Gains in Shippers Conditions Index are expected to be short-lived, says FTR

Following three straight months of declines, freight transportation consultancy FTR reported this week that the most recent edition of its Shippers Conditions Index saw some improvement.

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 being unfavorable and a “less-than-ideal environment for shippers.”

For February, the most recent month for which data is available, the SCI came in at 7.93 ahead of January’s 3.73 reading, as well as December and November, at 4.6 and 7.0, respectively.  January’s SCI reading is the lowest one going back to October 2018.

Due to the ongoing COVID-19 pandemic, FTR said that the SCI is expected to see what it called a dramatic increase in the coming months, in response to weak volumes and rates. But the firm said that comes with a caveat—and not necessarily a sign that shippers are doing well as much as it highlights COVID-19’s impact on transportation.

What’s more, the firm noted that the SCI is not expected to stay at higher levels for a long period of time, while it is expected to stay positive over the remainder of 2020, due to capacity being slow to reach equilibrium.

“The recent uptick in the Shippers Conditions Index is expected to continue for the next several months, but it does not necessarily mean it is a great time to be a shipper as it flows from the COVID-19-related disruptions,” said Todd Tranausky, FTR vice president of rail and intermodal, in a statement. “The one positive for shippers out of the virus will be a much more positive environment for the balance of 2020 than was expected otherwise. It will take time for capacity and volume to right size and while it does, shippers should be able to obtain favorable terms to ship their goods.”

On a recent webcast hosted by FTR, Tranausky said that freight volumes will be facing a demand question in the coming months, in terms of what demand will look like, especially for discretionary goods.

With people buying a large amount of consumer staples right now, there is decline for items like dishwashers and flat screen TVs, and other items that move in containers via intermodal, he said.

“Demand is probably going to be weaker, especially in the second and third quarters, as we start to build back up in the economy, and you are going to have more competitive truck competition for intermodal goods,” he said. “There is going to be capacity out there in the trucking market and low diesel prices that will help trucks be more competitive. Intermodal is going to have to face those headwinds for longer.”