FTR reports slight improvement in shipper conditions but capacity tightness still an issue
FTR says both spot rates and contract rates are heading up in a full capacity environment and with the fall shipping season rapidly approaching, it explained conditions for shippers could further deteriorate.
in the NewsState of Logistics 2016: Pursue mutual benefit ISM semiannual report views 2017 as a growth year for manufacturing and non-manufacturing ISM semiannual report views 2017 as a growth year for manufacturing and non-manufacturing Industrial real estate market is at top of its game, says JLL SaaS Supply Chain Management Systems More News
The most recent edition of the Shippers Condition Index from freight transportation forecasting firm FTR showed a slight improvement compared to its previous two editions.
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.”
June, which is the most recent month for which data is available, saw the SCI improve one point to -6.5. Even with this improvement, capacity remains tight, and FTR said it is likely that the SCI could slip in July and through the rest of the year, too, with conditions closer to where they were in May.
The reasons for this, explained FTR, have to do with both spot rates and contract rates heading up in a full capacity environment and with the fall shipping season rapidly approaching, it explained conditions for shippers could further deteriorate.
“While the June SCI moved in a positive way for shippers, it still remains quite negative and highlights that they are operating in a capacity constrained environment,” said Jonathan Starks, FTR’s Director of Transportation Analysis, in a statement. “To date in this recovery, aside from the weather-plagued winter of 2014, freight growth has been both fairly stable and relatively modest. This has allowed fleets to operate with very little excess capacity and keep contract rates relatively low as they focused on baseload contracts. This has moved much of the demand fluctuations to the spot market - in which price swings can be much more dramatic. Spot rates have started to show an early upward movement at the end of the summer season, highlighting potential capacity issues as we move into the fall freight shipping season. Contract rates will be moving up, but it will be wise to watch spot rate activity to see how demand and capacity are matching up.”
FTR President Eric Starks observed in a recent interview that the driver shortage situation remains an issue and is a major problem that carriers really cannot stress enough.
“We are kind of at an odd spot right now, because it really won’t take much of an economic pick up to push us back to that critical spot again where we were last winter,” he said. “If we start seeing the economy heating up at all, it could create some problems as things are already on the edge.”
As things presently stand, full truckload capacity has been especially tight this summers, according to Jeff Brady, director of transportation for Harry & David, a multi-channel specialty retailer and producer of branded premium gift-quality fruit, gourmet food products and other gifts.
Brady told LM that a traditional summer seasonal contraction is normal due to produce and other commodities, but this year, he explained, it has been especially tough in various parts of the country and for extended periods of time.
“This is a challenge for us due to how we are tied to perishable and seasonal items based on harvest dates and shelf life,” he said. “The summer has been very tight across the board for both dry and temperature-controlled assets, and I don’t see this changing anytime soon. It is definitely a carrier’s marketplace, and I expect us to not see the traditional five-year swing between carriers and then shippers controlling the marketplace. I am not sure I buy the economic recovery noise, but the sheer fact is that capacity is truly shrinking on an ongoing basis is really beginning to consistently squeeze shippers. If any kind of sustained economic recovery does occur, shippers are going to have to get very creative and much more strategically aligned with carrier partners to combat this tough environment.”
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
Subscribe to Logistics Management Magazine!Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!
Warehouse & DC Operations Survey: Ready to confront complexity 2016 Quest for Quality Awards Dinner View More From this Issue