Syleconomics - January 2011

Syleconomics (noun) ... "The economic analysis of various business indicators from the Sylectus transportation management system (TMS). A monthly review of what has happened and some suggestions on how to improve your business situation in the transportation world."

Below is a summary of transportation industry numbers from our databases.

December 2010 was well ahead of last year and for “companies that are tracked in the Sylectus index”, it was better than November 2010 by a good margin. When we look at the “total Sylectus customer base” (not just the companies tracked in the index), December 2010 was slightly below November 2010, but December 2010 had fewer business days than November 2010. On a per-day basis, December 2010 was as good or better than November 2010.

One of the great numbers coming out of December 2010 is the rate per mile. For the first time in several months, it has actually up-ticked quite nicely. We suspect this is a result of the Christmas rush and higher demand for expedite shipments to ensure deliveries by Christmas (although maybe it is a result of my constant monthly badgering about raising rates due to the current capacity shortage).

Below is a table that summarizes the changes across the entire Sylectus customer base.

	Dec 2010 vs Dec 2009	Dec 2010 vs Nov 2010
Business Days	19 vs 19	19 vs 20
Trip Count	+17%	-4%
Total Miles	+18%	-5%
Average Length of Haul	+1%	-1%
Total Revenue	+27%	-3%
Linehaul Revenue	+25%	-2%
Fuel Revenue	+26%	-9%
Accessorial Revenue	+54%	+1%
Total Revenue / Mile	+7%	+3%
Linehaul Revenue / Mile	+5%	+4%

Consider the graph below which looks at a “normalized” load index (DEMAND) for the past 4 years for a subset of Sylectus customers. The last half of 2010 (the purple line) exceeds all prior years and shows that 2010 is, by far, the best year ever for the Sylectus subscribers tracked in this index. Not only were volumes up, but rate per mile was also creeping up during this time frame.

We have one week of 2011 data and already the index is showing stronger numbers over prior years (see gold colored line in the graph below). One week does not provide enough data to predict very far into the future, but it certainly is a promising start!

My Syleconomics commentary ... 2010 (via the rear view mirror) and some thoughts on what 2011 might bring.

2010 in Review

The major savior for trucking companies in 2010 was capacity … or more correctly, lack of capacity. As our charts show, trucking lost about 30% of the capacity (drivers) through the recession and has recovered only about half that was lost. This factor, along with:

Competition for drivers from large, government funded infrastructure projects;
Barriers to entry into the industry since banks and other lending institutions take a very conservative approach to start-up trucking initiatives;
A drawn down inventory and tighter inventory management practices going forward; and
A “profoundly modest” up-tick in transportation demand as we exited the recess has resulted in many trucking companies in the Sylectus subscriber base recording their best year ever;

Although rates (linehaul rate per mile and total rate per mile) rebounded in 2010, the rate per mile still seems a bit low considering the capacity constraints present.

What will 2011 bring?

As much as we have tried, Ed and his team of outstanding developers can’t seem to get the “crystal ball” module working exactly the way we want. So our view into 2011 will have to be done the old fashioned way, by looking at significant economic indicators.

The biggest drag on the economy will be debt. Both at the household and government levels (but not so much at the corporate level … see point 2 below). The household debt has reduced consumer spending power and will dampen demand. If the economy can reach an equilibrium (and we may already be there), then we may be at a point where economic growth is slow and steady (which is good).
Employment will rebound slowly. Except for a few government bail-out situations, weak corporations did not survive the recession. Corporations who survived the recession are still not staffing to pre-recession levels and used 2010 to rebuild the corporate war chest. These survivors (including trucking companies) learned valuable lessons about living at or below their means and are not ready to take on unnecessary expense burdens at this time. They are looking to technology to make them more efficient and cost effective.
Inventory levels will be tightly managed. Companies do not want to get into a situation (as they did in the recession) where they held too much inventory. Expect new inventory strategies to put more demand on transportation companies to provide more “just in time” service. We already see this at Sylectus as the number of technology projects we receive are focused more on end-to-end inventory reduction / tracking / controls. Let’s hope the automotive industry in North America keeps production at or below the 14 million unit mark (14 million would match the annual auto “scrap rate”). Over production in the auto industry could lead to more economic issues.
Investment in technology will accelerate. Over the past six months, we have seen a surge of companies moving up to the Pro level of our software. The power of the Virtual Fleet automation, the wealth creation tools of the Alliance network and the overall efficiencies of many AlliancePro modules are providing these subscribers with a significant, defendable, competitive advantage. If you are not an AlliancePro subscriber, we invite you to talk to any AlliancePro subscriber and ask their opinion of how it helped their business before, during and after the recession.
The driver shortage will be your friend. This may sound odd, but the driver shortage will keep capacity tight and should drive up rates to help trucking companies become more profitable. Banks will continue to maintain a conservative stance when lending to existing or new trucking companies, hence making a “barrier to entry” to the industry. The CSA 20xx regulations that took effect in December will slowly weed out the bad drivers which, again, will reduce the available driver pool. Until driver pay packages become more competitive with other job categories in the country, new entrants into the driver pool will be minimal.

The first week of 2011 has started off well for Sylectus subscribers in our “index”. The index is already above 2010 numbers. But one week is not a large enough sample to predict the next six months.

Based on the 5 points raised above, we believe the first 6 months of 2011 should be as good as 2010. And that would be good.

Supply/Demand Analysis

2010 was the best year ever for many Sylectus customers. We see a particularly strong increase in our long-term customer base (customers with us for at least 4 years). The long-term customers have such a strong, well-established, trusted network within the Sylectus Alliance, that they have been able to leverage the Alliance capacity into higher business volumes.

