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The following article appeared in Traffic World.

Pricing’s Spot Support
By John Gallagher

Spot market keeps pressure on truckload, LTL rates; carriers use service to support sagging price ceiling

Truckers may have staved off a pricing free-fall in the weakest freight environment in years, but the spot market still could push truckload and LTL rates to new lows in 2007.

While some carriers are cutting prices to maintain market share, others are banking on high service levels to keep prices from falling. Carriers with the deepest pockets have had the most success at avoiding drastic dips in both price and service.

“ Over the past two quarters our public truckload carriers’ reported yields have remained surprisingly solid considering the weakness in spot market pricing,” said trucking analyst Ed Wolfe of Bear Stearns.

“ We believe the larger carriers have chosen to sacrifice utilization and deadhead to maintain their higher paying freight. However, with most of the large bids that were out in the market during the first and second quarter now complete, we believe yields as reported by the large truckload carriers will be down compared to last year,” Wolfe said.

Wolfe says LTL carriers are seeing growing price competition, particularly from the large parcel carriers.

“ We see an increasingly competitive marketplace as UPS and FedEx move deeper into the LTL market through acquisitions and as (Arkansas Best) and (YRC Worldwide) increasingly are expected to roll out new next-day products for the first time in that fast-growing market dominated by regional players. We also see many public and private LTL providers who expect to pick up market share through the downturn by growing new products and/or new geographies.”

New England Motor Freight, a subsidiary of the Shevell Group, Elizabeth, N.J., is attempting to do that.

“ If you don’t have much that differentiates you from everyone else, then it’s a difficult time to compete,” said Michael Bare, president and CEO of the Shevell Group. “We set out on a path over a year ago to focus on (maintaining service) and allowing the ups and downs of capacity and the economy to play havoc on others.”

Michael Regan, chairman and CEO of TranzAct Technologies, says lines between truckload and LTL are blurring in the spot market, giving shippers more opportunities if they can take advantage of them.

“ A lot of shippers are wedded to core carrier programs, and their base of carriers is relatively fixed,” he said.

“ In this environment, if (shippers) can expand the carriers with whom they work, they can take advantage of particular lanes. The drawback is that may hurt when capacity gets tight again, because carriers are going to flow trucks to their higher yielding business.”

NEMF, which participates in the spot market in traditional backhaul lanes such as inbound to Chicago and outbound from the Northeast, says prices can fluctuate depending on the time of day, a particular terminal and the day of the week.

The key , he says, is not allowing competitors that can’t provide the same range of services to dictate price.

“ Competing against smaller companies that don’t pay near what large companies pay, if we have to look at that in addition to the cost of infrastructure and the cost of recapitalizing large fleets with safe equipment, we have to find a way to prove to customers a value. Otherwise we won’t be able to buy a truck that’s 20 percent more efficient or open a terminal where the per-door cost has gone up 20 to 30 percent in the last two years.”

One company trying to even the spot playing field is CarrierStore, a Web-based freight exchange that connects shippers directly to the pricing departments of LTL carriers for automated spot quotes on shipments more than 3,500 pounds, up to and including a full truckload.

“ More and more freight is moving in the spot market and away from tariffs,” President Dan Clark said.

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