Syleconomics July 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.

June did not disappoint. It is seasonally the strongest month in the first half of the year and this year was no exception. A combination of continued shortage of trucks/drivers and a relatively strong demand buoyed both the trip counts and the revenues at trucking companies. The June 2011 business volumes were up a modest 6% over June 2010, however, the revenue was up 15% and revenue per mile was up 13%. This continues to demonstrate that price increases have “stuck” and shippers are paying more to ensure their freight demands are sated.

The good news is that carriers are realizing some of their best rates in years. Since the recession, over the past 18 months, there has been a slow and steady rate-per-mile increase. As I stated in many of my previous Syleconomics commentary, much of this rate increase is due to the continued driver shortage. The bad news is that the driver shortage can be a hindrance to growth. Fortunately for the Sylectus subscribers, they have access to the flexible fleet capacity within the Sylectus Alliance.

In early June, Sylectus hosted our annual summer Alliance social. About 180 Sylectus customers and suppliers met in a social atmosphere to build new business relationships and strengthen existing business relationships. I had a chance to talk to many of our customers and the common theme was “guarded optimism”. Even though business volumes have been solid for the past 18 months and revenues continue to strengthen, many carriers are still cautious about taking on costs that do not directly add value to their company.

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

	June 2011 vs June 2010	June 2011 vs May 2011
Business Days	22 vs 22	22 vs 21
Trip Count	+6%	+12%
Total Miles	+5%	-10%
Average Length of Haul	--	-2%
Total Revenue	+15%	+14%
Linehaul Revenue	+13%	+13%
Fuel Revenue	+75%	+7%
Accessorial Revenue	-11%	+24%
Total Revenue / Mile	+9%	+3%
Linehaul Revenue / Mile	+8%	+3%

My Syleconomics commentary ...

Where is driver pay going? Are you preparing for the impact?

As the shortage of drivers continues, more companies are looking to creative ways to attract and retain good quality drivers. Driver pay is the area that seems to be getting the most traction.

Before adjusting driver pay, every company needs to understand how it affects your bottom line, especially if the economic recovery is tenuous and we slip back into a recession. A very good article about the driver shortage situation was published in Transport Topics on June 24th (see http://www.ttnews.com/articles/printnews.aspx?storyid=24635). The summary of the article is this:

During the recession, fleets methodically cut the least-productive drivers and retained their high-productivity counterparts, adding lower-quality drivers to the hiring pool.
Between June and August 2009, the driver pool began to dry up, and today, the quality of drivers available on the market is marginal.
The industry is at a point where the available driver pool is dominated by marginal candidates. As a result, fleets across the country are having a difficult time finding highly qualified drivers to expand their capacity or even to find replacement drivers.
Low churn and decreased driver pay will combine with improving freight demand and the implementation of the CSA safety program will continue to have a negative effect on the driver supply.
It will take a long time to “Build significant new entrants into the professional driver ranks and to train and deploy them.”
The article predicts that “It is likely that by Labor Day we will pass the tipping point where the inability to hire qualified drivers will begin to force freight rates up significantly.”
There is a further prediction that driver pay rates will increase $.03 to $.06 per mile to retain existing driver resources.

Question: If their prediction about rates rising after labor day, are you putting your plans in place right now to make this happen? Labor day is only 9 weeks away!

What are we seeing our “smart” customers doing to attract / retain their drivers?

I chatted with some of our customers about this. Many are well aware of the issue and here are a few of their strategies.

Review their driver pay packages and make the pay a function of trip revenue. The best way to make it flexible is pay the driver a percentage of the billed revenue. As the rates to the customers increase, the revenue the driver makes improves. This means drivers revenues rise-and-fall with the carriers revenue (which is often tightly linked with the economy).
Tie compensation to the drivers CSA score. CSA scores will become a key determinant in the success of a carrier and much of the CSA score is directly related to the driver. Provide tiered compensation programs where the best drivers with the best CSA scores get the best pay structure. Perhaps even adding bonus options for good CSA ratings.
Just raise driver pay. Ok, this one is fairly simple, but how much do you raise it? Before raising the “per mile” rate, carriers need to fully understand their cost structure and the impact of the fluctuating economy.
Fire customers. How does this attract/retain drivers? Well, not everyone of your customers are good customers. There may be low rates, they may be slow paying, they may give you bad lanes leaving drivers stranded. Their business actually may cause your drivers to leave. The smart carrier is constantly looking at their revenue and asking “Is this customer delivering the revenue I need to profitably carry their freight and retain my good drivers?” If not, then you have two choices. Raise the rate to make it profitable and keep your drivers happy, or fire the customer and focus on the customers that give you the best returns. By the way, you don’t really need to “fire” the bad customers. Simply put a flag in the customer record that tells dispatch to limit their business if your fleet capacity is tight. The customer only get trucks if you have the availability.

Trucking is a pennies business. Shippers will move from one carrier to another for a penny-a-mile savings (especially in bad times). Trucking is a business that you have to continually change your model so that you don’t become a statistic in the industry.

Don’t forget you have access to “Variable Fleet”.

(Here comes a shameless plug). The Sylectus Alliance offers your business “variable capacity”. It is a collection of hundreds of trucking companies and thousands of trucks across the continent. The smart members of the Alliance build strong, TRUSTING business relationships with other Alliance members. These business relationships help each member survive the bad times (recessions) and quickly grow during the good times (quick access to quality, trusted, available trucks). Even smarter carriers subscribe to the Sylectus AlliancePro software with Virtual Fleet that automatically and seamlessly integrates you with thousands of trucks, hundreds of qualified dispatchers and a continent wide sales force. Attend the Sylectus and TEANA (www.teana.org) network events to build and nurture your business relationships within the Alliance.

Business is good right now. Shippers in certain geographic areas are willing to pay great rates to get their products shipped. Now would be a great time to:

Balance your business (raise rates and cull you questionable customers);
Build/enhance/nurture your network of Alliance partners;
Focus on freight that pays delivers the best return;
Build your strong team;
Keep your debt low;
Invest in the best technology to drive your business forward (oh … another shameless plug). If any of you want to find the best technology, we invite you to ask any of our AlliancePro customers about our award winning dispatch, billing, payroll, imaging, fleet management (and much more) software.

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, even surpassing the 2008 high months that were affected by the high price of fuel.

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

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).

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