Interesting Supply Chain Events from Week of August 21, 2017

The week is over and some very interesting reads and developments.  Let me get right to them:

1. The war between Amazon and Walmart heats up with the use of Google Home:  In Kevin O'Marah's great piece in Forbes (Google/Walmart: The Brutal Future of Retail Supply Chains)   he discusses the impact of voice assisted purchasing.  While some thought Amazon had this locked up, Walmart joins forces with Google and given Google's penetration into the virtual personal assistance market this may give Walmart an edge over Amazon.  Other implications of this:
   
• Data flows directly from consumer to the manufacturer and could be the device that moves power back to the manufacturer and away from the retailer. 
• Price discovery by the consumer will be faster and will result in a brutal retail environment. 
• As Kevin states, if you are on a calendar based S&OP process, you may be too slow to adjust for what will be a rapidly changing consumer.
  
  This war shows retailing is really a war over efficient supply chains.
    
2. Lean is almost always in the news however when I see my good friend Robert Martichenko launching a new lean blog I jump up and notice.  It is called "Lessons in Lean: Lessons in Leadership" and I will not repeat everything he is writing here.  Suffice to say, everything Robert reads is worth reading, this blog is no exception and I encourage you to read it directly. Specifically, the post titled: Is Reflection a Lost Art was very impactful for me and I have taken actions in my own personal journey reflecting some of Robert's thoughts.  It is a must read.
   
3. More data supporting my previous post about leadership and being on the floor to lead and understand what is truly happening.  In "What CEO's can Learn From Their Frontline Workers", Mark Dohnalek does a nice job outlining why being on the floor and listening is an important trait of CEOS and all leaders.  It still is amazing to me how many CEOs spend more time in meetings than out in their facilities.
   
4. CASS reported continued upward pressure on rates for a YoY basis and a MoM basis although the pace is slowing.  I will write more about this however I will say we are still far below 2012 - 2015 and I personally think we are starting to get to a precarious position.  A lot of investments and purchases are being made in anticipation of macro economic activity by the Feds (i.e., tax cuts which they call tax reform).  If this does not happen (which I give about a 50/50 chance) we will find people have gone far in front of their skis.  CCJ reports tonnage leveling out and conditions deteriorating.
   
   
   

   

   CCJ Report on July Truck Tonnage

   Looking at the Net Income and EPS of the large publicly held carriers and you see that it has, so far, been a "ho hum" year as their income is struggling to keep up with expenses.  Landstar, once again is the outlier and doing a fantastic job.  (See transcript from conference call here: Landstar (LSTR) Q2 Conference Call.
   
5. The race for fast delivery of big box products is heating up with rumors of Overstock wanting to take advantage of XPO's incredible final mile delivery network.  While Overstock declined any agreement has been reached, I am just not sure how you execute fast delivery of things such as appliances and furniture without engaging XPO.  Bradley Jacobs, XPO CEO plans on being within 120 miles of 90% of the US population by the end of 2018.  Tough to find another competitor who can do that.
   
6. The Inventory to Sales Ratio in the economy was updated last week and while we had been enjoying some good news, you can see it has turned and started to rise again.  This could be due to the holiday inventory stock up, which is being reported as being very robust and then again, it may not be.  More to come on this.  

   

   Inventory to Sales Raio - Updated August 15, 2017

Well, that ends a pretty exciting week and hope it was profitable and engaging for all.

What A Month May Was For Transportation

CASS Freight Systems is out with their monthly Freight Index Report and it shows some very good news for transportation providers (not so good for the shippers).  Some key facts and figures:

• YoY shipments are up 7.1% 
• YoY expenditures are up 7.4%

But before all the full truckload providers get too excited it is important to call out the role of parcel in this number.  E-Commerce is driving the "train" (sorry for the pun) and a lot of this is essentially Fedex, UPS and other small parcel shippers.  The trend below shows it is really not very exciting for truck load carriers:

But, the good news is it appears freight is moving which ultimately is very good fro the economy.  I do think it is too early to call an end to the recession the way Cass did but certainly "green shoots" are starting to form.  

