I missed this one but I do think it is interesting the intermodal arm of J.B. Hunt is now a licensed NVOCC. The article from the Journal of Commerce cites this as a decision more about how to get their Chinese 53' containers to the US at a lower cost (perhaps because they now are hit with tariffs).
Not sure but it will be interesting as J.B. Hunt is a company to dabble, learn then exploit a good business opportunity.
A 25 year veteran of the supply chain and logistics industry blogs on all things logistics. Experience in 3PL, automotive and consumer goods logistics help bring a unique insight to this topic
Showing posts with label intermodal. Show all posts
Showing posts with label intermodal. Show all posts
Sunday, May 19, 2019
Monday, August 1, 2016
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.
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.
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.
Monday, June 24, 2013
Awakening the Sleeping Giant - Crude by Rail
I am short on time as I am heading to the Alternative Fuels Conference (ACT 2013). I wanted to give the light of day to this article on the growth of Crude by Rail (which I mentioned as a trend back here). This has huge impact on the movement of crude and will likely impact the movement of retail goods. Think about things such as priority of movement on track, where capital spending will go and the locomotive resources.
More to follow. Be ready.. whatever industry you are in you will be affected by this.
More to follow. Be ready.. whatever industry you are in you will be affected by this.
Tuesday, March 5, 2013
BNSF to Test Natural Gas
Just received a number of alerts about the BNSF testing natural gas. Seems they believe this will be a large opportunity to switch which I fully support.
However, if fuel costs are not adjusted to the shipper then the economics of selecting intermodal over truck will not change. There has to be transparency to this decision and the current dominant fuel cost adjustment mechanism does not do the task well.
However, if fuel costs are not adjusted to the shipper then the economics of selecting intermodal over truck will not change. There has to be transparency to this decision and the current dominant fuel cost adjustment mechanism does not do the task well.
Why I am Not Concerned About The "Driver Shortage"
The myth that has existed in trucking for over 15 years is some year we will get into such an acute driver shortage that freight will be at a standstill and you will be lucky if a truck shows up to pick up anything you have to ship. In fact, many trucking company executives have parlayed that story into a reason why shippers should pay higher than market prices today for freight for fear that when that day comes only those who over paid in the past will be serviced.
That was 15 years ago and the time has yet to come and if you bought into the story you have "overpaid" for 15 years and the crunch (and your perceived promised reward) has yet to come. Of course, as always, the story has other aspects to it. I do not doubt that the driver pool is shrinking and people do not want to drive long haul trucks. However, the good news is the market is taking care of this problem in 4 ways:
Miniaturization: This phenomenon is everywhere whether it be in packaging, the product itself or the actual and complete disappearance of the the physical product. I bought a stereo for a new place I have and it consisted of a Jabra® Soulmate and my iphone. The entire thing can fit in the palm of my hand and it gives off as much sound as a stereo that came in 3 boxes 10 years ago. This would not be seen if you looked at GDP numbers or sales numbers of companies because from a revenue and profit standpoint, the company did as well as when they were selling massive boxes. However, from a freight standpoint, they can fit a months sales into 3 trucks. Or, better yet, it is all sent via UPS.
Of course, we all know this is happening in packaging and other aspects of the freight. And, the disappearance of freight is becoming very real with iPods, Kindles and now 3D printing.
Focus on Profit v. Revenue Growth of Shippers: I keep hearing that once the GDP gets to 3% we will have a massive shortage and I am not convinced. If you look at the financials of the major shippers you will find they are doing very well (as are the transportation companies). Why are they doing well? It is generally not a growth in product sales / revenue story but more of a growth in profit story. They are managing costs and increasing prices (despite the Government telling us there is no inflation). This means you cannot equate a great quarter to increased freight. It is not as connected as it was at one time.
