Syleconomics April 2011 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.
March 2011 was absolutely astounding for many of the “companies that
are tracked in the Sylectus index”. The strong January and February
start to the year combined with the outstanding March made this the best first
quarter ever for these companies! Furthermore, rates
continue to be buoyed by the continued shortage of drivers. We are seeing
the strongest “rate per mile” value since the fuel crisis of 2008.
March 2011 was well ahead of March 2010 (see table below).
Furthermore, March 2011, which has three more business day than February 2011
(15% more business days), still outperformed February by 25-40%!
One of the great numbers coming out of the start of 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.
But January 2011 rates “held”, February rates moved up and March rates are the
highest we have seen in years, which is good for the profitability of the
industry. Part of the price increase in March can be attributed to the
continued rising fuel costs and rising fuel surcharge.
Below is a table that summarizes the changes across the entire Sylectus customer base.
| Mar 2011 vs Mar 2010 | Mar 2011 vs Feb 2011 | |
|---|---|---|
| Business Days | 23 vs 23 | 23 vs 20 |
| Trip Count | +27% | +25% |
| Total Miles | +34% | +30% |
| Average Length of Haul | +5% | +4% |
| Total Revenue | +63% | +40% |
| Linehaul Revenue | +56% | +35% |
| Fuel Revenue | +182% | +87% |
| Accessorial Revenue | +33% | +41% |
| Total Revenue / Mile | +22% | +8% |
| Linehaul Revenue / Mile | +17% | +4% |
My Syleconomics commentary ...
2011 - low capacity is your revenue friend, high fuel is the snake in the grass
What’s the buzz?
The “business volume” first few months of 2011 continue to strengthen the financial position of trucking companies. The question trucking executives have been asking for the past 18 months is “When will the bubble burst? When will demand flatten and competition push prices back down?”
The answer seems to be “Not soon.”
Why?
- Low Inventory levels. Through the recession, manufacturers tightened their inventory control to lower their exposures. They continue to run lean inventories (5% below normal) and as demand is picking up in 2011, they too are asking “when will it end?” Instead of building excess inventory or safety stock, they rely on the transportation network to provide their “inputs” just in time. In the last several weeks we have seen large assembly lines idled because suppliers just could not react quickly enough to the demand increase. Result? Increased demand for time-sensitive trucking and distribution.
- Driver Shortage. Every progressive trucking company is experiencing this right now. Finding and keeping good drivers is becoming more difficult. Recruiting fairs are seeing higher attendance. Regulatory pressures are weeding some drivers out of the industry. The driver workforce is aging as the “baby boomer” effect starts to kick in. The driver shortage that existed before the recession has sharply increased after the recession. Even if North America builds more trucks, they can’t run on auto pilot. They need a human being to drive it! Result? Lower supply of trucks and drivers.
- Barrier to Entry. Economics 101 would look at #1 (Increased demand) and #2 (Lower Supply) and say two things will happen. Prices will go up (which they have) and then more people will get into the market to satisfy the growing demand (which IS NOT happening). Why? To start a trucking company you need money – which can come from various sources, but most often it needs to come from a bank. But banks are still not lending to “start up” trucking companies because they see it as too risky. So unless someone is self-financing their trucking company, there will be very few “new entrants” into the industry. Result? Medium term Competitive protection. The trucking companies that survived the recession have more market and fewer competitors. The smart, progressive trucking companies are taking advantage of this opportunity to “lock in” new customers with great service.
- Access to Fleet. Trucking companies are in a strong position now because they have access to fleet. For the past several years, trucking companies aggressively bid on freight managed by load brokers and freight forwarders. Now that their trucks are being predominantly used by their own customers, trucking companies have the ability to accept only good paying freight from brokers. The result is that brokers are being squeezed financially as they try to serve their customers with limited (out of their control) truck resources. In fact, Sylectus subscribers tell me stories of large freight brokers approaching them to secure guaranteed capacity. If the driver/truck shortage continues, you may see shippers bypass the “middle man” (freight broker) to establish long term relationships directly with a carrier, pay the carrier the same rate they would pay the broker, and still the carrier gets a good rate. Result? New Business. Trucking companies will gain new, long term shippers (customers) as the migrate away from freight brokers to guaranteed capacity with trucking companies.
- Value Proposition. Consider the arguments in #4 above. Why would a shipper deal directly with the carrier? Consider this argument. Two companies produce widgets that are in high demand. If company #1 can get their product shipped to market faster or better than company#2, they will grow their market share. So paying a premium to have their product available to their consumers while their competitor cannot “deliver to the consumer” is a competitive advantage. Smart trucking executives (sales people) will understand their customers shipping needs and work with them to deliver this competitive market advantage. At Sylectus, I see this in some of our more progressive subscribers. Result? Cooperating in Growth. Trucking companies are becoming “business partners” with their customers (shippers) to ensure their products have a competitive advantage in the supply chain … as the shipper grows, the carrier grows with them.
- Power of the Sylectus Alliance. Consider all the arguments above (#1-#5) and it is obvious that the Sylectus Alliance helps the progressive trucking company grow by providing a flexible, trusted, protected, wealth-creating network of carriers. It allows Sylectus subscribers to say “YES” to their customers more often, keep their trucks moving with good paying freight, and grow their business. Result? Flexible, trusted, protected growth opportunities.
What can go wrong?
There will always be economic “speed bumps”, and the smart trucking companies will always consider what “might go wrong” and try to mitigate their losses. Here are a few things to watch out for.
- Rising fuel prices. The big negative we are seeing at the start of 2011 is the fuel rate increase. We are already tracking ahead of 2008, the year that eventually led to a recession. Higher fuel prices are ultimately passed on to the consumer and will dampen their purchasing power. Any softening of consumerism in the world will slow demand which in turn slows the economy. Recommendation? Keep tight controls. Live within your means. Keep your Accounts Receivable current (don’t let customers get too far behind in payments) and manage your cash flow closely. Establish good relationships with your banks. Build up your war chest so you can withstand another recession.
- Cash flow crunch. A quick rise in sales can put a huge strain on your cash flow. It’s great that your sales grew 30% in March, but you need to pay your drivers and suppliers in 15-30 days and you customers won’t pay you for 45-60 days. This can quickly put you in a large negative position. And banks are still very risk-averse and not very forgiving. Recommendation? Know your cash requirements. Work closely with your bank to increase your line of credit as you grow.
- World events. Let’s face it. These are out of your control, but world conflict affects everybody in this global economy. We all do our job to grow and prosper, regardless of world events. Recommendation? Keep on trucking!
But … enough of the potential gloom and doom! It’s spring. The weather is warming up. Trucking companies have had an outstanding first quarter. We see at least another several months of great business opportunities ahead for everyone in the Sylectus Alliance.
It just keeps getting better … and the best is yet to come!
Now … the charts!
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.
Our SUPPLY-DEMAND index (below) is comprised of a subset of our customers
that have been on our system for a minimum of 5 years. The BLUE line is
the normalized load count (DEMAND) and the GREEN 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, 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 the strongest 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).