October Results are Not encouraging for Transportation Providers

It may not be a complete "Happy Thanksgiving" for people who manage 3d party transportation.  After some very large decreases in the last few months, the CASS Transportation index decreased again in October.  The transportation index dropped 1.4% in October.  While this is better than the drop of 2.8% in August and 3.5% in September, it still shows that there is over capacity in the transportation industry.

The Intermodal index rose, YoY for the first time since 2014 by 0.4%.  This, I would call a "rounding error".  Let's call it flat.

Source:  CASS Transportation

Source: CASS Transportation

As I have discussed for many years, there is a fundamental shift in the way freight is moved in the US and I am wondering if even the metrics are wrong?  Should we be so tied to this freight index and does this really tell us about the economy? Today, the economy seems to be moving fairly well but transportation continues to decrease.  The issues:

1. Miniaturization of product
   
2. E-Commerce (reduction of movement of product to stores
   
3. Digitization of product - more product delivered electronically (Books, newspapers, inserts, music etc.).
   
4. Localization of suppliers - This is very interesting because it is a function of transportation costs getting out of control a few years ago. As more finished goods / component mfgs localize, transportation requirements decrease dramatically (Better cube utilization when shipping raw materials v. shipping finished goods or components).
   
5. The Borrowing Economy:   I will write more about this and the impact to supply chains but this is real and it is impacting how much we buy.  Think about how many items you have that sit and do nothing most of the time.  If people start aggregating this in a borrowing economy, the total amount of product bought and shipped will be reduced dramatically. 

So, the macro trends fully support this reduction in transportation even though the economy seems to be moving along quite nicely.  

CASS Report from September is Somewhat Grim - Macroeconomic Monday

OK, I am late to the party on this one, sorry but when I read it I thought I had to write, albeit, late.  The Cass Freight Index Report from September had virtually no good news in it.  The best thing they had to say was (actual quote), "... the YoY contraction [in expenditures] appeared to be less bad [than August]".  When all you can say is "It is not as bad as last month", you know it is bad.

On To the Numbers:

• Shipments were down 3.1% YoY
• Expenditures were down 3.8% YoY

And the industrial recession is on.  I think they rightfully state that the culprit may be the contraction in inventories.  I have written many times about the growth in inventory relative to sales and I think companies have realized they need to get rid of those inventories.  This means most product is already here and in the warehouses / stores and this reduces the need for transportation immensely. Why buy new product when you are so dramatically overstocked. 

Destocking takes bps out of GDP

This graph, from CASS, tells the story that destocking, while slowing down, is still a drag on the economy.  CASS says they are continuing to be concerned about too many autos, elevated inventory relative to sales and the fact that the consumer has not really dove in with both feet (or open wallet).  

Now, the key issue will be whether the Fed increases interest rates in December as everyone expects them to.  That will be a real problem as the economy, even if you think it is good, is truly running on just about one cylinder. 

What does this mean for shippers and providers:

I think the data is clear, and has been for at least two years now, and it is telling us that the shippers are in control (especially in ocean freight) and will be for the foreseeable future.  Of course, this is nothing to write home about as this means the economy is soft.  However, if you are shipping and you have a nice business you should take advantage of these soft times.  Believe me, when it swings, you better duck.  And, as all my readers know, you will not get benefit because you overpaid in a slow environment. 

Actions:

• If you have not bid freight in a while - do it now. 
• Lock in rates for two years if you can - a nice hedge
• Move to a market based fuel system to take out any fuel fluctuations in the rating structure
• Watch tender turn down rates.  This will act as a great "early warning" telling when / if the tide turns (don't expect this until 2018)

Cass Indices for June Report Real Issues with Trucking and Intermodal

The Cass Indices for June reported what observers knew was to be the case:  Once again the trucking "recovery" has stalled and capacity exceeds demand.  Part of this is due to the elevated inventory levels with retailers and part just due to increased capacity.  Remember, items are much smaller today then ever and with advances in packaging, the trucking industry just has too many assets chasing too few loads to sustain a lot of pricing.

