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Capacity Growth An Inevitable Result of Lowered Utilization

January 10, 2014

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The fourth-quarter Transport Capital Partners survey finds a large majority of carriers expecting to grow capacity, and many moving to replace their aging vehicles.

New hours-of-service rules have led to fewer hours per day utilization of equipment. As a result, carriers are being pushed to increase capacity and raise driver pay. The number of carriers indicating they are not going to add capacity has been trending down, and is now at its lowest level yet for this survey (27%).

For the first time ever, 30% of carriers expect to add between 6% to 10% capacity. These results are not surprising given that 78% of the carriers this quarter indicated they had lost productivity due to hours-of-service changes.

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Larger carriers expect to be more aggressive in adding equipment than smaller carriers. Thirty-nine percent of larger carriers expect to add between 5% to 15% compared with only 27% of smaller carriers.

Among those intending to add capacity, the percentage of carriers planning to add capacity through the use of independent contractors has jumped 63% (from 16% to 26%). The most commonly reported method for adding capacity is through company equipment that is either financed or purchased on a Trac Lease - 35%, up from 26% last quarter. Carriers adding capacity by purchasing other carriers has increased from 0% three quarters ago to 6%.

Aging Tractors Being Traded Out

As carriers increase capacity, they are also more likely to replace their older vehicles. Almost 40% expect to replace 11% to 25% of their fleet this year. The difference between smaller and larger carriers is striking. Seventy-seven percent of smaller carriers plan to replace less than 10% of their fleet compared with 40% of larger carriers (still a high number). Conversely, almost three times as many larger carriers expect to add 11% to 25% (50% vs. 15%).

“We suspect that all the 2007 pre-buy tractors are being traded out. If smaller carriers are not able to replace older, less fuel-efficient equipment (and their higher maintenance costs), those carriers will not be well positioned to benefit from looming good times,” observed Richard Mikes, a TCP partner.

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