Summary
Analysts state that the trucking industry needs another 5% contraction in capacity before rates stabilize. Meanwhile the race to the bottom is on.
Analysis
Donald Broughton, an analyst with Avondale Partners, proposes that the trucking industry needs to lose another 5% capacity before rates beging to stop thier downward slide.
The first quarter saw 480 trucking companies leave the industry, however the collective impact of thier withdrawal was less than 1%.
Meanwhile the surviving motor carriers are cutting rates to improve utility.
While this is good news for shippers who are able to use pricing power to gain rate concessions from their carriers, it will be very harmful to the industry in general.
Once demand and capacity reach equilibrium, look for strong upward pressure on carrier rates. Those carriers that are able to survive will then see pricing power switch from the shipper back to the carrier. The only question that remains, is when will equilibrium be reached? How much longer will it take to shed the 5% that Mr. Broughton references?
This cycle is not new, and shippers should begin preparing for when the pendulum begins to swing the other way.