Intermodal: This, of course, is the grandaddy of them all. The movement to intermodal continues and seems to be picking up speed. Shippers who were afraid of it just two years ago have capitulated and even segments of supply chains (i.e. inbound) which historically shunned this mode are now buying into it. Bottom line: This is the major counterweight to any type of driver shortage. This is gone beyond a nice "substitute" for truck freight and has now become the "category killer" for truck freight. Acceptable length of hauls (LOH) are decreasing (one bid wanted intermodal rates on lanes 400 miles or greater), service is increasing and overall people are moving so much freight over to intermodal that truck is really just catching the local P&D and interplant moves. P&D and interplant moves are nicely served by local niche players and the need for a nationwide network for a truckload carrier diminishes dramatically.
Economics 101: This is the final reason I am not worried. If the driver shortage becomes very acute and the demand exists driver wages will increase bringing more drivers into the market. I am a firm believer in market equilibrium and market clearing prices. Yes, driving is a hard job. However, as we have seen in the oil fields in North Dakota, people will do hard jobs if the pay is right. So, bottom line is, no need to pay "extra" today because if needed, you will absolutely have to pay extra tomorrow. And any sales person who tells you that because you paid extra now you won't have to pay extra later is either lying to you or just does not understand economics.
My conclusion: Watch the economy, watch the market, and watch your freight but do not buy into the scare of "pay up now" to be serviced later. It makes no economic sense and it makes no sense given the current situation of transportation companies.
That was 15 years ago and the time has yet to come and if you bought into the story you have "overpaid" for 15 years and the crunch (and your perceived promised reward) has yet to come. Of course, as always, the story has other aspects to it. I do not doubt that the driver pool is shrinking and people do not want to drive long haul trucks. However, the good news is the market is taking care of this problem in 4 ways:
Miniaturization: This phenomenon is everywhere whether it be in packaging, the product itself or the actual and complete disappearance of the the physical product. I bought a stereo for a new place I have and it consisted of a Jabra® Soulmate and my iphone. The entire thing can fit in the palm of my hand and it gives off as much sound as a stereo that came in 3 boxes 10 years ago. This would not be seen if you looked at GDP numbers or sales numbers of companies because from a revenue and profit standpoint, the company did as well as when they were selling massive boxes. However, from a freight standpoint, they can fit a months sales into 3 trucks. Or, better yet, it is all sent via UPS.
Of course, we all know this is happening in packaging and other aspects of the freight. And, the disappearance of freight is becoming very real with iPods, Kindles and now 3D printing.
Focus on Profit v. Revenue Growth of Shippers: I keep hearing that once the GDP gets to 3% we will have a massive shortage and I am not convinced. If you look at the financials of the major shippers you will find they are doing very well (as are the transportation companies). Why are they doing well? It is generally not a growth in product sales / revenue story but more of a growth in profit story. They are managing costs and increasing prices (despite the Government telling us there is no inflation). This means you cannot equate a great quarter to increased freight. It is not as connected as it was at one time.
Intermodal: This, of course, is the grandaddy of them all. The movement to intermodal continues and seems to be picking up speed. Shippers who were afraid of it just two years ago have capitulated and even segments of supply chains (i.e. inbound) which historically shunned this mode are now buying into it. Bottom line: This is the major counterweight to any type of driver shortage. This is gone beyond a nice "substitute" for truck freight and has now become the "category killer" for truck freight. Acceptable length of hauls (LOH) are decreasing (one bid wanted intermodal rates on lanes 400 miles or greater), service is increasing and overall people are moving so much freight over to intermodal that truck is really just catching the local P&D and interplant moves. P&D and interplant moves are nicely served by local niche players and the need for a nationwide network for a truckload carrier diminishes dramatically.
Economics 101: This is the final reason I am not worried. If the driver shortage becomes very acute and the demand exists driver wages will increase bringing more drivers into the market. I am a firm believer in market equilibrium and market clearing prices. Yes, driving is a hard job. However, as we have seen in the oil fields in North Dakota, people will do hard jobs if the pay is right. So, bottom line is, no need to pay "extra" today because if needed, you will absolutely have to pay extra tomorrow. And any sales person who tells you that because you paid extra now you won't have to pay extra later is either lying to you or just does not understand economics.
My conclusion: Watch the economy, watch the market, and watch your freight but do not buy into the scare of "pay up now" to be serviced later. It makes no economic sense and it makes no sense given the current situation of transportation companies.
