FTR points to temporary gains in capacity in Shippers Condition Index

The most recent edition of the Shippers Condition Index (SCI) from freight transportation consultancy FTR provided some good news for shippers, with some signs of improvement in overall market conditions.

FTR describes the SCI as an indicator that sums up all market influences that affect shippers, with a reading above zero being favorable and a reading below zero being unfavorable and a “less-than-ideal environment for shippers.”

For May, the most recent month for which data is available, the SCI was -3.1, which is an improvement over April’s -4.9, with FTR explaining that this improvement reflects a currently manageable capacity utilization that is expected to remain intact through the calendar 2015. And it added that through a combination of improved capacity and low fuel prices, shippers are seeing a “welcome respite from rate increases.”

While this is welcome news, FTR said it expects things to take a turn for the worse next year, due to regulatory pressures that are expected to negatively impact capacity.

“For most domestic shippers it looks like we are nearing the halfway point of reductions in total costs for over-the-road and rail shipping,” said FTR Director of Transportation Analysis Jonathan Starks in the report. “Total transit costs, on a year-over-year basis, have been negative since late in 2014 and are expected to turn positive in late 2015 or early 2016. This has given logistics professionals a small amount of breathing room after the crisis levels that were seen during parts of 2014. Unfortunately, they cannot rest easy for long. Although the industrial sector is disappointing, the economy is still growing and the regulatory environment is getting primed for action in 2016 and 2017. This will once again tighten capacity and force another upward shift in truck pricing that will likely filter through to all modes in some fashion.”

This observation is consistent with anecdotal observations in the market, with many shippers noting that capacity is not as tight compared to a year ago at this time, a period viewed by many industry stakeholders as a very strong year for freight.

And with capacity, especially on the over-the-road side, expected to be tighter in 2016 and into 2017, many shippers and carriers are collaborating on ways in which to work together on mutually beneficial partnerships and strategies focusing on securing needed capacity, with the market expected to tighten and rates expected to jump.