FTR Shippers Condition Index shows positive gains

Largely leveraging the net positive impact of lower fuel prices, the Shippers Conditions Index (SCI) from freight transportation consultancy FTR made major strides in December, the most recent month for which data is available. 

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.”

The December SCI came in at -0.6, which FTR said reflects not only the steep decline in diesel prices but also “positive capacity impacts” from the recent changes made by Congress in the motor carrier Hours-of-Service regulations, specifically the suspension of some components of the 34-hour restart for drivers. Looking at 2015, FTR said it expects conditions for shippers to worsen due to ongoing regulatory drag, coupled with freight gains crimping capacity, while low fuel costs will lessen the impact.

“For those who are focused on the bottom line, the recent news has been very favorable. For those looking down the road, there are still plenty of obstacles to prepare for,” said Jonathan Starks, FTR’s Director of Transportation Analysis, in the report. “With fuel costs dropping rapidly in December and on into January, those financial tailwinds benefitted both carriers and shippers. As diesel prices continue to stabilize, as they have over the last few weeks, those tailwinds will quickly abate.

Starks added that after seeing total transport costs rise 2-3 percent throughout 2014, it is expected that costs will actually be below year ago levels during the first quarter of 2015, with that trend continuing for most of the year.

“The flipside is that fleets are still pushing for strong base rate increases as their costs outside of fuel continue to be higher,” he said. “Successful shippers will be focused on total landed cost, base rate increases, and securing capacity. Focusing on just one will leave you exposed to either higher than necessary costs due to high rates in a softening economy, or a lack of capacity in an expanding marketplace. In addition, shippers need to be aware of an unusually high level of uncertainty surrounding the energy market - a market already prone to extreme volatility.”

The specter of 2015 rate growth was evident in a recent report issued by Chicago-based freight transportation and logistics consultancy CarrierDirect.

CarrierDirect said that carriers are heavily focused on driving out efficiencies to increase their bottom lines and provide more consistent pricing to customers so they can better manage fluctuations in supply chain costs, adding that no carrier can be accused of “making too much money right now” as most have operated on very low margins over the last eight-to-ten years. And if carriers can get to the point where they can squeeze out more operating profit to invest in things like new fleets and technology, it will have a long-term benefit for both them and their customers.

On the rate side, the report observed that linehaul rates continued on an aggressive upward trend across all modes in 2014 due to a tight capacity marketplace, driving large increases in spot rates for dry van and reefer.
And large shippers, said CarrierDirect President Joel Clum, have mostly given carriers everything they are going to give, in terms of pricing, at the moment, and barring a significant event like a Polar Vortex, they won’t be having conversations with carriers this year in which carriers say they want to raise rates 5-to-7 percent to boost driver pay.

“Small- and mid-sized shippers might see a bit of an incremental cost increase on linehaul expenses, with fuel serving as a large [variance] and carriers would start coming back to customers and saying they need to take a base rate increase whereby when fuel comes back up these prices will be locked in,” he said. “It is surprising that not many carriers have been doing that. Some LTL increases have taken increases in their fuel surcharge, but the overarching theme of 2015 for rates is likely to be one of more incremental rate growth but not beyond inflation in the 6-to-10 percent range for truckload carriers, which was more of the case in 2014.