For the last three months, the truckload index has decreased 2.3%, 1.2% and 1.8% respectively and the graph shows how difficult this market has become.  We now are looking into 2017 before there is any tightening of capacity and pricing.  I believe capacity will need to exit the market as not only is there too much today but the economy will start slowing and that means just the normal cycle would require removal of capacity.

Interestingly, this comes at a time where trucking costs are rising and as we saw in the Swift 2Q reporting, OR rates are starting to increase (SWFT 2Q2016 OR rate was 92.7% - highest in the last three years). JB Hunt sees margin erosion in the latter half of the year for both trucking and intermodal.  Great if you are a shipper as soon trucking companies will start working to get any contribution to fix but bad if you are an investor or a trucking company itself.

Starting in late 2015 and through this year, the pricing index has gone down and continues to go that direction.

Suffice to say, Intermodal is following the same trends.

So, what is going on here?  Why do we continually get told that "this is the year" and yet for the last 3 years at least, the tightening has never arrived?  I attribute it to three main items:

1. The Economy is not nearly as robust as you may think watching the markets.  Remember, finance (which requires no trucking) has grown to be a substantial part of our economy.  In the past when you said GDP went up x% you could correlate that directly to an increase in the need for transportation of goods.  Today, that is untrue.

2.  Inventory levels remain elevated.  Think of it this way, when inventory levels are as high as they are this essentially means you shipped the product in previous quarters.  This is like "borrowing" against the future.  Made those quarters look good but because there was not enough sell through, the product just sat and now when sales tick up, the inventory has already been shipped.

3. Miniaturization, packaging and digitization of products.  I have always said the shippers would not sit idly by and just watch rates go up.  They have figured out ways to streamline packaging, digitize what they can (including the growth of 3d printing, and make things smaller.  This means less transportation capacity needed.  

Overall, given the way the economy is headed, I would be shocked if 2017 was anything different.  Hunker down, we are in for a bit of a ride here.

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.

Where Will The September Index Land?

Just posting the August numbers as a reminder since we should have September shortly.  However all indications are freight was soft as well as the economy in general.  August showed a month over month decline in shipments of 1.2% and a decline in expenditures of 2%.  The Year over Year (YoY) was even more pronounced with shipments decreasing 4.6% and expenditures down 8%.

Even with the rebound in stocks recently, the Dow transports are down 9.7% this year and the total market only down 2.36%.  Bottom line, the freight transportation volumes continue to be softer than predicted and I am not sure there is any "push" for the retail season.

Looking forward to the September numbers and here is hoping I am wrong.

The Fear Trade Picks Up Steam - Don't Be Fooled

One of my favorite songs from childhood is "Won't Be Fooled Again" by The Who and this is my theme for what I have called the "fear trade" in transportation.  This is the time of year when people put their freight out to bid and as expected, and right on queue, some of the major transportation providers are putting out press releases and other statements to start the fear trade - make shippers fearful that truck capacity is magically disappearing and that trucking companies are suffering.

As reported in LogisticsViewpoints, both Schneider and Werner have, on queue and somewhat coordinated, put out press releases and statements saying there is a big problem with capacity, productivity is down and the big bad regulations are making it hard to run their business.  This will, I predict, be echoed by many others over the next few days.  All while earnings at the best run trucking companies are better than they have ever been and OR rates are at record levels (the REAL data in their annual reports).

These statements, of course, are designed to create the fear trade and to get the shippers to buy into a "fear premium" as they go into bid season.  Now, for the real data:

Using CASS data from the October report we see that both expenditures and shipments are down year over year.  In fact in 7 months of 2013 we have seen shipments down year over year which indicates, as CASS rightfully points out, that the economy is slowing and the shippers are finding alternative ways to deal with transportation problems (i.e., network redesigns, packaging, better inventory management etc.).  During these turbulent times it appears shippers have rolled up their sleeves to find innovative ways to solve transportation problems and it appears the transportation industry is issuing press releases.  The graphs below tell the story:

As I reported recently, I told my readers not to overreact to the numbers from September.  They were too strong to be sustained and if you see any other economic indicators you will know that strength was not supported by the underlying economy.  And, this month we find that to be accurate.  They were not supported.

