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by Sean Killcarr, in Trucks at Work

parked2The trucking industry is slowly but surely benefiting from a lot of positive trends of late (you can go here and here to read more about them) and the long-term outlook offer fairly buoyant news as well (as this story illuminates) despite a recent dip in TL tonnage levels.

Yet recent analysis of second quarter motor carrier earnings reports by Wall Street investment firm Stifel, Nicolaus & Co. is casting some cold water on trucking’s prospects. Though it’s not completely in the negative – indeed, Stifel thinks continued railroad congestion may push more freight back to the highways – there are certainly plenty of potential pressure points in the firm’s outlook carriers need to keep in mind:

  • •A truck driver shortage remains the worst ever experienced. The shortage has spread well beyond the irregular route TL sector and now constrains capacity in the drayage, dedicated fleet, private fleet, LTL, and regional distribution market segments.
  • Changes to hours-of-service (HOS) rules implemented by the Federal Motor Carrier Safety Administration (FMCSA) on July 1 last year are resulting in a 2% to 4% loss of productivity.
  • The U.S. highway system does not have sufficient maintenance funding and is in a state of disrepair. It’s also riddled with far too many debilitating bottlenecks and freight choke points. In 2013 the American Society of Civil Engineers gave U.S. roads a collective grade of “D” and the nation’s bridges a collective grade of “C+”.
  • Shippers, as a class, that have yet to collaborate sufficiently with carriers to eliminate much of the waste embedded in the historical operating model. For example, freight is too often delivered by appointment in order to maximize the efficiency of the receiver without regard for the impact the schedule may have on productivity of the nation’s freight transportation network.
Yet there’s also a lot of good news where freight is concerned too, especially as Stifel found many carriers reporting second quarter volume increases of 5% to 10% largely due to “pushed forward” cargoes delayed when rough winter weather pummeled much of the nation earlier this year – weather blamed for a 2.9% decline in first quarter U.S. gross domestic product (GDP).

parked1However, John Larkin, Stifel’s managing director, warned that this “freight surge” now occurring may be clouding some less-than-robust economic metrics in the process.

“Demand was higher than normal for a whole series of reasons just as supply was constrained for a series of reasons,” he explained in the firm’s analysis. “In essence, it was the ‘perfect storm’ for freight carriers yet we know that it is unlikely the economy is growing that fast. We need to look no further than the retail sector, which at last count still generated two-thirds of the nation’s economic activity.”

He explained that with food inflation, rising local taxes, rising healthcare costs, and stagnant wages, the average American is cutting back on consumption.

“Recent results posted by retail behemoths Wal-Mart and Target appear to verify our thesis,” Larkin noted. “Same store sales growth was down 0.1% for Wal-Mart in the 13-week period ending May 31 and down 0.3% for Target in the quarter ending May 4. And, already, the nearly real-time trucking industry metrics we track are showing a softening of supply and demand tightness in the spot market.”

Metrics to keep in mind as trucking enters the second half of the year.

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