Chain of Thought

Shipping Forecast: Rotten, with a Chance of Crummy

FTR Associates, a consulting firm that tracks the transportation industry, maintains what it calls a Shippers Conditions Index (SCI), which is a monthly score that indicates what overall conditions are like from the standpoint of the shipper. A negative score means conditions are unfavorable. And according to FTR, with the numbers now in for the most recent month studied (November 2012), things aren’t looking so good. The score dropped to a reading of -5.3, which represents a downward movement from the previous month’s score of -5.0, reversing what had been a somewhat optimistic trend of improvement earlier in the year.

Combing through FTR’s projections for 2013, it’s hard to find any rays of sunshine, even for the most optimistic of observers. 2013, the firm reports, will be more challenging than 2012 due to “the combination of pending government truck safety regulations, continued slow growth in the economy and freight, and the reluctance of the trucking industry to add capacity.” By mid-year, shippers will be dealing with tighter capacity conditions and rising truck rates.

Now sometimes, that can be good news, overall, since tighter capacity can mean a significant increase in freight volumes, which would point to a robust economy. That doesn’t seem to be on the immediate horizon, though.

“Our best estimate calls for tightening capacity, but there are some important qualifications to this prediction,” explains Larry Gross, senior consultant for FTR. “First, we are assuming that the current Washington gridlock does not result in a showdown that damages the recovery and derails the current slow-growth path. Second, we are making the assumption, based on the best information we currently have available, that pending court challenges to the Hours of Service revisions will not result in a court injunction, and that the revisions will go into effect as scheduled on July 1. If either of these events were to come to pass, then the capacity situation will be less problematic and rate increases will be far harder to come by for truckers.”

Meanwhile, another barometer of shipping conditions is the Freight Pulse study conducted by financial services firm Morgan Stanley along with Material Handling & Logistics. Morgan Stanley asks respondents to predict rate and volume increases for various transportation modes. Over the next six months, according to Freight Pulse 28, shippers anticipate the following rate increases:

2.6%  Rail

2.0%  Truckload

1.8%  Intermodal

1.8%  Regional LTL

1.8%  National LTL

Interestingly, while shippers expect the largest rate increases from the railroads, they also anticipate the largest volume increase on the rails as well. In fact, almost half (46%) of the respondents to the Freight Pulse 28 study say they plan to shift at least some freight from truckload to rail over the next six months, to take advantage of the less expensive rail rates. Meanwhile, only 14% of the respondents plan to shift any freight from rail to truckload. Here are the anticipated volume increases over the next six months:

3.2%  Rail

2.7%  Truckload

2.7%  Intermodal

1.4%  Regional LTL

0.9%  National LTL

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