It may be taking awhile, but things are looking up for shippers, at least in recent months.
That is the main thesis of the Shippers Conditions Index (SCI) from freight transportation consultancy FTR.
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.”
For November, which is the most recent month for which data is available, the SCI came in at -3.2. While this is still entrenched in negative territory, it represents an improvement over October and September, which were -5.5 and -6.6, respectively.
The mild improvement in recent months represents an easing in capacity tightness and the ongoing decline in fuel prices, according to FTR. And even with the capacity environment showing signs of improvement as 2014 moved along, FTR described it as still being negative, coupled with increasing rates likely to remain intact in 2015. And as fuel prices drop and remain low early into 2015, FTR said the subsequent result could be the SCI turning from negative to positive (a reading above zero) for January’s data but then heading lower and staying in negative territory indefinitely not withstanding a recession.
“While capacity pressure modestly eased from the extremes that persisted during the first half of 2014, it still remains a tight market by historical standards,” said Jonathan Starks, FTR’s Director of Transportation Analysis, in a statement. “The biggest impact on the SCI recently has been the dramatic drop in fuel prices. This is a positive for shippers, as long as it continues to move lower. Once prices bottom out and move back up, the overall costs for shippers will move up correspondingly. The fuel decline is good for total spending, but the base rates being charged by carriers continue to move higher. Driver wages are moving up (approaching double-digit gains) in response to the tight capacity situation and the driver shortage.”
As previously reported, the impact of impact of the ongoing driver shortage continues to result in 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 affect production and capacity, too. On the rail and intermodal side, service metrics are not back to levels that shippers are fully comfortable with, but it appears that service is improving back to expected levels at a gradual rate.
Rosalyn Wilson, senior business analyst with Parsons, and author of the annual CSCMP State of Logistics report and contributor to the Cass Freight Index report, noted in the most recent edition of the Cass Freight Index report, that freight rates have only recently begun to spike upward, especially spot market rates, adding that despite the gains in 2014, freight volume overall has not yet returned to pre-recession levels; however, costs to move the freight are substantially higher than 2006.
Wilson expects market conditions to improve further in 2015, based on the improving economy and coming off of a strong 2014, and she expects freight volumes and carrier revenues to see steady growth, which stands as good news for carrier with thin margins, but not as good for carriers and shippers, whom will see higher rates in the form of increased goods costs. But she said there are also challenges, too, including increased shortages, costs and unionization of labor, a changing fuel market, credit availability, and global economic forces, among others.
And Chuck Clowdis, managing director, transportation advisory services, IHS Global Insight, said at last week’s SMC3 Jump Start 2015 conference in Atlanta that shippers should expect rates to continue to rise, and shippers need to continue to work closely with carrier partners on capacity commitments, with closer dialogue needed, coupled with each party fully aware of the challenges they are each up against.