The largest U.S. truckload carrier is sending a clear message to shippers pressing for lower rates: Think about how tight truck capacity could be in 2017, not how abundant it was in 2015.
The bidding season for transportation contracts in early 2016 is proving “a constant battle with our shippers,” Richard Stocking, president and COO of Swift Transportation, told analysts Wednesday. In those battles, he urged customers to take a long-term view and eschew tactical, transactional thinking.
“We seek to do business with shippers who are interested in strategic, long-term partnerships and we remind them that a short-sighted mentality on their part at this juncture will likely have an effect on our mentality over the next several quarters as the ELD story plays out,” Stocking said.
Stocking referred to electronic logging devices, which the U.S. government will require truckers to use instead of paper logbooks to record daily and weekly work hours by December 2017. Swift Transportation switched its fleet and drivers from paper to electronic logs in 2011.
The ELD mandate is expected to drive an as yet unknown number of truckers out of the business, either because they can’t afford the devices, dislike being told they have to use them or simply can’t make money operating under the legal restrictions that ELDs will make easier to enforce.
Among shippers, “there is lots of concern about ELDs and how soon (they) will affect capacity,” Stocking said. “We have already picked up business from some shippers who have not invited carriers (to bid) who have not put a plan in place to become ELD compliant,” he said.
Shippers aren’t waiting for the federal deadline. Some are demanding carriers give them a “time frame to become 100 percent compliant” with the mandate as a prerequisite to a bid.
“We believe that picks up speed and steam in 2016 and more importantly in 2017. We’re seeing a flight to quality” carriers with ELDs by shippers, Stocking said in a mid-quarter conference call.
And quality, he suggested, ain’t cheap. “With any strong strategic partnership there is give and take, but we believe our key partners recognize the value and stability that a sizable, reliable and technologically advanced carrier with enhanced equipment safety features like Swift brings to the table,” he said. “We are encourage them to think long-term and not short term.”
In the short-term, shippers have more of a pricing advantage than they have enjoyed in several years.
Truckload capacity swung from “tight” in 2014 to “abundant” in 2015 as new trucks and trucking companies entered the market. Those trucks ran into depressed demand as inventories expanded, replenishment cycles lengthened and consumers took gas savings to the bank.
Added capacity and lower demand pulled down spot market truckload rates in 2015 and slowed the rate of increase in contractual prices. That trend was evident as the growth of the Cass Truckload Linehaul Index slowed from 7.9 percent in January 2015 to 1.1 percent last December.
Shippers also face cost pressures as corporations look to trim waste and spending in a slow-growth economy. But if Swift’s assessment of the ELD effect proves correct, those who seek too much advantage this bid season may find themselves at a disadvantage next year.