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Capacity Additions Remain Conservative

October 8, 2013

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Nearly two-thirds of carriers surveyed in this quarter’s Transport Capital Partners Business Expectations Survey indicated they plan to increase capacity. These numbers have remained fairly constant since August 2010.

“The balance between freight and trucks remains tight. It seems we must face up to the fact, early on, that drivers are truly a brake on truck supply, as well as on truck orders,” noted Richard Mikes, TCP partner.

The number of carriers expecting capacity additions of less than 5% has inched upward, from 22% in February 2011 to 45% today. For those intending to add more capacity (i.e., 6-10%), the trend has been downward, from 25% in February 2011 to 15% today.

Smaller carriers are more conservative than larger carriers in their buying plans. Twenty-three percent of larger carriers intend to add more than 6% capacity, compared with only 15% of smaller carriers.

With smaller carriers also less optimistic about volumes, it is unsurprising that they are less likely to add capacity. These smaller carriers may also be having a harder time finding financing for expansion than their larger competitors.

“Tight credit remains a challenge for a lot of businesses, particularly for truckers, and especially those not well positioned,” observed Steven Dutro, TCP Partner.

Trac Leases Most Common

Among carriers intending to add capacity, the most common methods have shifted. The percentage of carriers intending to add capacity through the use of independent contractors has decreased by 50% (from 30% to 16%), over the last three years.

Twenty-six percent of carriers indicated that acquiring equipment financed or purchased on a Trac Lease was their preferred method for growing capacity. This is down from 34% last quarter, but was the most commonly reported method reported in this survey.

Unseated Trucks on the Rise

Continued reluctance to add new capacity stems, in part, from the fact that the number of unseated trucks continues to grow.

The number of carriers reporting 6-10% of their equipment unseated grew from 10% in August 2011 to 26% in August 2013. Carriers reporting fully seated equipment declined, albeit slightly, from 25% to 22%. Smaller carriers are much more likely to seat all their trucks than larger carriers – 33% versus 17%.

“Typically, smaller carriers, have lower employee turnover due to shorter hauls and a more direct, personal approach. However, as smaller carriers cut health care benefits, this advantage may not last,” commented Steven Dutro, TCP Partner.

Fifty percent of larger carriers reported 1-5% of their trucks unseated, a number that does not bode well for future capacity for shippers.

Significant Driver Pay Increases Unlikely

One way to fill seats is to raise driver pay. But the number of carriers expecting to raise driver pay has fallen from 79% in August 2012 to 66% in August 2013. Among those carriers planning to raise wages, the expectations are very modest. Fifty-nine percent expect the increase to be less than 5%.

“Many observers believe higher driver pay is needed to bring more drivers into the industry. But, until shippers are willing to pay more, carriers will be unable to meaningfully increase compensation levels,” noted Richard Mikes, TCP Partner.

Expectations for increasing pay did not differ between large and small carriers. These survey results correlate with comments from carriers to TCP partners, and other reported pay metrics, over the past year.

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