FTR Shippers’ Condition Index drops one point from January to February

Data in the most recent edition of the Shippers Condition Index (SCI) from freight transportation forecasting firm FTR Associates showed that the SCI decline one point in February to -5.6.

A reading above 0 suggests a favorable shipping environment, and 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. The SCI in January, December, and November was -4.8, -4.8, and 6.1. May 2011’s -11.4 was the worst SCI reading of this current economic cycle.

FTR officials said that the February SCI number reflects a still-strengthening economy, which is reducing the available amount of transportation capacity for shippers. They added that the SCI is likely to remain in this territory through 2012 and become more negative when truck driver Hours-of-Service regulations are scheduled to take effect in mid-2013.

In an interview with LM, FTR Senior Consultant Larry Gross said that a one point decline in the SCI is a steeper drop than in recent months, but it also is not unusual, given the factors impacting the SCI such as seasonality, due to a mild winter which has impacted buying patterns.

“In general, it is a function of the fact that even in what is normally a down month [February], freight has been relatively strong, which pushed the SCI down,” said Gross. “Things are likely to stay where they are for the balance of the year.”

Another factor to consider is the pricing leverage which carriers have had for more than two years, coupled with capacity idled until the economy shows more improvement.
FTR’s Gross said in a recent interview that even though the economy is again showing signs of recovering, shippers are being cautious because there is still a concern over whether the momentum occurring now will be sustained or not.

“Folks are hedging to the conservative side and from a freight perspective, I would say the absence of a big inventory re-build (which happened during the first half of both 2011 and 2012) is actually bullish, because it shows the levels we are now seeing are less vulnerable,” explained Gross.

And ongoing recent strength in the services sector, which was conspicuously absent in the recovery before, is now gaining momentum, too, which Gross said is a good sign as it represents up to 80 percent of economic activity.