Pricing pressure in the truckload and intermodal sectors was the theme for 2016 and carriers are not expected to see any relief until 2017, according to Stifel Capital Markets
As reported by Fleet Owner, John Larkin, managing director and head of transportation capital markets research for Stifel, warned that trucking companies expecting to see a big bump in holiday season rates may be disappointed.
“We’ve seen a very difficult rate environment for the TL sector, particularly on the spot market side,” he noted in a conference call with U.S. trade reporters.
“Pricing pressure in TL and in intermodal is the big story for the first half of 2016 and there is no relief in sight for rest of this year,” he said.
While he expects e-commerce demand to grow between now and December, he said that truckload pricing won’t improve much until the second quarter of 2017 “ and it’s not clear they’ll improve by then either.”
David Ross, another of Stifel’s freight transportation analysts, added that LTL carriers should benefit from any capacity tightening in the TL sector.
“If capacity tightens in TL next year, expect to see a boost to LTL in expanding volumes and margins,” he said. “However, right now, we’re seeing nothing but a slow growth environment as we look around the world these days.”
That’s because, from Stifel’s perspective, the U.S. economy continues to suffer from “sluggish” economic growth freight demand “still pretty weak” overall.
Other observations regarding the freight markets from Stifel’s analysts include:
- LTL carriers are remaining “disciplined” regarding how their price their services, according to Ross. “They’ve learned lesson of last downturn; remain disciplined on pricing as they move through this soft volume period,” he said. “We expect pricing to be rational thru end of the year.”
- One big topic of discussion going forward for the freight markets: the absolute amount of inventory that has piled up. “The inventory to sales ratio actually bottomed out late 2011/2012 time frame, but it has been growing since then at steady pace,” Larkin emphasized. “It appears the retail supply chain has too much inventory. Part of this explained by growth of e-commerce and omni-channel markets; they need more inventory in the system and need it closer to customer to support them. But we don’t think that explains it all. Weak overall consumer demand is the other big factor.”
- Intermodal has been a surprise because pricing has been very weak of late, Larkin noted – largely due to the aforementioned with the inventory surplus and tepid consumer demand. “Lower fuel costs favor trucking, as well as the excess of truck capacity at the moment,” he explained. “Some shippers can’t resist that [so] they are pulling shipments off intermodal and switching them to truck.”
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