commercial truckers must track their driving hours through ELDs rather than keeping paper records to ensure they are in compliance with hours-of-service requirements.

Hours can be easily fudged on a paper log to remain within service limitations, but "the opportunity to falsify the logs is much reduced" with the new rule, Perry said. “What’s happening is the productivity of the industry, in exchange for better safety, is going down."

Montague agreed, noting that the new rule will be one factor behind the industry remaining busy in December and January. “Truckers will have a higher compliance to stay legal. They’ll have to be a little bit more cautious as far as the length of trips they can take in one day,” he added.


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