FTR Shippers Conditions Index falls in September

As expected, the Shippers Condition Index (SCI) from freight transportation consultancy FTR moved back into the red in September, the most recent month for which data is available.

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.”

The September SCI fell 3 points in September to -2.4, coming off of low positive growth in August. In last month’s SCI report and again this month, FTR said that the growth was not expected to be sustained into September, due to shipping rates being expected to increase as available capacity is negatively affected by improved economic conditions and new regulatory drag affecting the trucking industry in 2017.  And it added that the current wave of new regulations will continue through 2019, perhaps driving the SCI to new lows.

FTR explained that in September the slow but steady build in regulatory drag drove the SCI back into negative territory that “will not reach its nadir” until late 2017 or early 2018, with new regulations starting to tighten capacity, with truck rates subsequently heading up and resulting in both shipping costs and spot rates heading up.

“While the Shippers Condition Index moved into negative territory, we are not seeing any material changes to shippers at the moment,” said FTR Chairman and CEO Eric Starks in a statement. “There is still plenty of truck & rail capacity, and rates remain stable. We don’t anticipate any ‘real’ changes for shippers until late in Q1 or Q2 of next year. The shipping season is winding down, and demand for shipping will be in a seasonally soft period for the next few months. One item that we are keenly focused on is the implementation of Electronic Logging Devices by the trucking industry over the next year. If regulatory changes delay this, then it would not tighten truck capacity in the second half of next year as is currently anticipated. Only time will tell.”

While there are many unknowns germane to the current state of the freight economy, what happens with capacity in the next year remains a wildcard to a degree in trying to gauge how it will impact pricing.

But there are some encouraging signs on the economic front, too, that could go a long way in bringing back a return, of sorts, to a more stable demand and volume environment and tighten up capacity, too, including signs of inventories dropping, increased consumer spending, decent manufacturing and industrial production output, and the recent third quarter GDP estimate of 3.2 percent, its highest level in more than two years.

What’s more, the most recent edition of the Cass Freight Index from Cass Information Systems reported that October freight shipments rose 2.7 percent annually in October, with a “more than normal fall surge” in volumes, which it said was driven by varying results across modes, including: e-commerce driven continued volume growth for parcel and airfreight (FedEx and UPS shipments were up 10 percent and 5.2 percent respectively in the most recent quarter); sequential improvements in truck tonnage; and less bad rail and barge volumes.

While still somewhat premature, Cass noted that this shipment data points to increased consumer spending in tandem with the industrial economy’s rate of deceleration easing.

“Simply put, the winter of the overall freight recession we have seen for a year and an half in the U.S. may not be over, but it is showing signs of thawing,” wrote Avondale Partners analyst Donald Broughton, the report’s author.