Cowen report: So, how’s our competition doing?

Written by William C. Vantuono, Editor-in-Chief
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Is trucking as good as it gets? “June was great for truckers, and the start of July has been just as good,” says Cowen and Co. Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “It remains a strong trucking market, and capacity is extremely tight. That being said, things can continue going well, but we question just how much better it can get.”

According to seven trucking and logistics experts who participated in Cowen’s 2Q18 Trucking and 3PL (third-part logistics) Roundtable, “though freight typically slows in July, multiple participants confirmed that freight demand remains strong. A freight manager of a large transportation management company confirmed that he has seen unprecedented levels of demand, with scarce capacity, and that the need for trucks is significant. His company is out in the spot market searching for capacity.”

Almost unanimously, the roundtable participants emphasized continued difficulties recruiting and retraining drivers. “One carrier mentioned that he sees drivers join a new company, wait six months to receive their signing bonus, and then leave,” Seidl notes. “Another said his company raised driver pay at the end of the first quarter to $78,000 per year, from $70,000 last year, and they get their drivers home every night. But, in a sign of how out-of-whack the market is, he actually had more applicants the week before they raised prices, and fewer once the pay was raised to $78,000.”

Another participated related that, regardless of salary, the driver shortage persists. “You could even pay $1 per mile and you’d still have a shortage,” he said.

Interestingly, the roundtable participants agreed that “the minimum driver age is too high, and the industry is losing drivers to construction and the military and instead is getting kids who didn’t like their first choice of vocation,” Seidl says.

On a related note, one participant said he “doesn’t have a jaded view on the difficulties in the driver hiring market, and instead believes that due to the challenges of being a driver, ‘Drivers are starting to get paid what they’re worth … this is definitely a $75,000 job,’” Seidl says. “Another panelist lamented that it is ‘a little unsettling’ that there are riskier drivers that he wouldn’t have hired last year, but this year, with his hands being tied, he is forced to hire.”

Railroads can be tough on customers, but so can truckers. According to Seidl, “An interesting byproduct of the strong market and driver shortage is the flexibility to drop clients who are slow loading the truck or are otherwise delaying the trucking company’s operations. For truckers, there simply isn’t enough money to pay for drivers to go sit and wait at a factory for four hours. Similarly, the carriers noted that they won’t do 90-day pay programs, or give customers a discount for paying within 30 days.”

Other observations: “The new depreciation rule should help the truck market stay strong, while the amount of time for trailers to get replaced will be a bit longer. Everyone is shifting to automatic transmissions.” As well, truck purchases are influenced by the vehicle’s mile-per-gallon rating. “One owner-operator noted that he is incentivized to purchase new trucks since not only are they better on fuel, but they also contain better pre-collision technology and blind-spot awareness. In the used market, one caller noted that the market is oversaturated and continues to be tight, while another sounded the alarm for used trucks with manual transmissions, noting that at some point ‘the music is going to stop’ when they’re not approved anymore, and the resellers will be stuck with the truck.”

Shippers have gotten smarter, and as capacity has tightened in the past three to four years, “there hasn’t been as much of a crunch right before July 4,” Seidl notes. “However, if there are fluctuations, it would present a good opportunity for intermodal. Looking out to 2019, one carrier predicted a high-single-digits pricing increase, and another on the reefer side believes it’ll be close to double digits.”

The Trump Administration’s plan to impose tariffs and restructure NAFTA (North American Free Trade Agreement) are of concern to shippers. “One operator even mentioned that a customer of his had set up ‘white-board war-rooms’ with different plans depending on the outcome of the tariffs and trade negotiations,” Seidl noted. “That being said, with GDP being what it is, and with the driver market what it is, things can continue being good for 12-18 months, but they won’t get better. Were an infrastructure bill to get passed, that could be a catalyst for things to get even better, but we believe that would be more of a 2020 event.”

Categories: Class I, Freight, Intermodal, News, Short Lines & Regionals, Switching & Terminal Tags: ,