May 10, 2018

FTR: Freight demand remains high amid “unfavorable shipping environment”

FTR: Freight Demand Remains High Amid Unfavorable Shipping Environment

Freight demand is continuously growing, but the capacity is slow to catch up with the growing freight demand, which is putting pressure on market rates, according to the FTR analysis.

For January and February this year, the Shippers Condition Index measured by the FTR showed no changes and remained at -11.1 — hinting at a challenging and unfavorable environment for shippers.

The pressure is because of the continuous growth in freight demand. Typically, freight demand slows down after the holiday season, especially during the first quarter. Uncharacteristically, it remained strong in 2018.

The FTR noted that its truck loading index is still projected to grow by another 4% to 6% entering into the first quarter of 2019. Given this scenario of sustained and even growth in the cargo loading index, the trucking industry will face a potential future market with a glut in cargo volume. The imbalance may increase freight rates even further.

Jonathan Starks, the Chief Operating Officer at FTR, said:

Shippers remain in the throes of a pro-carrier environment. Every major indicator of demand — manufacturing, payroll employment, retail sales, housing construction — is at least at the strongest level since the Great Recession. Unemployment is at a 17-year low, and the driver shortage continues to create capacity constraints.”

Starks added, “Rates on the spot market continue to remain elevated, and we do not expect to see any significant downward rate pressure — whether spot or contract — until at least 2019. Shippers should not expect to get near-term relief from spot rates that are at or near record levels. Security capacity at a reasonably higher price remains the key challenge for shippers.”

Todd Tranausky, who is a Senior Research Analyst at FTR, added:

“Intermodal rates are expected to follow truck rates higher and grow at more than 5% compared with the 2017 period through the balance of the year. The next few months will see rates grow even faster, leaving shippers paying more to move their goods in a tight freight market.”

While freight demand and market rates are continuously increasing — flatbed rates are at its highest — fleets are also struggling with the ever-growing problem of driver shortage.

According to data collected by the American Trucking Associations (ATA), the industry will require 900,000 drivers by 2026.

Apart from driver recruitment, driver retention is another issue that many trucking companies are dealing with. Although driver pay has increased by 15% since 2013, drivers are not completely happy with their jobs.

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