There
have been numerous signs that after several
years of the supply-demand balance being
largely in the carriers’ favor, a
combination of factors is giving more clout
to shippers, and lowering rates. The real
question – how long will it last?
For example,
in the Q4 2006 Bear Stearns' Shippers survey,
approximately 80% of respondents thought
there was overcapacity in the truckload
market, one of the highest percentages in
the history of the survey (see Transportation
News: Survey Finds Continued Improvement
in Trucking Capacity, Rate Pressure, for
Shippers.
The Wall
Street Journal found similar trends last
week, noting that shippers were benefiting
from both reduced overall demand and increased
carrier capacity. What’s interesting
is that much of the reduced demand is coming
from the dramatic slowdown in the housing
and some construction markets. As truck
and rail carriers move less dry wall and
plumbing fixtures, it’s opened capacity
for retailers, wholesalers and other manufacturers,
pushing rates down.
In addition,
carriers finally started adding some additional
truck capacity in the last half of 2006,
driven in part by the need to comply with
new engine emission standards in 2007. Part
of the upward pressure on rates in 2004-2006
was an unusual level of restraint by most
carriers in terms of adding capacity in
the face of strong demand.
One sign
of the changing dynamics: truckload carrier
JB Hunt announced a 10% drop in profits
in the first quarter, citing softer demand.
The Wall
Street Journal article quotes Donald Biggs,
Director of Customer Logistics at Welch
Foods, Inc., as observing the freight market
"isn't where it was five or 10 years
ago when it dramatically favored shippers.
But the pendulum is swinging back slightly
in our favor.”
An increasing
number of shippers are being aggressive
in bidding out freight contracts, much less
worried about just finding capacity than
they were in past few years.
Other shippers
are saying that LTL carriers are being less
stringent about surcharges for last minute
pick-ups, with capacity more slack.
While the
relief is welcome, the important question
for shippers is - how long it will last?
Several carriers have already announced
decreases in existing spending plans for
additional capacity. |