Another interesting statement out of the CASS reporting was that for the first time since 2008 the National Retail Foundation is forecasting a decrease in holiday sales by 2.5% and this is supported by the less than robust holiday stocking.

For sure I am not saying to ignore capacity - if you claim the world is going to end and you live long enough, sooner or later you will be right.  However what I am saying is three-fold:

1.  Let the data speak.  Don't get wrapped up in the fear trade.  Watch this blog, watch the CASS information, watch macro economics and, of course, watch your own sales as a shipper.  These are the most telling indicators.

2. Look at your network and understand your network relative to freight flows.  I have said it many times that transportation is not a homogeneous network.  There are specific lanes (Northbound out of Mexico as an example) that are always under stress.  However, if you ship westbound you should be getting great deals almost always.

3. Understand that there is another side of the equation and that is demand.  Shippers have done an incredible job of productivity enhancements through packaging, product design, loadability studies, and network design which has allowed them to service their customers with higher quality goods at lower costs and lower transportation requirements.  There is no reason to think this will stop.

So, in conclusion, do not get caught up in the fear trade.  Do not think you need to pay a premium now as an insurance policy against future capacity.  One thing is for sure, capacity will flow to where the margins are and even if you pay more now it will not ensure future capacity.  If you pay a premium now you will be in a "Pay me now AND Pay me later" scenario.

Stay calm, stay focused and keep reading the data.

And now, enjoy the Who and Won't Get Fooled Again:

Truckload Strong; Intermodal Weak

I have not reviewed the CASS information for a while but have used other sources which have all told the same story.  Intermodal freight is soft relative to capacity which is putting pressure on rates.  However, the September truckload numbers show strong expenditure increases with shipments staying moderate.  Translate this into higher rates.

To show the issue with the intermodal market right now look at the chart above.  Clearly, going into Q2 in both 2012 and 2013 we see the price index decrease.  However, in the latter half of 2012 it rebounded.  In 2013 it tried but quickly was rebuked.  IM rates are in check mostly due to the capacity situation.

The real question though is whether this is a short term bump (The Christmas "rush") or is this a long term trend.  My belief is to watch it closely but be skeptical of anyone who says this is a long term trend.  Hours of service or none I believe there is no evidence to show the economy picking up or shipments growing rapidly.  Yes, there are bumps up and bumps down but the trend is pretty flat.

Don't get involved in what I call the fear trade.  The fear trade is when your carrier base comes running to you as soon as some data supports higher prices and tells you to "pay up".  Watch the data closely and I think you will find this to be a blip.

More Signs of a Financial Economy; Not a Production Economy

On June 3 the Institute for Supply Management issued their May ISM index and it came in at 49.  Unfortunately, this means the manufacturing component of our economy actually contracted in May (despite all the talk of a manufacturing renaissance).  This is the lowest since November of 2012 and the lowest level since June of 2009.

Both the price index and employment index showed decreases as well.  This is aligned with the CASS readings of a relatively soft economy resulting in balanced, or slightly in shipper favor, rate environment.

My opinion is this is one reason why you are seeing the markets swoon back and forth as the economy is teetering between growth and contraction.  Every little bit of data could tip it in one direction or another. Expect continued contraction and caution in any type of growth which will continue to keep transportation capacity and shipments in balance.  We have evidence that rates are flat at best and could be falling and clearly intermodal / rail is taking business from trucking.

 One area where this is very noticeable is in the cross border moves where trucking is losing to rail.  This, of course, releases capacity to other areas for movement.  (see chart to the left)

Bottom line:  Economy is slow, shipments are down, and capacity is balanced.

CASS Freight Index for May - Volumes and Expenditures Roughly Steady

The May Cass Freight Index is out and it is clear that rates are staying flat and volumes are a bit behind where they were last year.  Despite never missing an opportunity to say "Hours of Service (HOS) in July will cause rates to go up" the industry is starting to see the interesting phenomenon that the economy can have positive GDP rates yet freight volumes do not increase enough to put pressure on rates.

I have discussed this a lot and will not rehash it but you can read my theories on why this is occurring.  The Cass report also commented on the large increase in Crude by Rail which I had commented on here earlier. 

