Driver Issues May Hurt Trucking Industry Growth in 2015

[kscarbel2]

Heavy Duty Trucking / February 12, 2015

Analysts at GE Capital compiled a list of expected trucking industry trends for 2015. GE highlighted expected outlooks for Freight, Equipment and Rates and Capacity.

The analysts believe that carriers were benefitting from an ideal supply and demand environment entering 2015 with profits strengthened by freight trends, pricing leverage due to tight capacity, and lower fuel prices.

They also expect the trucking industry to be affected by challenges in 2015. Driver turnover is at a historically high level in the long-haul market. There are operating inefficiencies due to regulatory mandates, driver shortages and pressure to improve driver compensation and benefits.

The freight outlook for the year is positive with new construction activity, light vehicle sales and retail sales continuing to drive freight tonnage. Demand in all these segments is expected to benefit from a modest hike in domestic GDP growth during 2015.

GE analysts expect energy production to be a potential negative for freight given a sharp decline in crude oil prices but overall, they expect the lower fuel prices to counteract this and benefit trucking in the long run.

They expect an upward bias in interest rates with the Federal Reserve potentially tightening in 2015 but don’t believe it will pose a significant threat to the primary drivers of freight tonnage as long as the increases come gradually and are reflective of a steadily growing economy. However a significant spike in interest rate volatility could present a challenge to positive tonnage market.

GE’s outlook for equipment production and sales is that it growth will slow relative to 2014 in the medium and heavy duty truck markets but should remain positive during 2015. Much of this is due to the huge boost that came towards the end of 2014 continuing into the beginning of this year, with analysts saying that it is unrealistic to expect that pace to continue through this year.

They noted that while lower fuel prices have decreased the demand for newer, more fuel efficient trucks, the market will remain positive as fleets continue to order new vehicles to alleviate capacity constraints and to stem driver turnover.

Freight rates are expected to be moderate this year as all the new trucks that were ordered in 2014 relieve some of the strain in capacity. However, the difficulty of new market entrants due to stiff regulations, driver shortages, and liability and insurance costs will prevent the industry from increasing capacity enough to completely meet the demand. In addition to that, upward pressure on driver wages and benefits will help to justify higher freight rates despite the decrease in fuel surcharges.