Saturday, November 10, 2012
Rail Volume for Week 44 Down - Hurricane Sandy
Association of American Railroads released week 44 on Thursday and as expected volumes were down significantly. However, anyone who graphs and analyzes this data closely will need to asterisk this week forever as Hurricane Sandy drove most of it.
The data shows a 4.8% decrease in container traffic versus week 44 of 2011. This can only be explained by the Hurricane and embargo of certain locations. Container traffic through week 44 increased 5.6% for the year showing the increased volumes will continue and, as expected, trailer traffic on the rails continues its decline in favor of the more efficient COFC.
Overall ton miles are down both for the week and for the year and the driving factor for this is Coal. Coal is down substantially and while petroleum products are up due to all the shale oil it is not enough, on a ton mile basis, to offset the decrease in coal.
The story continues to unfold despite the blip due to Sandy:
The data shows a 4.8% decrease in container traffic versus week 44 of 2011. This can only be explained by the Hurricane and embargo of certain locations. Container traffic through week 44 increased 5.6% for the year showing the increased volumes will continue and, as expected, trailer traffic on the rails continues its decline in favor of the more efficient COFC.
Overall ton miles are down both for the week and for the year and the driving factor for this is Coal. Coal is down substantially and while petroleum products are up due to all the shale oil it is not enough, on a ton mile basis, to offset the decrease in coal.
The story continues to unfold despite the blip due to Sandy:
- COFC is up
- TOFC is down
- Overall ton miles are down
- Coal down
- Petroleum up dramatically.
Friday, August 3, 2012
Looking at Transportation The Way We Look at China's Economy
I have read a lot recently about how you get the real GDP numbers out of China. Don't bother with the government statistics rather just go look at the piles of coal at the electric power plants. As China has said their economy is doing fine, observers of coal piles have seen them grow and grow. Why is this important? The growth of the coal piles signifies a massive slow down in the demand for electricity which, in turns, means factories are idling. When factories idle, you have lower GDP. Voila! It may not be scientific however doing econometrics with raw data which is flawed is a waste of time.
So, I thought I would use this way to look at transportation and I did not like what I saw. Driving through Chicago yesterday passing by the big intermodal yards I saw stacks and stacks of 53' containers which clearly had been "mothballed". They were not at the yard "in transit" rather they were in the yard and parked. They were stacked high and tight. This indicates carriers are parking containers which clearly indicates a massive slowdown in freight pretty close to the time where it should be gearing up for the holidays.
All indications are the economy has softened dramatically and this is just another indicator. I may patent this methodology, go to Chicago every week and take a picture, compare them against previous weeks like you would a bar graph. My guess is this would be just as good as some of the other "analysis" I have seen.
So, I thought I would use this way to look at transportation and I did not like what I saw. Driving through Chicago yesterday passing by the big intermodal yards I saw stacks and stacks of 53' containers which clearly had been "mothballed". They were not at the yard "in transit" rather they were in the yard and parked. They were stacked high and tight. This indicates carriers are parking containers which clearly indicates a massive slowdown in freight pretty close to the time where it should be gearing up for the holidays.
All indications are the economy has softened dramatically and this is just another indicator. I may patent this methodology, go to Chicago every week and take a picture, compare them against previous weeks like you would a bar graph. My guess is this would be just as good as some of the other "analysis" I have seen.
Friday, February 24, 2012
Fuel Prices
The idea of limited oil is an idea which needs to be reevaluated. As drilling technology gets more advanced it appears oil and natural gas reserves will continue to grow.
So, why the fuel price increase? It does not appear to be a result of what normal economics would drive. It is far more about speculation and fear which is the reason fuel must be managed. If you are unwilling to take an active role in managing fuel you will generally be subject to the "whipsaw" effect of the marketplace.
Keep an eye on fuel drilling capacity, production capacity and the import/export imbalances to decide if there truly is a fuel shortage. Right now the United States is exporting a lot of refined petroleum products. I am sure this increase will cause the continued move to intermodal and rail movements. It should not be an all or nothing move however. A good "multi modal" strategy is one which protects capacity and allows for adaptations to the current economics.
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