The Shippers Condition Index (SCI) from freight transportation consultancy FTR saw a bit of a bounce back in April from a down month in March.
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 April SCI hit 1.5, which was up from March’s 0.4, which FTR described as reflecting improved market conditions for shippers at a time when freight demand remains sluggish while reaching its highest level since 2011.
Despite reaching a watershed level going back over the last five years, FTR said it comes with the caveat that current conditions are expected to reverse course in 2017, due to increasing fuel prices, coupled with the regulatory impact on capacity, which is expected to tighten.
“Even as we have become accustomed to high levels of uncertainty, the recent U.K. vote in favor of “Brexit” has added yet another dose, on top of existing sluggish growth and the possible impact of our own raucous presidential election,” said FTR Partner Larry Gross in a statement. “Our forecast for tightening conditions rests on two keystone assumptions: first – no significant roadblocks or delays in the current looming regulatory timetable; second – no significant further slowing in the already slow-growth economy. The latter item appears to be the bigger risk at the moment, and a pronounced slowdown or recession will postpone or even eliminate any significant tightening in the marketplace.”
While the economic landscape is muddled with conflicting pros and cons like lower gas prices compared to a year ago and loose capacity as part of the former and sluggish industrial output and cautious consumers as part of the latter, ongoing uncertainty is having an impact on shippers’ supply chain operations from various perspectives, including strategy, planning, and procurement.
This, in turn, has seen shippers try to lock in more contractual pricing instead of spot pricing, with carriers able to leverage that into future capacity commitments.
Industry stakeholders have told LM 2016 is has been an interesting one for shippers to date, depending on economic growth levels and expected significant impact of industry regulations like electronic logging devices, and the possible resumption of motor carriers hours of service rules, among others.
Stifel analyst John Larkin succinctly summed up the current capacity outlook in a recent research note.
“The market is entering a period of capacity reduction thanks to soft demand and aggressive pricing (on behalf of shippers),” he wrote. “We’ve long warned of an impending period of looseness in supply in demand in the trucking and logistics space, however the current market continues to slide into softer than anticipated territory.”