Disruptions, uneven shipping patterns cause headaches for carriers in so-called “peak” season

The crush of e-commerce freight is causing strains on last-mile capacity. Uneven shipping patterns are causing freight forecasts to be wrong as often as correct. Inventory-to-sales ratios are falling as manufacturers abhor keeping excess inventory for very long.

All this is causing uneven shipping patterns and volumes that vary month-to-month. The highly regarded American Trucking Associations’ truck tonnage figures have been gyrating like a yo-yo, back and forth from negative to positive with no apparent trend.

The ATA freight index rose 4.8 percent in May compared with year-ago May figures. Great, right? But that May number followed three straight monthly declines totally 2.6 percent drops. ATA Chief Economist Bob Costello, the steward of the freight index report, warned that “one month does not make a trend” but still was optimistic.

Others are not. The FTR Trucking Conditions Index actually was unchanged in May compared with April, although it was up year-over-year.

All this uneven economic news comes after release of the 28th annual State of Logistics report, which concluded the total U.S. business logistics costs fell 34 basis points last year to just 7.5 percent of Gross Domestic Product. That’s just a hair off the all-time record low of 7.37 percent of GDP at the start of the Great Recession in 2009.

This overall spending on logistics fell despite a slight rise in fuel prices. This marked the second straight year that the two trends have moved in opposite directions.

“There is a lot of volatility in the truck tonnage numbers,” said Sean Monahan, principal with A.T. Kearney, and the author of the highly respected State of Logistics report. “Contract rates (in truckload sector) are significantly below those in 2016.”

Consumers, not fuel costs, have become the dominant driving force in logistics spending, the State of Logistics report concluded.

All this is having a whipsaw effect among both carriers and shippers in their planning purposes. In short, throw most of your old ideas away as far as shipping patterns. E-commerce has rendered most of them obsolete, anyway.

In the truckload sector, carriers privately are reporting the slightest tightening of demand. But that hardly is translating into contractual rate increases as it remains a shippers’ market, they say.

The smaller LTL market is faring better for carriers because of pricing power by the larger players as the top 25 LTL carriers control about 85 percent of the total $36 billion market. But major carrier executives differ on the forecast for the so-called peak season (May through November), of even if there is a peak season coming.

“I am not so sure,” Pitt Ohio President Chuck Hammel told LM recently, “there is even a peak season anymore.”

But FedEx Corp. President and CEO Fred Smith, riding the crest of e-commerce wave on most of his operating units, respectfully disagreed on a recent conference call with investors.

“All I would say is … we had the best peak season in terms of service in the company's history” Smith said recently. “So our operations folks did a great job of planning for it.”

Rajesh Subramaniam, FedEx Corp. executive vice president, said all FedEx units are “working directly with our some of our key customers in terms of making sure the company has the right forecast for peak season so it can provide outstanding service. By the same token, we're also working with a small number of large customers that drive the majority of the surge.”

Subramanian added FedEx is focused on making “sure that we have the appropriate pricing in place, so we get compensated for the investments we make.”

Strong consumer demand and better supply chain efficiency explain the drop in inventory-to-sales figures, which have continued to fall after peaking in mid-2016. Companies are unsure of future demand. So they are holding inventory levels closer to actual sales numbers rather than stocking up in anticipation of future growth, according to the SoL analysis.

“Continued uncertainty over future economic trends impedes longer-term planning through the supply chain,” the SoL report concluded. “(That is) exacerbating month-to-month fluctuations in freight volumes.”

And that volatility is increasing the trips to the medical supply room for aspirin and other headache remedies for both shippers and carriers.