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Business Costs & Regulation

Higher Freight Rates Coming

What's driving trucking consolidation -- and how shippers can respond.

Two thousand more trucking companies will call it quits this year, roughly the same number as in 2009 as the consolidation trend retains its grip on the industry. Continued weak demand for freight services, stubbornly tight credit and rising operating costs will drive many firms out of business.

“Many (truckers) put off preventative maintenance so long, they now face catastrophic maintenance costs that will push them over the edge,” says Donald Broughton, a senior research analyst and managing director with Avondale Partners, an investment banking firm.

More federal oversight of trucking operations, including a stronger emphasis on truck safety as well as company recordkeeping, will add to truckers’ woes. The crackdown set to begin in July is sure to raise compliance costs for trucking firms. Operators with many violations face the threat of seeing the U.S. Department of Transportation suspend their operating license.

There’ll be little change in freight hauling prices this year, though, even with consolidation, as demand from manufacturers, automakers and retailers remains tepid.

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But a strong rebound in freight rate prices, up to 10%, is coming in 2011 -- one consequence of rampant industry downsizing. As the economy improves, demand will ramp up faster than hauling capacity.

An acquisition binge will give truckers more pricing leverage. Haulers with solid balance sheets will look to strengthen their competitive positions as freight demand rebounds in a year or so. Among key mergers: Northwestern truckload carrier Haney Truck Line acquired regional competitors Nickel Plate Express and Puget Sound Truck Lines. Kenan Advantage Group bought out Reinhard Transportation. And Midwestern carrier C&K Trucking acquired Transportation Made Simple, a New York competitor.

Consider locking in a rate before spring. Offer to pledge a minimum level of business in exchange for guaranteed service and limited price hikes two and three years out.

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