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
The View from the New “Single Window”
The single window, officially known as the "International Trade Data System," operates via the Customs and Border Protection (CBP) agency's Automated Commercial Environment (ACE) platform, and serves as a single point of contact for all trade filings.
Download Today!
From the March 2017 Issue
WMS vendors are stepping up to the plate and developing functionalities and solutions that meet the complex needs of today’s companies. Our top analysts take a peek into these developments and discuss the DC of the future and the software that will support it.
5 Supply Chain Trends Happening Now
2017 Warehouse/DC Equipment Survey: Investment up as service pressures rise
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
2017 Trucking Regulations & Infrastructure Update
In this session our panel brings shippers up to date on the state of transportation regulations. Discussion will revolve around regulatory reform, aspects of the federal highway bill and what the transportation landscape looks like in the early days of the Trump administration.
Register Today!
LM Exclusive: Major Modes Join E-commerce Mix
While last mile carriers receive much of the attention, the traditional modal heavyweights are in...
ASEAN Logistics: Building Collectively
While most of the world withdraws inward, Southeast Asia is practicing effective cooperation between...

2017 Rate Outlook: Will the pieces fall into place?
Trade and transport analysts see a turnaround in last year’s negative market outlook, but as...
Logistics Management’s Top Logistics News Stories 2016
From mergers and acquisitions to regulation changes, Logistics Management has compiled the most...