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Shipping Conditions Finally Improve thanks to Cheap Fuel

Jan. 26, 2015
Cheaper fuel is the best thing to happen to shippers in years. But don't expect the good times to last much longer.

Although some pundits would like you to believe that cheaper fuel is going to wreck the economy, don’t try telling that to shippers. Thanks to the dramatic drop in fuel prices over the past couple months, along with an easing of capacity tightness in the marketplace, the Shippers Conditions Index is at its highest point in recent memory.

The SCI, a compilation of factors affecting the shippers transport environment tracked by transportation analyst firm FTR, currently stands at -3.2. While any score under 0 indicates a less-than-ideal environment for shippers, compared to the past two years a score of -3.2 almost looks like a return to the good old days for shippers. In fact, FTR expects the SCI to poke its head above ground and return to positive territory in early 2015, though it’s likely to be a short-lived stay.

“While capacity pressure modestly eased from the extremes that persisted during the first half of 2014, it still remains a tight market by historical standards,” points out Jonathan Starks, FTR’s director of transportation analysis. “The biggest impact on the SCI recently has been the dramatic drop in fuel prices. This is a positive for shippers, as long as it continues to move lower. Once prices bottom out and move back up, the overall costs for shippers will move up correspondingly. The fuel decline is good for total spending, but the base rates being charged by carriers continue to move higher. Driver wages are moving up (approaching double-digit gains) in response to the tight capacity situation and the driver shortage.”

Rosalyn Wilson, a transportation analyst with Parsons and the author of the annual State of Logistics Report, shares some of Starks’ skepticism regarding a long-term improvement for shippers. “Freight volumes and carrier revenues will grow steadily” in 2015, Wilson predicts, “which is good  news for carriers operating on razor-thin margins, less good for shippers and consumers as the higher rates will be passed through as increased goods cost.”

She notes that the industry will have to face any number of headwinds this year, such as increased shortages, costs and unionization of labor; a rapidly changing fuel market; credit availability and interest rate increases; and global economic forces. In other words, don’t expect an easy ride this year. “Technology,” she says, “will play a big part in how successfully we navigate 2015.”

Truck driver photo: Mark Renders / Getty Images News

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