Carriers Reluctant to Add Capacity as Shippers Seek Longer Term Options
June 27, 2012
"Carriers' confidence in the economy to generate volumes and compensatory rates is dropping as the industry is certainly bearing the burdens of more federal regulation, scarce drivers, an anticipated jump in 2013 taxes, and hearing more pundits ponder recession," says Richard Mikes, a TCP partner specializing in finance and economics.
More carriers believe that they are not getting an adequate return on investment for their equipment compared to this time a year ago: 51% versus 47% in May of 2011. The high percentage of carriers that find the ROIs to be lacking might explain why carriers are unwilling to add capacity.
"This, coupled with adverse driver dynamics - i.e. shifting demographics, CSA putting pressure on drivers, raising turnover and pay rising, - is similar to causing carriers to die by a thousand cuts," stresses Lana Batts, TCP partner with long-term industry experience in driver issues.
With uncertainty about capacity, carriers are unsure as to how shippers will respond. Thirty-five percent of smaller carriers think that shippers will do nothing, compared to only 14% of the larger carriers. Larger carriers think that it is more likely that shippers will use long-term dedicated services (29.3%) or favor larger fleets (26.7%).
"Dedicated is clearly a win-win option for shippers and carriers over the long run, and dedicated is rising in popularity with our carrier contacts, as well as looking for acquisitions," Mikes says. "It allows the current low interests rates to be locked-in, gives shippers a custom and controlled base line capacity not subject to the spot market over five to seven years and removes the uncertainty of steady volumes to justify an investment."