Our SUPPLY-DEMAND index (below) is comprised of a subset of our customers that have been on our system for a minimum of 4 years. The Green line is the normalized load count (DEMAND) and the Blue line is the normalized fleet count (SUPPLY) for the companies in the index.

What is driving this success of our customers is not a strong, rebounding economy, but rather a continued and prolonged shortage of capacity. The “Bubba Gump Shrimp” effect that I discussed in the October issue of Syleconomics.

Looking Forward

Chart Analysis

If you look at the table below … you will see that Linehaul revenue per mile in 2008 was in the $1.50 to $1.60 per mile. In 2009 the Linehaul revenue per mile has slipped as low as $1.25 before rebounding to the mid $1.40 range. 2010 has rebounded and ended the year nicely, although it is still below historical values.

The following data / chart shows 2005, 2006, 2007, 2008, 2009 and 2010 in terms of total revenue per mile, linehaul revenue per mile, accessorial revenue per mile and fuel revenue per mile.

Total revenue per milee is a combination of:

linehaul revenue per mile
accessorial revenue per mile
fuel revenue per mile

The three charts below show Revenue per Mile for the past 6 years. We the show 3 charts of::

Total Revenue per mile (numbers include line haul, accessorial and fuel)
Just “Line haul” revenue per mile (rates are well above last year’s values and they also exceed seasonal values).
Just Fuel revenue per mile (rates have stabilized since the 2008 fuel spike).

Sylectus created a graph to try and compare how the “Load Index” (Demand) and “Truck Count Index” (Supply) compares with the “Dow Jones Index”.

The “Load Index” (Demand) is the combined load counts of a subset of our customers normalized to an index value. A value of 1.0 is normal. A value of 1.2 is 20% above normal. A value of 80 is 20% below normal. We started recording the index on November 1, 2006, so we have over 4 years of data in the index now.

The “Truck Index” (Supply) is the combined fleet counts of a subset of the same “load index” customers normalized to an index value. A value of 1.0 is normal. A value of 1.2 is 20% above normal. A value of 80 is 20% below normal. We started recording the index on November 1, 2006, so we have over 4 years of data in the index now.

We took the closing value of the Dow Jones Industrial Average (DJIA) and used the same process to normalize the data (we did this by using the same “measurement period” for calculating the normalization value). Just like the “Load Index” and “Truck Index”, the “normalized DJIA” will have a value of 1.0 being normal and value of 1.2 is 20% above normal (etc.).

Below you will find the two normalized indexes charted from November 1, 2006 through to current date. The BLUE LINE is the “Load Index” (Demand), the GREEN LINE is the “Truck Index” (Supply) and the RED LINE is the “normalized DJIA”

Sources:

"Sylectus Expedite Index" – Summary of data from Sylectus companies.
"Dow Jones Industrial Average" – database of Dow Jones closing values.

So what does this chart tell us?

Supply of trucks (capacity) continues to lag below demand, but it is slowly creeping back up. This is reflected in an improved rate per mile over 2009, but recently stabilized rate per mile.
The Demand (loads) chart is tracking better than 2007. 2010 will be a record year for carriers.
Although both graphs tend to TREND in tandem, the DJIA tends to be lower than the Load Index for most data points but tracks the capacity graph very closely. The survivors of the recession (Bubba Gump Shrimp story mentioned in the October Syleconomics) are reaping the benefits of the business volume uptick.
Over the past 24 months, the Demand Index has outperformed the DJIA by a significant amount. This can be explained as the “power of the Alliance” allowing companies to react better to economic fluctuations.

Load Index – 2007-2010

Below you will find the same 2007, 2008, 2009 and 2010 numbers used in the first graph, except the data is shown year-over-year. 2010 started out as a “normal” year and its trend is in line (or better than) that of 2007. 2010 will be a good year for trucking.

Consider the following graph which shows the daily “Load Index” for January 2007 through to current 2011.

The “Load Index” is the combined load counts of a subset of our customers normalized to an index value. A value of 1.0 is normal. A value of 1.2 is 20% above normal. A value of 80 is 20% below normal.

The green line shows the 2007 index value, the orange line shows the 2008 index value, the blue line shows the 2009 index value, the purple line tracks 2010 and the gold line tracks 2010 (so far).

Truck Searches – 2007-2010

Below you find the same 2007, 2008, 2009 and 2010 numbers for the number of TRUCK SEARCHES done on the system. 2010 is showing encouraging numbers as the number of daily truck searches average over 11,000 per day.

The green line shows the 2007 index value, the orange line shows the 2008 index value, the blue line shows the 2009 index value, the purple line tracks 2010 and the gold line tracks 2010 (so far).

(Y axis = Number of Truck Searches done per business day)

Load Posting – 2007-2010

Below you will find the same 2007, 2008 2009 and 2010 numbers for the number of LOAD POSTINGS done on Sylectus Load Board. 2010 is showing encouraging numbers as the recent number of daily load postings average over 700 per day. It continues to track / exceed previous years values.

The green line shows the 2007 index value, the orange line shows the 2008 index value, the blue line shows the 2009 index value, the purple line tracks 2010 and the gold line tracks 2010 (so far).

(Y axis = Number of Loads Posted per business day)

You still need to remind your operations staff to become "creative" when presented with load opportunities. Get them to try to use our software solution to::

Turn every load opportunity into an order
Turn every order into repeat business
Keep your drivers happy.

Working together as a team (Alliance) can help weather any seasonal economic slowness and take advantage of the seasonal busier times (never saying "no" to a customer).

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