Schneider forecasts volatile 2009

May 1, 2009
State of the Industry report says trucking bankruptcies will increase — but rebound foreseen throughout 2010

Trucking bankruptcies will increase in the first and second quarters, diesel prices will continue to fall, carriers will feel the pinch of the credit crunch and lack of cash and will remain under pressure to keep rates low, and new truck orders will decline to 2001 levels, according to Schneider National's 2008-2009 State of the Industry Review.

The report says that despite a drop in volume across all of Schneider's industry verticals, capacity is reducing slower than demand, leaving an excess of capacity in the market.

“Some carriers are betting on an economic rebound in 2009 and want to be poised to take advantage of attractive rates should that occur,” the report says. “It is our contention that an economic recovery in 2009 that would be strong enough to affect TL demand in a positive manner is overly optimistic. However, we expect capacity to continue exiting the market, causing supply to approach equilibrium with faltering demand near the end of the year.

“When demand does rebound throughout 2010, the pendulum will swing back to favor the carriers and rates will rise drastically as the market slowly replaces driver and tractor capacity lost to permanent sales. In other words, the freight recession may ease in advance of a true economic rebound.”

Schneider believes that increased economic pressures on shippers will continue to push more traffic from truck to rail due to the inherent cost savings in moving via intermodal. Pricing should continue a pattern similar to 2008, with modest increases on long-lane traffic.

The report says that the flatbed market has shown a great deal of volatility in the past year, and the coming year will bring equally significant challenges.

“Building materials shipments continue to decline while steel and capital goods have recently begun to follow that path as well. By September, the boom had ended, with flatbed shipments down 15% y/y. In 2008, fuel costs were the defining factor for many small to mid-sized carriers. In the fourth quarter, rumblings began about insurance coverage and the potential effects of the credit crisis on small to mid-sized carriers. Insurance companies required a number of the carriers polled to produce a full year's premium prior to renewal. For carriers with adequate cash or a quality line of credit, this should not be an issue. Those without either will be forced out of business or have to dip into their operating capital, with possible short- and long-term consequences.”

Flatbed rates bottomed out in February 2008 and rose steadily late into the third quarter. As credit issues in the economy took hold, those rates began to moderate and started a downward slide in October 2008. Revenue per mile was still more than 1% higher y/y in September 2008.

“The flatbed portion of the truckload capacity market declined at a faster rate than the dry van or bulk markets. This may be due in large measure to the significant number of smaller players in this portion of the industry. Some reports have it moving to 11% of the marketplace from 14%. Carriers of all sizes are taking action to reduce their footprint.

“One large carrier has reported taking 100 trucks off the highway, while some 20 truck fleets have laid off 40% of their drivers. Carriers in that situation are taking a wait-and-see approach to the market, with plans to either attempt selling the empty units to overseas buyers, or refilling them with drivers if the market has a significant recovery. Those carriers have the equipment paid for, so the fixed ownership cost allows them to pursue that strategy. Carriers that have financed equipment will have to take a different tack to solve the imbalance.”

The report says that tank truck volume was up almost 7% Q1 2008 vs. Q1 2007. Loads hit a high point in March 2008 at 309,800. Almost immediately after this record-setting month, seasonally adjusted tank truck volume began its downward trend. October resulted in the fourth month-to-month volume decline since June 2008. October volume was at the lowest point in 2008 at 253,000 loads.

“On a positive note, with the exception of February 2008, each month of 2008 had higher volume than same month 2007,” the report says. “It was reported mid-year 2008 that tank truck revenue was decreasing. Since that report, revenue has taken a more rapid decline. October 2008 seasonally adjusted revenue was down 1.2% from October 2007. While Q3 volume has dropped to levels seen throughout 2007, revenue has dipped well below 2007 levels.

“In summary, tank truck volume, revenue, and miles are still better than total truckload 2008 vs. 2007 YTD. While TL saw a 2.9% increase in loads, tank truck saw a 9.6% increase. Tank truck revenue was up 8.7% vs. TL at 3.9%. Tank truck miles saw an increase of 7.5% vs. a 1.1% decline in TL miles. The December ATA Trucking Activity Report remarks that tank truck ‘remains one of the best TL sectors in terms of volume.’”