RBC: Shippers know truck rates primed for takeoff
TORONTO – Ongoing market instability is clouding shippers' expectations of trucking rates going forward, although more aggressive pricing behavior by carriers is certainly expected, according to a new shippers' survey by RBC Capital Markets.
The RBC Compass survey questioned mostly rail shippers, but respondents that also deal with over-the-road transporters cited ongoing uncertainty regarding the level truck rates in 2011.
However, there's no question shippers are aware of the trajectory rates are headed. Sixty-eight percent of respondents to this question expect increased trucking rates next year, compared to only 29 percent last year.
As well, 37 percent anticipate increases of 4 percent or higher, whereas only a meager 6 percent thought the same thing last year.
"Truck rates stabilized during the economic crisis. We’re now working with them on an ad-hoc basis to help them on lanes where they need rate increases," one shipper commented.
A significantly greater proportion of shippers perceive trucking pricing behavior as more aggressive than last year (29% vs. 3%).
"In our view, this difference highlights that trucks were impacted far more severely than the rails during the economic downturn," states RBC. "We believe that aggressive pricing behavior from trucking companies resurfaced in 2010 due to the improvement in the overcapacity situation."
RBC says these survey results align with market forecast expectations of a 3 to 5 percent pricing increase in 2011.
"The biggest issue with the trucking industry is the shortage of qualified drivers. Rates are up 5 percent or more depending on the geography," commented another respondent.
As for rail, shippers are seeing upward pricing momentum there too, in the 4 to 6 percent range.
Shippers' rail volume expectations for 2011 remain clustered around flat to modest
growth. For next year, 30 percent of respondents forecast flat demand (vs. 29% for 2010) and 34 percent expect demand growth of 1 -5 percent (vs. 35% for 2010).
While rail service is generally rated by shippers as being "good" many still are not satisfied with the overall level of service, the survey reveals.
"Commentary on service remained largely negative. Many shippers are distrustful of the sustainability and the rails’ commitment to ongoing service initiatives," says RBC. "Shippers often attributed any service improvements experienced this year to temporary market conditions and expect service upgrades to dissolve once the economy regains strength and regulatory changes are no longer being threatened by the U.S. or Canadian governments."
However, there's apparently a dramatic shift in service perception between the two main Canadian railways. Respondents' view that CP's service is "good" or "excellent" has declined from 59 percent to 35 percent, while the same CN ratings increased from 44 percent to 54 percent, respectively. .
Cost, though, continues to drive the bulk of transport decisions, which is why few shippers intend to implement modal shifts and supply chain overhauls in the coming year.
"We believe that most shippers are holding off making further changes to their operations until they have a clearer view on the direction of the economy," says RBC. "Once the economy stabilizes, shippers will be in a better position to decide whether additional modal shifts or supply chain changes would be financially beneficial to their business."