Trucking 2014: Yield Management Will Tell the Tale

By Patrick Burnson, Executive Editor
January 14, 2014 - SCMR Editorial

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

image
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 .(JavaScript must be enabled to view this email address).

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!

Recent Entries

The Port of Oakland has undertaken a series of measures in recent years to attract more import volume.

The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported this week that U.S. trade with its North America Free Trade Agreement (NAFTA) partners Canada and Mexico increased 8.2 percent from September 2013 to September 2014 at $102.2 billion.

NS said that the D&H lines it plans to acquire connect with the NS network at Sunbury, Pa. and Binghamton, N.Y. and give NS single-line routes from Chicago and the southeast U.S. to Albany, N.Y., which is in close proximity to NS’ Mechanicville, N.Y.-based intermodal terminal.

This follows a 1.6 cent decrease last week, which was preceded by a 5.4 gain the week before and stands as the first increase going back to the week of June 23, when the weekly average headed up 3.7 cents to $3.919 per gallon.

BNSF said that its 2015 capital expenditures will be allocated towards various areas of its business, including maintenance and expansion of the railroad to meet the expected demand for freight rail service, with 2015 representing the third straight year BNSF has invested a record annual capital expenditures investment.

Article Topics

News · Supply Chain · Management · Economy · All topics

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review. Patrick covers 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. Contact Patrick Burnson

Comments

Post a comment
Commenting is not available in this channel entry.