Multiple challenges faced by J.B. Hunt Transport Inc. and others within the transportation industry soon will add up to rate increases for customers.
J.B. Hunt warns of the looming rate increase in a nine-page white paper released recently to shippers and the general public, though it stops short of explaining how significantly prices will rise. Figures associated with a number of industry concerns, ranging from driver recruiting and retention to the cost of purchasing and maintaining railroad and trucking equipment, are detailed within the report.
"We hope this document has been informational to you and helpful as your organization begins considering the 2015 budgeting process," the white paper says at the end.
J.B. Hunt has been circulating the report for weeks among the members of the shipper community and released it to the general public Wednesday, essentially as a heads-up on looming price changes. Shippers could begin paying more as early as the fourth quarter as retailers are working to meet demand during the holiday season.
Conversations about tightening capacity and driver shortages have been occurring with increasing frequency throughout the industry. Talk of increased rates in trucking and intermodal take on additional significance because of the size and reputation of J.B. Hunt, the third-largest for-hire carrier in the country. J.B. Hunt reported revenue of $5.5 billion in 2013 and has been included in the Fortune 500 the last two years.
"It's a pretty significant statement on the market, particularly from J.B. Hunt," Stephens Inc. analyst Brad Delco said. "I think shippers probably understand that, to some degree, this was coming. It probably was a little bit stronger message than maybe what some were anticipating, but it's a message that needed to be delivered."
J.B. Hunt declined to answer questions about the purpose of the white paper, the timing of its release and potential rate hikes. A company spokesman did say J.B. Hunt has not "created an abundance of white papers in the past." Since 2011, white papers on a leaner supply chain and on natural gas have been posted on the J.B. Hunt corporate website.
Citing research by the American Trucking Association, the white paper points to potential driver shortage of 240,000 by 2022. Railroads, often used in conjunction or as a substitute for moving freight via truck, are adding equipment and crews at a slower pace than needed to meet current demand.
Rising equipment costs also are creating issues for transportation companies. Citing data from ACT Research, J.B. Hunt explained that truck prices increased 25 percent between 2006 and 2012 and upkeep also has increased because of changing regulations implemented by the Environmental Protection Agency.
Newly implemented hours-of-service rules have reduced "the maximum hours a driver can work in a week by up to 12 hours or, 15 percent." These changes have led to a need for additional drivers.
"As highlighted above, increasing expenses and mileage pay, truck and maintenance costs, preparation for future regulations on equipment, lost productivity due to new regulations and a precarious market capacity situation are all stressing forces," the white paper states. "Shippers should prepare for significant cost recovery and network rationalization efforts from providers of both highway and intermodal services beginning in late 2014 and into 2015."
J.B. Hunt is one of many transportation companies feeling the effects of a driver shortage. Industry experts say even Wal-Mart Stores Inc., which has traditionally had low turnover and a waiting list for driving positions within its fleet, is ramping up recruiting efforts. Smaller carriers and industry advocates have been warning of a potential driver shortage for years, and Arkansas Trucking Association President Shannon Newton said a lack of qualified drivers remains the top concern.
"Across all segments and fleet sizes, the driver shortage rises as the No. 1 concern right now," Newton said. "The gradual improvement of the economy continues to stretch the shrinking driver pool to meet demand. It certainly feels as though it is going to get worse before it gets better."
Companies continue to spend more on efforts to retain and recruit drivers. When those costs are added to other expenses creating financial burdens on transportation companies, it is not viewed as a surprise that customers would eventually be asked to share the burden.
Delco said it was likely shippers were going to see increases in 2015, but a company the size of J.B. Hunt increasing its rates all but guarantees it. J.B. Hunt's white paper serves as a signal to smaller providers with less clout that they too can begin charging more from customers.
"We've actually heard and seen some reaction from competitors, which probably means they're likely to get more aggressive on pricing as well," Delco said. "Once one of the the big boys makes an announcement like this, the other guys that don't feel as empowered probably take this an an opportunity to take advantage on the pricing side as well."
SundayMonday Business on 09/28/2014