|Cass Freight Index|
- There have been two straight months of freight contraction
- This is the third time this year, freight volumes are down year over year
- Inventory levels are increasing beyond what is needed for the sales volume in the economy.
- The report says to expect rates to stay firm - I disagree with this and I think the empirical evidence will show this not to be true.
The report continues to say driver pay and fuel is driving higher costs for the carriers. Of course, we know higher fuel costs are burdened on the shipper, not the carrier, due to fuel surcharges. I also have not seen a massive increase in driver pay however we shall see if that starts creeping in. The report says these increased costs have not made it through to the shipper in rates however the long term trend is the costs are passed on. The average operating ratio (OR) has decreased (margin increasing) for the better part of a year now. This means either the carriers are getting great operational efficiencies to offset these cost increases (that would be a good and competitive thing to occur) or the costs are being past through. Impossible for the carrier costs to increase and the OR rate to decrease without one of the two above occurring. As always, it probably is some of each.
So, here are my thoughts for shippers:
- Despite a somewhat coordinated effort across the industry to reduce capacity it appears demand is decreasing even faster. This is a message I have been projecting for the last 6 months and the evidence here continues to reinforce this general message.
- If you are a shipper who was frightened into taking increases at the beginning of the year you may want to review that decision and perhaps run a bid event. You most likely are paying out of market prices.
- The idea that Q3 and Q4 is a bad time to bid may be an idea which is dying. Carriers should be worrying about where the volume in Q12013 will come from now and may be a bit hungry.
- This report continues to reinforce the incredible volatility of the market and the fact every shipper needs to have a very detailed supply base management program to monitor these changes and leverage them when needed.
For carriers I believe:
- May be time to stop a lot of the blustering and start building true relationships with your shippers to lock in shrinking volume. Getting business out of fear is not always a good or defensible long term strategy.
- Offer value added services to ensure you bring more than just transport to the mix. Shippers need overall logistics and supply chain partners to make it through slow times.
- Continue to drive exceptional efficiencies. As an industry we need to ensure that logistics expenses as a % of GDP declines. That is the true measure if our industry is adding value or not. Let's focus on the right things.
- Continue to drive hard for increased fuel mileage and sustainability objectives. This benefits everyone.
In conclusion, the signal this report is sending is things are slowing down and the pace may be accelerating. Get ready for a tough Q42012 and Q12013.
I wish I had better news.