U.S. shipping industry rate revenue expected to rise in 2015

Activity in the national shipping industry was likely up almost 3% in January, according to the Cass Freight Index. A national trucking index was up 1.2% in January. Both reports indicate the shipping industry recovery seen in 2014 is continuing into 2015.

The Cass Freight Index reported that shipments were up 2.7% in January compared to January 2014, and freight expenditures were up 3%. However, January shipments were 4.7% below December numbers, and expenditures were down 5.7% compared to December. The index posted its highest end-of-year value in 2014 since the beginning of the recession in 2007.

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.

Rosalyn Wilson, a supply chain expert and senior business analyst with Pasadena, Calif.-based Parsons, who provides economic analysis for the Cass Freight Index, said the January numbers included fallout from the “labor and capacity woes” at West Coast ports related to what was a nine-month dispute between port operators and the International Longshore and Warehouse Union. The two sides recently reached an agreement, but the backlogs could take months to unwind, according to port officials.

Despite the port issue, Wilson is upbeat on overall economic conditions.

“The U.S. economy is on fairly solid ground – the GDP growth rate is strengthening, new job creation has been consistent, real net income and household net worth are inching up, inflation is low to moderate, and gas prices are tumbling,” Wilson wrote in her report.

TONNAGE INDEX
The American Trucking Associations’ Truck Tonnage Index was up 1.2% in January following a revised increase of 0.1% in December. The not-seasonally adjusted index, which represents the real change in tonnage hauled by the fleets, was down 3.5% compared to December.

“Truck tonnage continued to improve in January, marking the fourth straight gain totaling 3.5%. Last year was slightly better for truck tonnage than we originally thought and I am expecting that momentum to continue in 2015,” ATA Chief Economist Bob Costello noted in his report.

A recent revision saw 2014 tonnage up 3.7% compared to the initial report of 3.4%. The index was up 5.5% in 2013.

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.

POSITIVE RATE REVENUE
Two reports from Brad Delco, a transportation industry analysis with Little Rock-based Stephens Inc., also show broad gains in the trucking sector heading into 2015. The Stephens Truckload Rate Index was up 7.5% in the fourth quarter of 2014 compared to the same period in 2013. It was the 19th consecutive quarter that the index showed a gain in what truckload operators – for example, Van Buren-based USA Truck, Tontitown-based P.A.M. Transport, and Lowell-based J.B. Hunt – companies were able to charge customers.

“The 4Q14 year-over-year increase represents the highest increase since 4Q04, and represents a continued positive trend in rates that began in 1Q’14. We believe that the factors that have driven the index higher have persisted into 1Q15, and with more regulatory constraints on the horizon (mandatory electronic logging device rule) we expect continued positive inflection in rates,” Delco noted in his report.

Delco’s report showed that the average weekly revenue per tractor in the truckload sector during the fourth quarter was $3,524, up over the $3,207 in the 2013 quarter.

“The 4Q14 increase was the highest year-over-year increase in the index in 10 years driven by constrained supply including driver shortages, West Coast port congestion and rail service issues combined with improving demand. Going forward, we expect rate increases for 2015 to be up +4% – 6% on average based on continued strong commentary that we have heard coming out of 4Q,” noted Delco’s report.

Rate revenue also looks good for less-than-truckload (LTL) carriers like ABF Freight, a principal subsidiary of Fort Smith-based ArcBest Corp.

“We believe that contractual rate renewals improved throughout 4Q ending in the +4% range as capacity in the LTL space remains tight,” Delco wrote. “We expect LTL pricing to remain strong into 2015, driven by tightening capacity, stable demand and a disciplined pricing strategy from many of the larger players. We are currently estimating core pricing increases of around +3.5% in FY15 for LTL carriers.”

CAPACITY PROBLEM
A likely downside for the national shipping industry in 2015 is having too much business and not enough capacity, according to Wilson. She noted in the Cass Index report that the ability to control rates will continue to move in favor of trucking companies and other shippers. However, the driver shortages mentioned by Delco and the ongoing issue of dealing with backlogs at West Coast ports may “exacerbate the capacity problems experienced in 2014.”

“Carriers do not currently have the necessary capacity, infrastructure and systems to efficiently move goods as freight volume rises in 2015. Bad weather; labor problems; fleet capacity issues for truck, rail and other equipment, especially container chassis; and inadequate infrastructure will combine to not only create new freight bottlenecks, but also to push up the cost to move freight,” Wilson wrote.

She said many in the shipping industry have announced “aggressive investment plans” to add capacity, but the amount of capacity needed can’t be added in the short-term.