2012 Was A Good Year for Shippers Who Used Analysis Over Emotion

Despite all the noise about how CSA, regulations and a surging economy would create a massive deficit in capacity, what we saw in 2012 was a very shipper friendly environment for those shippers who did not let their emotions runaway with them.  If you stood fast, watched the data and understood the market you were able to reap some pretty good rewards in 2012.  The ATA truck tonnage report even showed a reduction year over year in December.

Bob Costello, economist for the ATA was even quoted as saying in 2013 the outlook is for a sluggish truckload environment.  My personal believe is the rules of good transportation management and procurement management don't change much.  Some highlights are:

• Always conduct should costing before talking rates.  Understand the costs of every component (Equipment, driver wages, fuel etc.) and the best in class purchasers will know those costs as well as the person across the table. 
• Don't let emotions and the industry hype sway you.  Stay focused with the data.
• Understand your personal procurement situation.  Even if the market is "on fire" if you have counter freight to the prevailing freight flows you are in the driver's seat. 

I had one person tell me a long time ago that transparency and accuracy will always prevail in costing and I believe them to be right. 

Bill Graves on Fox Business

Bill Graves, the head of the American Trucking Association (ATA) does a nice job on Fox Business discussing the impact of Sandy, the readiness of the transport industry and the future of the industry.

I found it fascinating that he believes we will "slog along" until Q3 of 2013.  I think this was about as direct as I have heard an industry leader speak about the "flat lining" of the transportation industry recently.

ATA September Tonnage Report; AAR Rail Loadings

The ATA has issued their September tonnage report and the results are as expected - flat at best (increased.4% after an August decrease of .9%).  The most stunning statement in the report is:

"Compared with September 2011, the SA index was 2.4% higher, the smallest year-over-year increase since December 2009. Year-to-date, compared with the same period last year, tonnage was up 3.6%."

The smallest increase since 2009 is not a good story for the transportation industry.  Combine this with the fact that inventories are somewhat inflated - meaning no real inventory restocking is about to happen - and you realize this year ended very flat for freight and freight movements.  Of course, we have been seeing this all along in our "unofficial" indices which I use to gauge freight demand.  A couple of instructive trends to look at from the graph:

ATA 9/2012 Truck Tonnage Graph

Coming out of the recession you can see the truck tonnage rise but really since the beginning of 2012 it has flattened out substantially.  Further, there is a little blip at the end of 2011 which I believe was essentially a "fear trade".  A "fear trade" was the beginning of the industry pushing hard to put the "fear of God" into shippers telling them if they do not sign up for premium costs then "when the economy turns" the carrier will abandon their freight.   This worked (like all fear trades) for a very short period of time however ultimately rational economics took over and the results are what you see above.

Rail tells a bit of a different story and it is clear the migration from truck to intermodal is occurring at a fast pace.  Market share of intermodal v. truck has to be increasing as I personally believe it has become the preferred mode wherever it can be applied.  It used to be truck was preferred then people would "look at" intermodal and now I believe it is the exact reverse.  Logistics Management magazine said in interviews with shippers at the Council of Supply Chain Management Professionals (CSCMP) Conference - 2012 shippers where now calling intermodal the "go to" mode of freight.

AAR reports while carloads are decreasing in volume, intermodal (IM) is increasing for all major US railroads.  For week 42 (ending October 20, 2012) IM containers were up 6.1% yoy and 5.8% for the cumulative through week 42.  Trailer on Flat Car (TOFC) continues to show significant declines as the migration to containers continues.

Overall we are seeing a very flat freight market and one which shows no real signs of major pick up through the beginning of 2013. If GDP continues to rise at or around 2% and roughly 10% of that number is "non freight" (i.e., financial etc.) then we will see below 2% growth in freight for the foreseeable future.  This is far below the 3% most industry analysts believe is when the real "crunch" will occur.

Unless carriers decide to significantly shrink their business this will mean it will be far more about growing market share than it will be about grabbing more of a growing pie.

The Highway Bill - Is it Re-regulation in Disguise?

For many who have read my postings you know I personally believe there is a quiet re-regulation of the transportation (mostly full truckload) industry going on in the United States.  Interestingly enough, this is mostly being led by the trucking companies themselves both indirectly and directly.  As regulations have increased the profitability of the trucking companies has increased as well.  It is as if they all just decided competing in an unregulated and highly efficient market was just too much to take.  It is easier to publish a unified tariff and move on.

A stark example of this is in the new highway bill.  In an article written in Logistics Week Bill Graves, the ATA President hails this bill for doing the following:

• Requiring electronic on board recorders for hours of service compliance
• Establishing a central clearing house for Drug and Alcohol testing
• Establishment of standards for systems to provide employers notification of moving violations
• Mandatory testing of new carriers coming into the business around safety (Read: Increase the barrier to entry)

There was a day when any transportation executive would be appalled at the above mainly because it increases regulation, decreases competition and creates barriers to entry to the industry.  This will all result in bad news for shippers as the carriers will use these "new regulations" as an excuse to raise rates.  The savvy shippers will remember who actually put these regulations in place in the first place: The trucking industry. 

One thing the new Highway bill does not do:  Fund infrastructure repairs so our roads and highways become less congested and more conducive to transportation. 

Next up I will deal with how this is being paid for and here is a little hint:  If you think you are getting a defined benefit pension plan, you just contributed!