FTR Shippers Condition Index shows slowly improving market conditions but challenges remain intact

While many market conditions are working against shippers, the most recent edition of the Shippers Condition Index (SCI) from freight transportation consultancy FTR shows that things may be improving, albeit slowly.

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.”

In October, which is the most recent month for which data is available, the SCI was -5.5, which is a mild improvement over September’s -6.6.

FTR said that capacity conditions have “moved out of the danger zone” compared to earlier in the year, while cautioning that the trucking market is not out of the woods as it still remains susceptible to seasonal shortages, with the SCI expected to remain in similar territory in the coming months in part to higher rates imposed by carriers, although fuel remains low and capacity remains relatively difficult for shippers to secure, which is driving increased transportation expenses.

“Of the four key segments that represent the Shippers Conditions Index, fuel is currently the only item with a positive contribution in October,” said Jonathan Starks, FTR’s Director of Transportation Analysis, in a statement. “Tight capacity, and the corresponding rate increases, remain the biggest challenge for shippers. While truck utilization has eased from the level seen last winter, it still remains historically high. Likewise, contract rates continue to steadily move higher and spot rates are quite elevated - up 20 percent [year-over-year in late November.

Starks added that even with fuel prices still dropping, the net benefit for shippers may be short-lived, and he explained that as the economy may gain traction in 2015 it could cause capacity to tighten once more, leading to further acceleration in base freight rates.

And while the changes regarding the Hours-of-Service 34-hour restart provisions in the Congressional budget bill will be a good thing for industry productivity, Starks noted it will not offset demand coming from economic improvement.

As previously reported, other challenges shippers are still dealing with are the impact of the ongoing driver shortage, which has seen a higher focus on securing capacity by whatever means possible, whether it is through the spot market or using dedicated contract services or private fleet options. And the regulatory drag of HOS and CSA also is continuing to impact production and capacity, too. On the rail and intermodal side, service metrics are not back to levels which shippers are fully comfortable with, but it appears that service is improving back to expected levels at a gradual rate.

Stifel Nicolaus analyst John Larkin observed in a recent research note that still-tight capacity is likely to translate into what he called accelerating freight rates.

“After several years of flattish freight rates, rate increases have become more commonplace in 2014,” he wrote. “With continued (albeit modest) economic growth and additional pressures on freight capacity (federal safety regulations, retirement of experienced operating professionals, underinvestment in our nation’s transportation infrastructure, etc.) larger increases are likely to develop. Shippers will need to pay up for sufficient capacity to satisfy their growing requirements. In effect, carriers will be able to allocate their scarce capacity to the most profitable shippers (not necessarily those that pay the highest rates, but often those that will collaborate with carriers to increase equipment productivity and reduce driver dissatisfaction).”