A modest overall rise in freight volumes this year and three years of relatively stable – albeit high – diesel fuel prices could be outweighed by a perfect storm of regulatory impacts should they come to pass in the near future.
According to Heavy Duty Trucking, that’s the conclusion made by Noel Perry, of FTR Transportation Intelligence, during the firm’s quarterly State of Freight webinar this week.
“The big deal of course is the regulatory situation,” explained Noel Perry, FTR’s senior consultant and president of research firm Transportation Fundamentals. “The FMCSA keeps adding more requirements to the industry, and while their impact won’t be as bad as projected in 2014 and maybe 2015, it will probably be quite bad or even worse in terms of the impact on industry productivity long term.”
Perry noted that the FMCSA is already being urged by the National Transportation Safety Board (NTSB) to step up the pace of its regulatory efforts, even as the trucking industry continues to deal with productivity losses from hours of service (HOS) changes in July.
A total of 26 potential government mandates could affect the industry and impact costs, Perry said. So far, Hours of service (HOS) reform “has been the single biggest shock to the system,” reducing trucking productivity by 3% in the U.S., according to Perry, who will also be a guest speaker at the Ontario Trucking Association’s annual conference next week.
Based on the current pace of regulatory efforts, Perry suggested there’s a 30% to 40% probability that trucking will suffer from another “regulatory shock” in late 2014.
With fuel prices stable for the last three years and expected to remain so thru 2016, “it’s been a very ‘unvolatile’ time for trucking,” he said. “But is this the ‘new normal’ My strong recommendation now is to remain very flexible: we could now see some rapid up and down swings.”
The trucking industry is operating today with smaller margins of “surge” capacity, meaning it won’t take much of an uptick in freight demand to spur rate increases. “Right now carriers are able to operate and meet demand with current capacity, so rates haven’t moved much,” Perry said. “But if we get a [freight] surge, rates will rise dramatically.”
FTR is forecasting a 5% rise in freight rates for 2014.