Viewpoint: Too many wildcards
January 01, 2012 - LM Editorial
Our January issue features one of our most anticipated reports, Logistics Management’s Annual Rate Outlook. Not only has it traditionally been one of our best-read reports—second online only to our Annual Salary Survey—but over the past seven years the related webcast (logisticsmgmt.com/2012outlook) has attracted thousands of shippers looking for insight into what the coming year may hold in terms of rates and capacity.
Executive Editor Patrick Burnson, who has put this report together the past several years, has done another terrific job of rounding up our top economic, energy, fuel, and transportation analysts to put the overall forecast into perspective (page 30). However, as he was finishing up his first round of calls for this year’s report, he noticed a tempered tone from what is usually one of the more confident groups we source.
“It’s almost as if the last three years have worn down many analysts,” Burnson told me. “And at this point, many of them feel that there are too many wild cards, too many unanswered questions in play to offer any solid, long-term rate projections.”
Indeed, the first question in need of resolution—and the one most out of the control of shippers and carriers—is the still-unsettled global economic picture. The European debt crisis still hangs in the balance, and continues to put pressure on financial markets and business confidence despite late-year market enthusiasm.
Gene Huang, chief economist at FedEx, tells Burnson that these financial headwinds will wreak havoc with inventory planning and transportation volume forecasts if they persist deep into 2012, making it even more difficult to predict rates and capacity.
Back here at home and on the roads, the fallout from the CSA implementation is far from being quantified. By mid-2011 more than 50,000 warning letters had been sent out to carriers that scored poorly in at least one or more of seven “BASICs” categories. Just from this enforcement effort, our analysts estimate that as many as 150,000 long-haul drivers (out of about 3 million) could be sidelined—but the timeline remains foggy.
To add more fuel to the driver-shortage fire, the ATA reported in December that the driver turnover rate hit 89 percent in the third quarter, following rates of 75 percent and 79 percent in the first and second quarter. This represents the highest level since the first quarter of 2008.
Hardly a surprise, another wild card remains fuel prices, which our Oil & Fuel columnist Derik Andreoli says will remain high and volatile due to low production capacity. “Geopolitical risks to the production and transportation of crude and refined products remains high,” he tells Burnson. “This will be increasingly important because when spare production capacity is low, the price impacts of even small supply disruptions, like those that occur on a regular basis in Nigeria, are high.”
One lingering question that has been clarified is the truck driver hours-of-service (HOS) rule changes that the FMCSA rolled out just before Christmas. The final rule retains the current 11-hour daily driving limit; however the maximum number of hours a driver can work within a week has been reduced by 12 hours. Group News Editor Jeff Berman breaks down all the details on page 13.
As expected, the HOS changes have met with mixed reviews, but no one is certain what they mean to carriers in terms of the cost of doing business, service times, or driver recruitment. Many insiders contend that the changes could have been worse, and with the 18-month transition period there is plenty of opportunity for opposing forces to continue the battle.
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