Chain of Thought

Things Are Looking Up If You Stand on Your Head

We’ve been following the ups and downs – actually, pretty much mostly downs – of the Shippers Conditions Index, a scorecard maintained by FTR Associates that tracks various factors affecting shippers’ transport environment. A reading below zero means conditions are less-than-ideal, and needless to say the index has been under zero for quite some time now; last month, for instance, the index dipped to -7.1, a pretty steep drop from the previous month’s score of –4.9.

Now, a score of -10 means conditions aren’t just rotten, but they’re downright critical, based on available capacity (i.e., there isn’t much) and expected rates (i.e., get ready to open your wallets even further). According to FTR, we’re almost at that moment of criticality, as the index score for February was at -9.5, and what’s more, there’s an expectation that conditions will get even more challengiing for shippers as the year progresses.

“Although substantial uncertainty exists with regard to the near-term path of the economy, shippers need to be prepared for a difficult second half of the year,” says Lawrence Gross, senior consultant for FTR. “If the current path of slow economic growth remains intact and the courts do not delay the implementation of the new Hours of Service framework (a development we view as increasingly unlikely), then the stage will be set for a significant tightening of truck capacity, resulting in reduced service levels and higher rates.”

The new Hours of Service rules, scheduled to take effect in July, could lead to what FTR expects to be “the largest wave of trucking safety regulations in history. A cumulative effect of these regulations will be a reduction in driver productivity, resulting in a substantial tightening of already tight truck capacity. FTR continues to predict rate acceleration which will increase shipping costs as the effects of HOS play out.”

Gross compares the current situation to a similar period in 2004, but with one key difference: “While 2004 was a relatively short-term blip, we believe that 2013 will be the door-opener for a prolonged period of difficulties that could last several years.” Forewarned, as they say, is forearmed, so don't get caught napping if worse comes to worser.

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