Saturday, April 30, 2016
Pricing Declines in Both Truckload and Intermodal
The promise of "pay me now so you don't have to pay me later" continues to be a mirage. With the release of the March CASS reports we saw that pricing actually declined in the truckload sector YoY for the first time since 2010. Intermodal continues to be a problem as well with significant price declines. Intermodal declines were 3% YoY in March and 2.2% in January YoY and 3.8% in February YoY.
This all stems from the fact there is overcapacity. Further, as shippers get far smarter in terms of network design, designing products for efficient shipping and inventory management, the problem of overcapacity is being exacerbated. Avondale partners believes the "risk" is to the downside of 1% to 2%. The overcapacity in rail can be attributed to the sharp decline in some commodity shipping such as oil. The other part playing havoc on transportation is the Inventory to Sales ratio which I will discuss in my next posting.
At the end of the day, this continues to behave as a commodity market. The idea that you should "pay up" during overcapacity months / years so you are protected when the market "turns" is a fools errand. Of course, you should always be a good partner, you should always work to turn drivers fast, make their life easier and work with your carrier partners to balance demand. But those are things a good business person does anyway. Just makes sense.
But, to think you should "pay up" to be a "shipper of choice" is crazy and will only put you in a position of uncompetitiveness relative to your peer group.