U.S. shipping industry set for good 2015, but port and driver problems persist

Retailers like Wal-Mart Stores and their respective vendors and customers may not benefit from labor issues at major U.S. ports and truck driver and freight equipment shortages, but the U.S. shipping industry is poised to do well in 2015.

A mix of unique factors continues to trickle up and down the industries that get goods to markets and unfinished goods from business to business. Those factors include an ongoing labor dispute at key ports in California that has significantly slowed shipments, the unexpected decline in fuel prices, a continued but possibly improving truck driver shortage, a potential uptick in consumer spending, a decline in the global economic growth but increased activity in the U.S. economy, and service problems – especially on rail lines.

Overall, experts say such factors will be to the advantage of trucking companies (truckload and less-than-truckload), rail lines, logistics companies and other shipping-related operations. The advantage will allow them to raise rates. Some of the higher rates will be absorbed, but most will likely result in higher prices for consumers.

The Cass Freight Index reported that shipments were up 4% in December compared to December 2013, and freight expenditures were up 3.6%. However, December shipments were 6.3% below November numbers, and expenditures were down 6.7% compared to November.

Cass uses data from $22 billion in annual freight transactions to create the Index. The data comes from a Cass client base of 350 large shippers.

The December report marked the highest end‐of‐year values since the beginning of the recession in 2007, noted Rosalyn Wilson, a supply chain expert and senior business analyst with Pasadena, Calif.-based Parsons, who provides economic analysis for the Cass Freight Index.

Despite slower-than-expected holiday, the fourth quarter was good for the shipping industry.

“Fourth quarter 2014 freight shipment volume was the strongest since the start of the recession in 2007. Despite the difficulties getting goods out of the ports of Los Angeles and Long Beach due to labor and capacity issues, both railroads and trucking companies posted shipment volumes that were significantly higher than for the same period in 2013,” Wilson said in her report.

TONNAGE INDEX
On a more narrow sector view, the American Trucking Associations’ Truck Tonnage Index was unchanged in December after a 3.5% increase in December. Year-to-date, tonnage is up 3.5% compared to 2013.

The not-seasonally adjusted index, which represents the real change in tonnage hauled by the fleets, was up 6.1% compared to November.

“Economic data was mixed in December, with retail sales down 0.9% and factory output up 0.3%, so tonnage was in-between those two readings, which are two large drivers of truck freight,” ATA Chief Economist Bob Costello noted in his report. “Overall, 2014 was a good year for truck tonnage with significant gains throughout the year after falling 4.5% in January alone.”

According to the ATA, trucking serves as a barometer of the U.S. economy, representing 69.1% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.7 billion tons of freight in 2013. Motor carriers collected $681.7 billion, or 81.2% of total revenue earned by all transport modes.

TRUCKLOAD CAPACITY SHORTAGES
A similar assessment on industry issues came from Brad Delco, a transportation industry analysis with Little Rock-based Stephens Inc., who said the capacity issue (available equipment and personnel) in the truckload industry “is at historic levels.” Shortages mixed with increased demand give the industry room to raise rates.

“Many state that it (historic capacity issue) is being driven by capacity constraints that have been in play for several quarters now in addition to an improvement in demand, which is expected to continue,” Delco noted, adding that anecdotal evidence suggests 4% to 6% contractual rate increases are likely to stick in 2015.

“(A)nd at this point feel more confident at the higher end of that range,” Delco said.

The demand expected to feed higher rates for shippers – and potentially higher prices for consumers – is not expected to take a hit from the drop-off in the energy industry after the bottom fell from the oil markets.

“Freight volumes look good going into 2015,” Costello said. “Expect an acceleration in consumer spending and factory output to offset the weakness in hydraulic fracking this year.”

Wilson, in her Cass analysis, agreed that shipping demand would stay steady in 2015.

“Given the banner year for the freight industry in 2014 and the strengthening of the underlying economy, I predict an even better year in 2015. Freight volumes and carrier revenues will grow steadily, which is good news for carriers operating on razor thin margins, less good for shippers and consumers as the higher rates will be passed through as increased goods costs.”

PORT AND DRIVER PROBLEMS
As to port congestion and driver shortages – the two big relatively unknown issues for the shipping industry – one is likely to persist in 2015 and the other could improve.

“The problems at the ports are complex and involve a large diverse number of players. The labor and operations issues will take time to work out, so expect the service problems to persist in 2015,” Wilson said. “Expect the delays to increase costs to move goods to and from the ports. Ocean rates are also forecast to rise throughout 2015. And because of slower and less predictable delivery times, expect to adjust ordering times and supply on hand to compensate.”

Wilson is not sure the trucking industries will get handle on driver problems in 2015. She said growing demand related to gains in the U.S. economy will “put more strain” on the industry.

“The trucking industry is ordering new equipment at record levels, but is finding it hard to train, seat and retain qualified drivers,” she said.

But Delco sees some easing of the driver shortage, with amendments to federal rules regulating driver hours allowing the industry to be more flexible with driver scheduling.

“We see the recent repeal of certain (federal) Hours of Service (HOS) provisions adding back roughly half of the capacity that was lost last year when the HOS rule changes went into effect (~2%-3%), which should also serve as a tailwind for utilization trends during the first three quarters of the year,” Delco said.