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Analyst: Reg Wave to Usher New Round of Capacity Tightness 2017-18

Sluggish North American freight volumes in recent months may not turnaround right away, but a new capacity crunch phase next year could swing leverage back in carriers’ favour, according to a panel of freight market analysts.

The expected shortage in 2017 is expected to be driven in large measure by the mandated adoption of electronic logging devices (ELDs), reports Fleet Owner. The market is already seeing some signs of this now, according to John Larkin, managing director and head of transportation capital markets research at Stifel Financial Corp.

“Some shippers are stepping up as they ask carriers to begin installing ELDs now as [they] have decided that it is too risky to wait until the middle of December 2017 to see if [their] core carriers have sufficiently progressed in installing ELDs,” Larkin said during a presentation the 2016 Truckload Carriers Association (TCA) annual meeting in Las Vegas.

“Most shippers have little interest in using non-compliant carriers. We mention this fairly widespread trend to suggest that the impact associated with ELD implementation may be felt a little earlier than some had projected.”

Larkin added that the driver shortage continues to be a “huge” industry problem, with the industry on pace to be short an estimated 250,000 drivers six years from now. He also noted that the “quality of recruits” is declining as well, meaning many carriers will be further restricted in efforts to add capacity to their networks.

“A long-term truckload capacity crunch should kick in around 2017 and 2018 if the economy continues to grow slowly,” Fleet Owner quoted Larkin as saying. “It would not take much incremental growth in retail [freight demand] to put us right back into the capacity constraints we experienced in 2014.”

Yet he emphasized that “bloated inventories, sluggish consumption, and contracting industrial activity” that started to occur in mid-2015 through the first part of this year got exacerbated by shipper attempts to cut freight costs; a move Larkin likened to “Neanderthal practices.”

“Maybe 20% of the shippers out there went out to re-bid freight; and they have no idea how disruptive that is to carrier networks,” he said. “It is still out belief that greater shipper/carrier collaboration is an untapped resource…”

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