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Market Effect Shaky start to 2016, but ELD mandate could improve pricing

By Steve Brawner Contributing Writer

Motor carriers did not have a great

first part of the year, the spot market has been challenging lately, and ton- nage in the less-than-truckload sector in particular has been weak. But the federal government’s electronic logging device mandate could reduce capacity, and when that happens, pricing could improve. Those were some of the observa-

tions of Jason Seidl, managing director of the investment banking firm Cowen Group. Seidl, who has been a trans- portation analyst on Wall Street for 18 years, made at the 2016 Arkansas Trucking Association Annual Business Conference & Vendor Showcase in Little Rock in May. Seidl said the first part of the year

was disappointing for trucking com- panies. During the months of January through May when so many contracts are signed, most companies were hop- ing for 2-3 percent rate increases and instead saw increases of 0-2 percent—a number that probably will be closer to zero by the time the season completely ended. Moreover, the spot market has been weak for dry van and refriger- ated companies. Seidl displayed a graph to conference attendees showing the nation’s gross domestic product has been bouncing between 1 and 3 percent growth since around the beginning of 2011—a rate that “probably feels worse than that for most people.” “When talking to a lot of the

trucking companies out there, (the first 38 —JASON SEIDL, COWEN GROUP

quarter) just finished—and that’s the reporting season for what I cover in freight transportation—the general feel was January started off OK,” he said. “February was great for everyone. Mind you, it added one extra day because of leap year. But about mid-March was when we started seeing things slide off a little bit. That sluggishness continued through April. I think seasonally, things feel a little bit better here in May, but it’s still not great.” Seidl said less-than-truckload ton-

nage in particular has faced challenges. The LTL model is highly leveraged, and fixed costs don’t go away when the freight is reduced. That sector has more exposure to industrial products impacted by the strong dollar, which makes American exports more expen- sive. Pricing has remained stronger than expected, but some carriers have faced price competition. “They operate as more of an oligop-

oly, if you will, with your top 10 carriers controlling almost 80 percent of the business that’s out there,” he said.

THE REGULATION EFFECT Seidl said many motor carriers

and investors are hopeful about the recent Federal Motor Carrier Safety Administration mandate that all truck-

ing companies using paper logs must install electronic logging devices by Dec. 18, 2017. They think the require- ment will reduce capacity and therefore increase pricing, and while the deadline is not until the end of 2017, fleets will face pressure to do it earlier from ship- pers such as Walmart and from third- party logistics companies such as C.H. Robinson. Many carriers he follows have reduced capital expenditures, so fleets will be smaller at the end of the year, he said. As trucking capacity lessens and as long as the economy continues to grow, spot pricing should improve. Seidl said government regulations

including the ELD mandate, new engine emissions standards and hair follicle testing usually reduce capacity. But regardless of the effect on motor car- riers, the regulations tend to make life more difficult for one group—drivers. “Over the years that I’ve been

involved in transportation, it’s never been a good year to be a truck driver. Right? It’s always going to be a tough job, and I think the government’s just making it that much tougher as the day goes by,” he said. Seidl said his firm is “a little bit

more favorable longer term, little bit more cautious near-term” when it comes to transportation stocks. That



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