At the end of the day the story is remaining the same:  Yes, truck capacity is leaving the market AND yes demand has decreased due to other situations with size of product, product being shipped, lean inventories and other types of actions. 

Impact for Shippers:  My advice remains the same:  Do not succumb to the industry fear of a doomsday coming in capacity.  Take a look at your individual  situation with type of freight, volumes and lanes and make a decision on your strategy based on that.  The data is suggesting a balanced industry with rates staying flat and unfortunately a slowing economy.

Cass March Freight Index - Surge in Freight; Not So Much Rates

The March Cass Freight Index is out and while freight showed a marked increase in march ( 5.8% Feb to Mar and 4.2% YoY) the expenditure increase can almost totally be attributed to the increase in freight - meaning rates are staying fairly steady.  What this does not show is things soften in the first week of April, which I fully expect to see in this month's report.

Expenditures rise right in line with Shipments - rates relatively flat

Right now freight volumes are relatively balanced and shippers should not be experiencing  overall pressure on rates (except for very specific lanes).  There is just enough good news to give some hope however as I have reported in other postings the macroeconomic trends still show a very reserved economy.  I still believe the shipper who works with good data, "should cost" information around driver costs, truck costs and fuel costs, and who can segment their network will be far more effective at procurement than those who "wing it" with emotion and buy into the fear game. 

For truckload volumes, rates are down down (month over month) for two months in a row:

February Cass Freight Index Supports 10xLE® Predictions

The February Cass Freight Index has been released and it continues to support and is right in line with what we have been predicting here at 10x Logistics Experts.  The market is soft and continues to bounce around the bottom which is holding rates flat for the data bases procurement experts.  The market continues to predict a 2% price increase at recent investor conferences this is what the transportation companies are planning for.

There are two interesting developments which are mentioned in the press release for this data which I believe should be mentioned (and which we have discussed for months here at 10xLE®).

First, we are seeing a bit of a divergence in truck ton miles versus expenditures which, as is stated by Ms. Wilson is due to "...Most likely...the average weight of a shipment rose during the period".  One of our counter balances we have discussed to the driver shortage is the "miniaturization" of goods which includes packaging.  You can move the same freight in smaller packs and thereby reduce the need for trucks.

Second, the increase in the type of activity in the economy which is driving what appears to be a rather robust economy is not the type of activity which translates to freight and transportation.  As I have said for many months, the magical "3%" GDP number is not the same 3% number from 20 years ago.  It does not translate into a lot of freight.  Google and Facebook don't move a lot of goods (physically that is).

Finally, in the report it is discussed the GDP prediction is still for a "Low, probably less than 3%" GDP number.  I am far more in the camp of a 2% GDP number with 2.5% being on the high side.

The bottom line for transportation procurement professionals:  If you had followed the 10xLE® procurement model and held your position you would not have paid "insurance" against capacity shortfall premiums last year as it has yet to materialize.

If you did buy into the hype and pay the premiums my recommendation is you try to identify the amount and get it stripped from your rates.  We still hold, despite promises, you will not get "benefit" later in the cycle for paying premiums now.

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September CASS Freight Index - Year over Year Decline

I will take a day to digest these numbers however the CASS Index is out for September and the results are mixed.  Increase month over month is attributed to a bump in activity to avoid a potential longshoreman's strike and even with that the Year over Year numbers for shipments has declined.

Another tidbit in the report is the feeling that inventory levels are elevated and the retailers are sitting on a lot of product which supports my assertion in my last post Macroeconomic Monday® that the sales to inventory levels will go down and will continue to show advantage to the shipper for freight rates and bidding.  (Of course, in reality, it advantages no one as lower sales to inventory means sales are down and the shipper's business is less healthy - I use these terms only in relation to the carrier - shipper relationship).

More to follow after I look at this in more depth.

Source: CASS FREIGHT SYSTEMS

Cass August Index is Out - What Shall We Learn?

The Cass Freight Index is out for August and the results are not surprising for those of us who stay close to this market every day.  Both expenditures and freight volumes have decreased month over month in August signaling a dramatic slowdown and one during a time when some would expect the seasonal surge to start.  Remember the idea of seasonal surcharges?

