Trucking 2014: Yield Management Will Tell the Tale

Stifel Nicolaus analyst John Larkin agrees that supply chain managers should take a look at the big picture and should closely monitor the “fiscal cliff” negotiations and broader economic data reports in early 2013.

By ·

Stifel Nicolaus analyst John Larkin agrees that supply chain managers should take a look at the big picture and should closely monitor the “fiscal cliff” negotiations and broader economic data reports in early 2013. 

“If a rational solution is reached in Washington, chances are that the private sector will be more inclined to hire, invest, and grow at a faster rate than we have witnessed the past couple of years,” he says. “A better than expected economic scenario, along with significantly higher freight rates, could then result.”

Conversely, he says, if no deal is reached, or if war breaks out in the Middle East, or if China’s growth prospects dim – domestic economic growth could disappoint. In that case, rates could weaken as demand wanes. 

“Rates, particularly spot rates, could decline to very attractive level,” says Larkin. “So rather than reviewing a checklist, we think that shippers should remain diligent in their evaluation of the health of the economy.  That discipline will best prepare shippers to respond to the changing landscape while lining up sufficient capacity at reasonable market-based prices.”

Larkin and other analysts note that trucking rates are closely related to supply and demand in the marketplace.  Assuming that the economy continues to grow at an annual rate of between 1½% to 2%, shippers would expect supply and demand to remain roughly in balance. 

“This is the same situation we have experienced for the better part of two years,” he says. “Under this scenario, truckers should be able to eke out 1% to 2% annual increases in raw price in 2013.  Carriers may be able to improve on the range by 100 to 200 basis point harnessing a process we like to call ‘yield management.’”

Yield management is nothing more than selecting the highest rated customers and the highest rated freight offered by particular customers. Furthermore, Larkin believes it is possible that the mid-year change to the hours-of-service-related restart rule could effectively eliminate 2% to 4% of the industry’s capacity.  This alone could set up a capacity shortage which could drive significant upside to the modest rate increases mentioned above. 

“Shippers can help themselves tremendously by working collaboratively with carriers to improve the carriers’ equipment utilization,” says Larkin. “Whether a shipper can open his facility for nighttime delivery, quickly load and unload trailing equipment, or communicate equipment needs well in advance – carriers will be more inclined to work with the collaborative shipper on price, because some of the margin needed by the carrier can be derived from turning the assets and the drivers more quickly.”

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Article Topics

All Topics
Latest Whitepaper
Digital Issue: The Current State of Third-Party Logistics Services
It has become quite clear that logistics professionals are now facing an unprecedented set of challenges. From tightening capacity, to ongoing regulation hurdles, to the complexity brought on by e-commerce, today’s shippers are transforming the way they manage their logistics operations.
Download Today!
From the June 2017 Issue
Here are five trends that every shipper­—and potential shipper—must watch as the demand for experienced logistics and supply chain professionals soars.
2017 Rail/Intermodal Roundtable: Volume stable, business steady
Cross-Border Logistics: NAFTA tune-up time
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Women in Logistics: Breaking Gender Roles to Win the War for Talent
In this session you'll hear from a panel of women who are now leading top-level logistics and supply chain operations. The panel will share their success stories as well as advice for women who are now making their way up the ladder.
Register Today!
2017 Top 50 3PLs: Investment and Consolidation Maintain Traction
The trend set over the past few years for mergers and acquisitions has hardly subsided, and a fresh...
The Evolution of the Digital Supply Chain
Everyone is talking about terms like digitization, Industry 4.0 and digital supply chain management,...

2017 Salary Survey: Fresh Voices Express Optimism
Our “33rd Annual Salary Survey” reflects more diversity entering the logistics management...
LM Exclusive: Major Modes Join E-commerce Mix
While last mile carriers receive much of the attention, the traditional modal heavyweights are in...