Motor carrier pricing is expected to remain strong but, like volumes, pricing growth will begin to moderate somewhat.

Following another exceptional year for the U.S. freight transportation industry, the experts are predicting a strong showing from general trucking again in 2006. In 2005, continued heavy demand led to significant increases in trucking industry revenues and profits.

Although 2006 U.S. economic growth could slow as a result of higher energy costs, demand for the goods transported on the nation’s roads and highways is expected to remain relatively strong this year.

As expediting is a segment of the larger general trucking industry, let’s look at the overall roadway transportation picture.

Demand for freight shipping has been very strong over the past two years. As the U.S. economy has recovered from the recession in the early part of this decade, heavy consumer demand has driven a significant increase in freight shipments of raw materials and finished goods, both imported and domestic.

U.S. economic growth is expected to slow somewhat in 2006, likely resulting in continued freight demand growth, but at a more moderate pace than seen in 2005. Economists have predicted real gross domestic product (GDP) in the U.S. to grow by 2.8% in 2006, down from a full-year forecast of 3.6% for 2005 and actual growth of 4.2% in 2004.

“The U.S. business sector is looking very healthy, and this will help alleviate the slight slowdown in consumer spending and housing,”says Jim Paulsen, chief investment strategist of Wells Capital Management. “I believe we’re in the early stages of what will be considered a ‘manufacturing renaissance period’ in the next several years that’s tied to steady trade improvements. We’re also seeing renewed strength in the stock market, and foreign economic growth is accelerating, which further positions the U.S. economy for a more sustainable recovery.”

The experts tell us that long-haul less-than-truckload (LTL) volumes will remain relatively stable. Regional short-haul demand has shown continued growth as shippers look to trucking to help support just-in-time inventory management. The rate of growth in freight volumes may be slow, as indicated by some economic reports and forecasts, but there is still more freight chasing capacity than the other way around. Overall shipments of autos and parts from the U.S. “Big 3” will likely remain flat compared with 2005. GM freight in particular will diminish as plant closures in both the U.S. and Canada will begin in 2006; however, look for the foreign transplant auto factories in the Southeast to continue to see some growth. The transport of construction materials may experience some regional strength, as communities along the hurricane ravaged Gulf Coast begin to rebuild. Trucking could also see a pick-up in demand in that region, as retail operations restock inventories and residents replace goods lost or damaged in the storm.

The heavy demand for freight shipping has given motor carriers a level of pricing power not seen for years. Embedded in these price increases are fuel surcharges that have risen along with the cost of diesel fuel. With fuel prices recently reaching record highs, the portion of the carriers’ revenues comprised of fuel surcharges has risen to the point that it has become an integral part of the overall pricing of freight shipping For some motor carriers, that percentage has been considerably higher, at times comprising all of the unit revenue increase.

Motor carrier pricing is expected to remain strong but, like volumes, pricing growth will begin to moderate somewhat. As fuel surcharges have become a larger component of the pricing structure, shipping customers are paying more attention to the effect it is having on their overall shipping costs and will likely begin to more actively negotiate the surcharge along with the base rate.

A number of trucking companies are also expected to spend more capital next year as they purchase new power units ahead of the government’s low-emission engine requirements that go into effect in 2007.

An Expediting Focus

The emergency freight industry should experience (to a degree) the same economic forecast that we’ve seen for general trucking.

Some expediting-specific notes:

Expedited carriers will continue to diversify, relying less on the automakers as the core of their business. The time-sensitive shipments from other industries such as pharmaceuticals, publishing, etc. will help to fill the void left by those automotive shipments. Fuel surcharges will continue to be a key component in the owner-operator’s bottom line. Class 7 and Class 8 expediting truck sales will be healthy through ’06 as a result of the predicted substantially higher prices for the ’07 models.

“As far as predicting what 2006 holds, we’re still fairly new to this business (2 years) and it seems that when we make a prediction, it winds up the opposite. The economy is still fairly strong, so we believe that ’06 will be a pretty good year for us.” – Expediting owner-operators Loyel and Carolyn Hershberger (Tractor)

Ben Bauman, the General Manager of Bolt Express, LLC says, “Our forecast of 2006 would project a slow down in the automotive sector with steady growth in most other sectors. It is looking like the economy will be driven by the business sector and not so much the consumer sector this year as we continue in this recovery. There seems to be a lot of capital investment from the business sector that has seen its bottom line strengthen in 2005.”

“We have some very aggressive goals for 2006. We feel that overall 2006 is going to be another great year for our company. We made some very aggressive changes throughout 2005 that have diversified our customer base to help offset an automotive slow down. We have expanded our sales team again this year in an effort to keep a very good balance between automotive and non-automotive customers. We are also expanding our logistics company to offer additional services to our customers in an effort to accommodate their needs.”

“Overall we look forward to another good year in the expedited market.”

Jeff Curry, Chief Operating Officer with expedited carrier Express-1 of Buchanan, Michigan says, “2005 was a year of focus as we sold all non-expedite business units so that we could channel all our resources into expedited transportation. As of the fourth quarter we had completed the reformation of our business, and we are now 100 percent devoted to expedited transportation. We look forward to great opportunities in 2006 and are very optimistic about the year ahead.”