A slow-growth economy, high fuel prices, and shifting freight patterns are leading many carriers large and small to readjust their long-term strategies so they are “balanced” better for the future.
“What we’re seeing in the market is the continuing process of convergence,” Eric Starks, president of FTR Associates, explained to Fleet Owner. “It’s hard to see in the data sometimes, but it’s happening: the growth of more regional freight versus long-haul cargo; the continuing momentum of intermodal taking market share away from long-haul; and the greater need of flexibility on the part of carriers to meet more diverse shipper needs.”
All of those issues – among many others, such as high fuel prices and tight capacity – are leading carriers to make changes to their operations at a much faster pace.
For example, according to Transport Capital Partners’ (TCP) first quarter2012 Business Expectations Survey, 19% of carriers report changing their type of haul – a 25% increase from a year ago.
“Long term strategy has come to the forefront as carriers cope with high demands for equipment and balance that with rising equipment costs, driver constraints, and operating dynamics,” noted Richard Mikes, a partner with TCP Partner and the survey’s founder.
Compared to a year ago, he added that carriers say are more confident that they can renegotiate “accessorial” operational costs as well, such as fuel surcharges and detention times. A third of carriers however don’t feel confident in their ability to renegotiate accessorial costs – an increase from only 19% percent reported in February last year.
“Carriers are focusing on big ticket items such as driver time (i.e. detention) and fuel cost reimbursements in rate discussions this time,” Mikes said.
One piece of good news for carriers planning for the future is that there’s been a significant change in the amount of time that it takes them to get paid. In February of 2009, a little over a year after the “Great Recession” began, 57% of carriers reported seeing their Daily Sales Outstanding (DSOs) increase. Now, three years later, only 28% report such an increase, Mikes stressed, with no significant difference found between carrier size and average DSO time.
That’s almost certainly due to continued tight truck capacity, according to FTR’s data, as the firm reported that its Shippers Conditions Index (SCI) for February declined by a full point from the previous month to a reading of minus 5.6 as demand for trucking services grew strongly in what is normally a slack month.
FTR added that it expects its SCI metric to remain in a relatively tight range through 2012 and then fall into more negative territory as changes in hours of service (HOS) regulations are implemented in 2013.
“February was unusually strong, with demand for trucking services rising over 4% year-over-year,” noted Larry Gross, senior consultant with FTR. “This effectively ‘sets the table’ for a relatively tight capacity situation going forward as demand ramps up seasonally in the coming months. We therefore expect the balance of pricing power to remain firmly on the side of the carriers for the balance of the year.”
That being said, overall U.S. economic growth is still expected to be sluggish, meaning carriers continue to keep a watchful eye on freight volumes.
Fannie Mae's Economic & Strategic Research Group, for example, expects U.S. economic growth to slow to slightly more than 2% in the first quarter of the year, down from the 3% annualized growth rate achieved in the fourth quarter of 2011.
“The slowdown in economic growth is not indicative of a significant deterioration in the underlying strength of economic activity, but a fading inventory boost to GDP [gross domestic product] growth,” explained Fannie Mae Chief Economist Doug Duncan.
“For all of 2012, [we] expect growth to be modest at 2.3% as a number of factors combine to constrain activity,” he said. “Those include: slow real disposable income growth, which should restrain household spending activity; a very small contribution from net exports; and continued fiscal contraction by the federal government, as well as ongoing cutbacks by state and local governments acting as a drag on growth during the year.”