Chain of Thought

The Worst Has Either Already Happened or is Yet to Come

The holidays could be very happy indeed if shippers are able to get the transportation they need to move their goods. But that's a big "if."

One thing you can say for the excessively tight capacity situation facing shippers: It’s certainly proven to be resilient. According to analysis from transportation forecasting firm FTR, there’s no real reason for shippers to expect things to improve in time for the fall peak season. FTR’s monthly Shippers Conditions Index dropped 1.3 points in July to a reading of -7.8, which reflects “tightening truck capacity and a strong upward move in contract pricing ahead of the fall shipping surge.”

While freight growth is indeed occurring, the truck driver shortage is having an impact on the contract markets, contributing to tighter capacity. Spot rates are remaining high, and FTR is forecasting that labor and purchased transportation costs will rise.

“The challenges in the industry continue as we head into the fall shipping season,” says Jonathan Starks, FTR’s director of transportation analysis. The freight transportation markets remain strained, he notes. “The silver lining is that the industry will be able to handle most of these challenges with only limited capacity shortages. The downside is that truck rates are continuing to move higher and are unlikely to stop that momentum this year.”

Starks doesn’t expect widespread shortages, but he does note that for shippers, “it will take even more work, and possibly delays, to get your non-optimized loads moved. For the railroads, service issues and slow speeds are likely to continue until the winter, when volumes slow and the railroads will finally be able to add in some additional crews.”

ftr-chart

However, FTR takes a much more somber view of the industry than do other transportation analysts. Rosalyn Wilson, senior business analyst with Parsons, still insists that 2014 will be a banner year. “While there are still headwinds, things should continue to improve for the industry. The rise in costs, especially related to labor, are pressing hard on rates and should break through in early 2015.” A good holiday season, she suggests, “would be a big boost for the end of the year.”

Likewise, Matthew Harding, principal in the transportation practice at Chainalytics, observes, “2014 has been a wild ride for all in the trucking industry,” but adds that “some normalcy is returning to the market after significant.” Harding notes that over the past year spot and contract rates have been up by 8% and 6% year over year, respectively, but “the recent cooling counters much of the hype that we are hearing in the market about how rates are increasing with no end in sight. In fact, rates are stabilizing.”

 

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David Blanchard

During his career Dave Blanchard has led the editorial management of many of Penton Media’s best-known brands, including the company’s flagship title, IndustryWeek, as well as Logistics...
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