Syleconomics February 2010 Edition
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.
January 2011 was well ahead of last year and for “companies that are tracked in the Sylectus index”, it was the best January since we started recording our index 5 years ago. January is typically one of the slowest months in trucking, so for companies to have such a strong January provides them with a good starting point for the calendar year.
January 2011 was well ahead of January 2010. Since January 2011 had
one more business day than January 2010, there was more opportunity to do
business. There continues to be a strong year-over-year gain in volumes,
pricing and revenue.
On the surface, January 2011 had similar business volumes to December
2010. However, January 2011 had 21 business days while December 2010 had
only 19. So even though the raw volume numbers for December and January
look similar, January actually had about 10 percent less business than December
when the number of business days are factored in.
One of the great numbers coming out of January 2011 is the rate per
mile. January is typically a slow business volume month and companies
often drop their rates in January to keep their trucks moving. January
2011 bucked that trend as we saw a very small price erosion between December
2010 and January. However, it is not all rosy news. Part of the
price increase in January can be attributed to rising fuel costs and rising fuel
surcharge.
Below is a table that summarizes the changes across the entire Sylectus
customer base.
| Jan 2011 vs Jan 2010 | Jan 2011 vs Dec 2010 | |
|---|---|---|
| Business Days | 21 vs 20 | 21 vs 19 |
| Trip Count | +24% | -- |
| Total Miles | +29% | +2% |
| Average Length of Haul | +4% | +7% |
| Total Revenue | +41% | -1% |
| Linehaul Revenue | +38% | +1% |
| Fuel Revenue | +72% | +9% |
| Accessorial Revenue | +34% | -18% |
| Total Revenue / Mile | +9% | -3% |
| Linehaul Revenue / Mile | +7% | -1% |
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. January 2011 is also starting out to be the
best year ever in terms of both volumes and rates.
We have one month of 2011 data and already the index is showing stronger
numbers over prior years (see gold colored line in the graph below). One
month does not provide enough data to predict very far into the future, but it
certainly is a promising start!
My Syleconomics commentary ...
2011 starting with strong demand and faltering fleet counts.
What’s the buzz?
As we look at the first month of 2011, there are a few surprising items that stand out (you may need to scroll down to view some of the charts and raw data to see this for yourself).
- First, the “capacity” side of the equation lost ground. The companies we track in our index lost fleet, so there was a 3-4% reduction in fleet. One has to wonder if this is a seasonal adjustment or if the recently implemented CSA rulings are starting to have an effect on the number of eligible drivers.
- Second, the “demand” side of the chart was the strongest January we have seen since we started tracking our index. Remember, our index is a subset of the “same Sylectus customers” for the entire 5-year measurement period. So this group of companies, on a whole, realized their best January ever.
- Third, rates remained relatively stable in January. In all other prior years (except for 2008 when fuel costs were high), the rate per mile has usually dipped in January due to the seasonal weaker freight volumes. 2011 has bucked that trend.
- Fourth, the fuel surcharge per mile continues to climb. This is the only concerning number we see coming out of January. The fuel surcharge rate per mile is the highest January value we have seen since 2008 and the second highest value since we started recording this number in 2005.
Transportation executives should understand the macro-economic supply-demand forces at play here and also watch what is happening in the industry. In particular:
- Is the “used truck equipment” market shrinking? If so, truck manufacturers will start ramping up production. Headlines in recent Transport Topics include “Class 8 Sales hit 2 year high” (January 17, 2011), “Volvo reports 4Q profit, boosts 2011 forecast” (February 4, 2011), “Daimler sees higher worldwide truck sales” (November 30, 2010).
- Is the CSA 2010 implementation shrinking the driver pool as predicted? Recent rulings regarding Electronic On Board Recorders (EOBR) being mandated in fleets with marginal safety records could force carriers and individual drivers out of the business. This could exacerbate the driver shortage issue. Lower capacity (fleet count) without a similar reduction in demand (freight volumes) usually drives up prices.
- Are banks maintaining their “low risk, conservative lending” policies? If so, there will continue to be barriers to entry into the industry since anybody wanting to start a trucking company will likely need to self-fund the start-up. This gives existing trucking operations opportunities to solidify existing customer relationships or build new customer base without the fear of new entrant competition.
- Are inventories levels lean? If so, a small uptick in consumer demand will put upward pressure on manufacturing and transportation.
- What is the trend with the price of fuel? This is the one potential negative trend that needs watching. If fuel prices climb like they did in 2008 it could trigger another “correction”. Make sure your fuel surcharge pricing policies are properly set with your customers!!!! If fuel prices start to rise, don’t let improperly calculated pricing policies eat your profits and put you out of business! (A lesson learned from the fuel crisis of 2008).
What will 2011 bring?
- Last month (when I published the December 2010 data) I made a few predictions for 2011. I will repeat them here with comments (in blue) based on the January 2011 numbers:
- 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). February 3, 2011 – I still think this is true.
- 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. February 3, 2011 – Sylectus is experiencing this now. Many new transportation companies are asking to join our transportation network alliance.
- 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. February 3, 2011 – So far so good. Production seems to be matching consumption.
- 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. February 3, 2011 – Interest in our wealth creation trucking technologies has never been stronger. Our customers are our best marketers and sales people. They continue to spread the word that their success is closely tied to the Sylectus technologies they employ and the power of the Sylectus Alliance network.
- 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. February 3, 2011 – Still true. The January 2011 figures showed a reduction in trucks (capacity) and a relatively strong rate per mile.
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 5 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.
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, 2010 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, and 2011 has started
as one of the strongest January months ever.
The following data / chart shows 2005, 2006, 2007, 2008, 2009, 2010 and
2011 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 7 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 Index
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 5 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 5 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.
- The Demand (loads) chart is tracking better than 2007. 2010 was a record year for carriers and 2011 has started strong.
- 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.
- The “supply” side of the equation took a dip in January, which will put upward pressure on pricing.
Load Index – 2007-2011
Below you will find the same 2007, 2008, 2009, 2010 and 2011 numbers used
in the first graph, except the data is shown year-over-year. 2010 was a
good year for trucking. 2011 is starting out strong.
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 2011 (so far).
Truck Searches – 2007-2011
Below you find the same 2007, 2008, 2009 and 2010 numbers for the number
of TRUCK SEARCHES done on the system. 2011 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 2011 (so far).
(Y axis = Number of Truck Searches done per business day)
Load Posting – 2007-2011
Below you will find the same 2007, 2008, 2009, 2010 and 2011 numbers for
the number of LOAD POSTINGS done on Sylectus Load Board. 2011 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 2011 (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).