Syleconomics September 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.

In a typical year, August is a rebound month from a typical slow July.  This year August had a great rebound with many of our Pro customers posting record sales.  The last few weeks of August were particularly strong and the last week of August was impacted by hurricane Irene in two ways.  First, there was increased activity by companies in the hurricane path to ship as much product as possible out of the area before the hurricane hit.   At the same time, FEMA was ramping up shipments into the potentially affected areas in preparation for the hurricane to strike.   Second, after the hurricane struck, supplies, food, building products and other emergency goods were shipped into the hurricane stricken areas.  All this “hurricane related” activity put pressure on an already tight trucking capacity.  As you can see in some of the charts later in this document, “truck searches” and “load postings” were at record levels during the hurricane Irene timeframe.

From a “year over year” perspective, August 2011 was a great month for most of our subscribers who posted record load counts and record revenue.  Revenue per mile remained strong and demand for services remained strong.

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

  August 2011 vs August 2010 August 2011 vs July 2011
Business Days 23 vs 22  23 vs 20
Trip Count +18% +32%
Total Miles +17% +27%
Average Length of Haul -5% -4%
Total Revenue +28% +26%
Linehaul Revenue +26% +28%
Fuel Revenue +88% +25%
Accessorial Revenue +4% +13%
Total Revenue / Mile +10% -1%
Linehaul Revenue / Mile +8% +1%

My Syleconomics commentary ...

Why is trucking doing so well when the rest of the economy is struggling?

A few weeks ago, I got a call from a stock broker who follows this monthly newsletter. He wanted to know how our transportation subscribers (carriers) were doing considering how poorly the financial markets were faring. In a traditional market, transportation is often a “leading indicator” of how the economy will perform. But this is not a traditional market. I explained to my stock broker friend that there are some market forces at play here that are making our subscribers rich. If you look at the chart below that shows “Supply/Demand/Dow Jones Index” together, you will see transportation demand at an all time high, yet the Dow Jones is dropping.

Perhaps it is best to review the differences between the market weakness of 2011 and that of 2008, just prior to the last recession. Here are some observations.

  1. Inventory levels: In 2008, there was a lot of inventory in the system. For example, the North American auto manufacturers were producing 18-19 million vehicles per year while the “scrap rate” of vehicles was about 13-14 million vehicles per year. The recession was a great equalizer, not only in auto inventory, but almost all other types of inventory. Companies that survived the recession consciously modified their manufacturing processes to reduce the amount of excess inventory thereby reducing their exposure to another economic downturn. An example of this is recent transport topics articles citing parts shortages for some truck manufacturers. Another example from “Comerica Bank’s Michigan Economic Activity Index – August 30, 2011” said the following: “The good news is there is ample pent up demand for new cars, which would be unleashed in the presence of moderate job creation, stable gasoline prices and low interest rates.”
  2.  Number of trucking companies: There are about 30% fewer trucking companies post-recession. The survivors of the recession have not only benefited from the uptick in business, they also benefit from barriers to entry into the trucking business. Banks are still very cautious about lending money to any start-up organization, especially trucking companies. So a stable, depleted inventory system (see #1 above) plus fewer trucking companies, means that any small up-tick in manufacturing levels will result in all trucking companies realizing growth. The recent impact of hurricane Irene is a prime example of the stress it can put on an industry with limited (finite) supply (trucks and drivers).
  3. Driver shortage: Even if a trucking company wants to grow, there is a shortage of “good” drivers and the number of qualified drivers entering the driving pool is weak (see prior Syleconomics articles for references). So when I look at the activity of the Sylectus customers and I see constant double-digit growth, some of this growth is a result of having access (via the Sylectus Alliance) to hundreds of other (trusted) trucking companies and leveraging their respective excess capacity. Companies using our Alliance network have an advantage over companies that must rely strictly on their own fleet to service their customers. We saw a good example of this in August when one of our Alliance Pro customers was awarded 40 loads a day from a shipper. There was no way they could recruit 40 new drivers in such a short time. Instead, they partnered with several other Alliance Pro companies and, using Virtual Fleet, secured the business.
  4. Fuel Prices: In 2008 the price of fuel was higher than today. This fuel spike was driven by demand. In 2011, the end consumer is still very cautious about purchasing goods, taking long family trips, vacations, etc. So the demand for fuel is not as great and the upward pressure on fuel is not as severe as 2008 (but it is still high).
  5. War chest replenished: One other good point that trucking companies have is that their war chest has been replenished. They survived the 2008 recession and for the past 2 years they have built up some reserves to weather a subsequent recession. Proof of this is the increase in the number of “Mergers and Acquisitions” in the trucking industry in the past 8 months.
  6. Improved Technologies: Due to the financial strength (see #5 above), smart companies have stepped up their investment in technology to put them further ahead of their competition. Sylectus has seen a significant increase in companies upgrading to AlliancePro and the power of Virtual Fleet to grow their business. Likewise, Sylectus has significantly improved their technology offering over the past 3 years to make it a powerful revenue generator for the smart carriers who subscribe.

