Feeling (Almost) Positive about Shipper Conditions

March 10, 2015
The rapid drop in diesel prices and the reversal of some Hours of Service rules have almost restored shippers' faith in the economy.

The Shippers Conditions Index (SCI), a compilation of factors affecting the shippers transport environment, bounced back almost all the way to a neutral reading. The reason why that’s significant is that the SCI has had a negative reading for more than two years, which indicates a less-than-ideal environment for shippers. According to FTR, a transportation forecasting firm that monitors the SCI, December 2014 saw conditions improve to the point where the score currently stands at -0.6.

The reasons for the bounceback are simple: the rapid drop in diesel prices, along with positive capacity impacts from the recent reversal of some of the Hours of Service regulations. Unfortunately, FTR expects conditions for shippers to deteroriate this year, although if fuel costs remain low, the SCI could stay relatively flat rather than dip precipitously into a deep delta.

“For those who are focused on the bottom line, the recent news has been very favorable,” says Jonathan Starks, FTR’s director of transportation analysis. “For those looking down the road, there are still plenty of obstacles to prepare for. With fuel costs dropping rapidly in December and on into January, those financial tailwinds benefitted both carriers and shippers. As diesel prices continue to stabilize, as they have over the last few weeks, those tailwinds will quickly abate.”

Starks adds, “After seeing total transport costs rise 2-3% throughout 2014, it is expected that costs will actually be below year-ago levels during the first quarter of 2015, with that trend continuing for most of the year. The flipside is that fleets are still pushing for strong base rate increases as their costs outside of fuel continue to be higher.”

So what can shippers do to take best advantage of the improved climate, short-lived as it might be? According to Starks, successful shippers will focus on total landed cost, base rate increases and securing capacity. “Focusing on just one will leave you exposed to either higher-than-necessary costs due to high rates in a softening economy, or a lack of capacity in an expanding marketplace. In addition, shippers need to be aware of an unusually high level of uncertainty surrounding the energy market—a market already prone to extreme volatility.”

Meanwhile, the Cass Freight Index of monthly freight volumes indicates that freight spending has been falling for three months, dropping 5.7% in January 2015. “Much of the decrease can be attributed to the fall in the number of shipments, while also partially due to the weak freight market which held rates in check,” says Rosalyn Wilson, a transportation analyst with Parsons. “Despite being lower than 2014 year-end, January 2015 is the highest January index on record for expenditures. With carriers gaining more control over rates and capacity tightening, total freight spend in 2014 was higher than in any preceding years.”

Wilson sees some potential problems coming later in 2015, as she anticipates that sustained economic growth in 2015 will exacerbate the capacity problems experienced in 2014. “Carriers do not currently have the necessary capacity, infrastructure and systems to efficiently move goods as freight volume rises in 2015.”

Photo by Justin Sullivan / Getty Images

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