Fleet Owner | Rate Pressure to Persist Through Year's End

07.18.16 | Kevin Jones, Fleet Owner

Truckers should expect six to nine more months of downward pressure on rates, a leading transportation analyst suggests, but shippers should be cautious about aggressively pursuing cost reductions as a regulatory squeeze on capacity could outweigh a stagnant economy by mid-2017.

“Can you find freight growth in a sluggish economy? It’s not a very easy answer,” FTR CEO Eric Starks said in this quarter’s State of Freight webinar on Thursday. “This is a completely different environment than we’re used to. The shipper doesn’t really have the upper hand but, going forward to the end of this year, we do anticipate the shipper will have some favorable conditions.”

Indeed, a quick poll of webinar participants precisely reflected this market uncertainty, with half reporting business conditions were stable or neutral, 25% percent reporting strong or improving conditions, and the other 25% reporting negative conditions.

The good news is that while industrial production-a key freight driver-has been unusually stagnant, manufacturing output hasn’t fallen as it would ahead of a recession, Starks noted. But freight growth from core capital goods orders (or business activity) has slipped for more than a year-and that follows three years of being basically flat following the recovery, according to FTR’s analysis. Still, the retail market continues to trend higher, showing noticeable growth over the last several months-a “very positive sign.”

“So the disconnect between what’s happening within the business environment and what’s happening on the consumer side is very noticeable,” Starks said. “The million dollar question is, can this continue for an extended period of time? I don’t think it can. We need to start seeing these come back into line.”

Inventory-to-sales ratios are also freight indicators, and again the signals are mixed. Retail inventories are “not awful, but still higher than we would like,” tied largely to some carryover from last year’s West Coast port strikes, Starks explained; manufacturing inventories have picked up, “but not a huge change;” while wholesale inventories are high, and that creates “ripple effects.”

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