FTR says market conditions are positive for shippers for the time being

Over the last three months, data from freight transportation consultancy FTR indicates things are in a good place for shippers, according to the most recent edition of its Shippers Conditions Index (SCI).

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

For January, the most recent month for which data is available, the SCI was 4.3, topping December’s 3.0, and November’s -0.6 (which was an improvement over October’s -3.1). FTR said these recent tallies reflect how favorable market conditions from 2015 continued into 2016, adding that capacity is now sufficient to meet current market demands. But it added that the SCI is expected to turn negative as the year moves on, due to concerns about expected capacity shortages in 2017.

“We are now experiencing the first sustained period of favorable shipping conditions since 2009,” said Larry Gross, a Partner at FTR, in the report.  “Slow industrial growth and adequate capacity in all modes are combining to create this situation.  Positive shipper conditions would continue indefinitely based solely on our economic forecast, but the addition of the regulatory component changes the equation.  We expect conditions to begin to deteriorate from a shipper standpoint as we move through the year and begin to approach the ELD deadline as well as other regulatory developments.”

FTR COO Jonathan Starks said in last month’s report that these more benign conditions have come about because of two key factors: fuel prices have yet to find a bottom, and truck and rail capacity is ample enough to handle any surges in freight.

And he added that the market will remain relatively neutral during 2016 and most of 2017 before shifting negatively for shippers in the latter part of 2017 as several key regulations (such as the aforementioned mandated usage of electronic logging devices) start having an impact on the market. Forward-looking shippers, he said, will be keeping a close eye on those dates in order to advantage of the current environment to nail down capacity and lock in rates.

While the economic landscape is muddled with conflicting pros and cons like low gas prices and loose capacity as part of the former and sluggish industrial output and cautious consumers as part of the latter, ongoing uncertainty is having an impact on shippers’ supply chain operations from various perspectives, including strategy, planning, and procurement.

This, in turn, has seen shippers try to lock in more contractual pricing instead of spot pricing, with carriers able to leverage that into future capacity commitments.
Industry stakeholders have told LM 2016 is shaping up to be an interesting one for shippers, depending on economic growth levels and expected significant impact of industry regulations like electronic logging devices, and the possible resumption of motor carriers hours of service rules, among others.