Cass Freight Index

Year over Year and Month over Month, shipment volume has decreased 1.1%.  For expenditures, we are still up year over year by 3.8%, mostly driven off of irrational fear instilled in the market during the first quarter (the reality was there was no need for those rate increases however some bought into the fear driven by some industry leaders) but month over month the expenditures are down 1.1%.  Some other points made by the people at Cass:

• 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. 

Where is The Freight? - Cass Reports a Slowdown

The Cass Freight Index report for July 2012 was somewhat anti-climatic for those of us who follow freight and knew we were in the depth of the great slowdown of 2012.  The "phone bank" report (which measures the direction of phone calls from a fictional transportation manager's desk) reported far more incoming calls from carriers looking for freight than outbound calls searching for trucks and this has been true for at least two months now.

OK, I admit that is not a scientific index however if you are close to the business and have a grasp on that general topic it is a highly effective predictor of freight.

Cass Freight Index - July 2012

We see from this index that essentially expenditures have leveled off really since June of 2011 with just a little bump at the beginning of Q2 in 2012.  I attribute both years' early bumps as price / volume "hype" and not reality.  Each of the last two years has begun with a "great hope" of where rates and the economy is going only to become disappointing by summer and a steadying of rates.  A good and experienced transportation manager will see this trend and ensure they do not buy into the early year hype every year.

At the beginning of every year the transportation company sales people will show up with all sorts of data to tell you "this is the year" where we will hit a massive capacity crunch so you better "pay up now" to be taken care of later.  A great story which makes for great industry journalism however the empirical evidence suggests it is, in fact, all hype and those who remain calm in the face of the story will be better off.

A key question though is how can all these companies (shippers) report great earnings, the market is very high ( Dow at 13,175.64 as of this writing) and yet the shipments and movement of goods is stagnant?  I have a few theories (I freely admit these are theories however the data is showing this to be more and more true).

First, the economy is a more services and financial economy than it is a "things" economy.  While we still consume the manufactured goods we generally do not make them.  This means an entire portion of the former economy shipments is gone and that is inbound to manufacturing.  The outbound is still there however the inbound is gone.  The inbound freight is in China and Mexico and other low cost countries.  Those who say they love being in trucking because their jobs cannot move overseas are wrong.  The inbound jobs have moved overseas along with the inbound freight.

This of course follows the manufacturing base so if manufacturing truly does return to the United States (the jury is out on this) then the inbound will follow back.

Second, the great work on sustainability, minimizing packaging, routing efficiencies etc have all led to being able to move the same amount of goods with lesser number of vehicles.  This movement is good for all of us in the world however it does decrease the raw demand for trucks.  Just think of televisions. If the economy sells a million T.V.s this year (a made up number just to illustrate the point) they are all about 1" thick.  10 years ago if 1 million T.V's were sold they all were about 3 feet deep (packaged).  That is a lot of trucks.  

There is not only minimization of the product size but there is also the elimination of the physical product (think e-books. iTunes for CDs etc.).

So, my conclusion is you cannot compare the GDP numbers of today relative to prior year GDP numbers as if there is a straight correlation between the level of GDP and the amount of goods moving in terms of cube size (which is the driver of number of boxes needed). Clearly there is some kind of correlation but it is not as direct as it would have been 10 - 15 years ago.  The economy can grow with less physical product moving.

Finally, the lesson learned of the last two years is clear: "Be Not Afraid"! at the beginning of the year.  Don't buy the hype, be patient, watch the data and let the economy play out.  You get no credit  (regardless of what the sales person tells you) for being an early mover on rate increases.

CASS Freight Indices

I should have remarked on this earlier although I have been busy, busy, busy!  Looks like freight rates have leveled off from the somewhat aggressive increases over the last few months.  Intermodal seems flat while truck rates are up a bit.  This is what the CASS data would suggest although I personally think generalizing about this is a very dangerous game.

Depending on your freight flows and freight characteristics you may or may not see this trend.  If you are a "mega shipper" then perhaps the averages apply however most have specific and unique freight patterns.  My advice is to dive deep into those patterns and understand, in depth, regional movements along with nuances in the areas you operate.