Looking at these six arguments, one would think that trucking is immune to any new recession. Well, maybe not. The above six arguments are the positive side of the ledger. There are a few negative differences between 2008 and today. This includes:

  1. Government debt: Through the recession, many world governments spent money (your money, your children’s money, perhaps your grandchildren’s money) to bail out sick companies and stimulate the economy. Some of it worked, some of it didn’t. The problem is that the governments are much further into debt than in 2008 and many question whether they have the funds to do another round of stimulus program. If there is another recession, who will fund the stimulus? Your great-great grandchildren?
  2. Unemployment: With all the stimulus money spent (see #1), the jobs just did not materialize. With fewer Americans (and this is a worldwide problem) buying goods and services, the economy will not rebound soon. Let me add one positive comment here … and that goes back to point #1 at the very top regarding inventory. If there is 10% unemployment, that means there is 90% employment. If the system scraps 14 million vehicles per year and the auto manufacturers are smart and only produce 14 million vehicles per year, then a “steady state” inventory system will mean manufacturing, and subsequently, transportation will remain steady! So even with high unemployment, transportation can still do well.

So what does the smart trucking executive do to prosper in this “2011 economy?”

  1. Set three objectives for your sales / operations people as follows:

    1. Get the business. Say “YES” to your customers. Turn every good shipment opportunity into a load in your system. Leverage the power and knowledge of the Alliance to get every good opportunity.
    2. Keep the business. Even if you broker the load to another carrier, use the power of Virtual Fleet to keep in complete control of the shipment and keep your customers informed. Strive to make every shipment “perfect”.
    3. Keep your drivers happy. Reduce driver turn over, keep them loaded with good paying freight, make sure your available equipment is always current and accurately posted on the Alliance network.
  2. Network with strong, like-minded, smart carriers. This will take you into new markets (geographical, or mode like flatbed, reefer, etc). It can also take you deeper into existing customers (for example, you may be doing all your customers truckload business, but you could also build partnerships with flatbed carriers and do your customers flatbed work as well). All this can “LOCK IN” your customers.
  3. Outsource functions that are not your core competency. We see lots of companies that spend hundreds of thousands of dollars on in-house programmers, hardware and software technology to run their business. You are not in the business to be a software house. You are not in the business to upgrade database software or costly software version migrations. You are in the business to move freight. A company like Sylectus can handle the majority of your technology allowing you to do what you do best – move freight.
  4. Leverage the Technology Optimizations that can grow your business. This would include Satellite tracking and Communications, Automated Hours of Service, In-cab imaging/scanning, Virtual Fleet (unique to Sylectus), integrations to large logistics companies like National Logistics Management (NLM), Active Aero (AA-PTM), Expeditors, Universal Traffic Services (UTS) and many others (like Menlo, Dana, CH Robinson, etc.) via Electronic Data Interchange (EDI).
  5. Market your business to your customers as an “integrated fleet of over 8,000 trucks across North America”.

The coming months will see swings in shipper demands.  (Here comes a shameless plug).   ; The Sylectus Alliance offers your business “variable capacity”.  The alliance 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 and 2011 is shaping up to surpass 2010.  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.  The RED line is the DOW JONES INDEX normalized the same way as the DEMAND and SUPPLY chart.

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:

So what does this chart tell us?

  1. 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.
  2. The Demand (loads) chart is tracking better than 2007. 2010 was a record year for carriers and 2011 has started strong.
  3. 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 2010 Syleconomics) are reaping the benefits of the business volume uptick.
  4. 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).

It just keeps getting better ... and the best is yet to come!