Syleconomics August 2010

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.

Like June 2010, July 2010 was the best July ever since we started tracking our load index. Not only were volumes higher, but the rate per mile is now above pre-recession values.

July 2010 volumes (trip counts) jump 36% above July 2009.
July 2010 revenues were a whopping 75% above July 2009.
Of significant note is that the “rate per mile” for linehaul move sharply ahead
In fact, the rate per mile in July, 2010 was 8 cents a mile higher than June 2010! This is an This is another indication that trucking capacity is tight. As we head into the traditionally heavy trucking periods of 3rd and 4th quarter, we can expect to see more upward pressure on the rate per mile.
With the increased business volumes, carriers are experiencing significant tightening of capacity. If you have not adjusted your rates accordingly, your competition is making more money for doing the same amount of work you are!

Consider the graph below which looks at a “normalized” load index for the past 4 years. The first seven months of 2010 (the purple line) exceeds the 2007 and 2008 numbers for the same time period. Furthermore, the first few days of August are showing demand to continue to outstrip capacity. Combine increased demand (loads) with limited supply (available trucks) and there is a recipe for even more rate increases. Are you ready?

My Syleconomics My Syleconomics commentary ...

Many of our Sylectus customers have had “record sales months” for a July and close to their highest business sales ever! In the past, if an Expedite company could “break even” in July, it was considered a “good month”. Many Expedite companies made money in July 2010.

The key word on the street remains “capacity”. As you can see by the chart above, business volumes are the best we have seen in 4 years. But the chart above only shows the business DEMAND (shipments).

Sylectus is now charting both DEMAND (shipment counts) and CAPCITY (fleet counts) in our indexes. Here is a combined DEMAND (Green) / SUPPLY (Blue) chart for the past 4 years. It is obvious here that demand is 20% above normal, while capacity is 20% below normal!

What are we hearing from the Sylectus carrier base?

Increasing fleet capacity is difficult for carriers (see discussion about this below) and the “SUPPLY” side of the equation will take a long time to correct. Carriers are running out of trucks (capacity) early in the day and early in the week. They are getting better rates for their available capacity.
Due to the capacity crunch, we are seeing a significant jump in the amount of “load sharing” going on within the Alliance, especially the use of Virtual Fleet between the Alliance Pro companies.
Rates continue to increase (see charts below). Shippers will be forced to pay higher fees to move goods simply because of the truck/driver shortage.
Carriers will need to increase driver pay to attract more drivers into the industry.
Carriers have stepped up their recruiting programs to increase their fleet counts. A negative side effect is that drivers now find it easier to move to another company. Driver retention is now a problem and will continue to be a problem in the foreseeable future.
July is normally a very slow month due to manufacturing shut downs. However, July 2010 was incredible for the demand side … which pushed rates higher than June.

Why I believe fleet capacity will take 6-18 months to rebound and catch up with demand:

Recently I gave two presentations (one in Chicago at The Expedite Alliance of North America and one in Wilmington, OH at the Expedite Expo) and shared these observations:

Prior to the 2008-2009 recession, there was talk of a impending driver shortage. Then the recession hit and suddenly the impending driver shortage was forgotten! During the recession, about 20-30% of drivers got out of the business. Now that demand is picking up, the driver shortage discussion begins again!
There are a lot of infrastructure projects currently underway (building/repairing roads/bridges/sewers etc.). These projects require drivers for dump trucks, cement trucks, heavy equipment, etc. which reduces the driver pool for over the road drivers needed in the trucking industry. Drivers can work at these infrastructure projects, make good money, and be at home every night. What incentive is there for them to go back to over-the-road trucking? Once these infrastructure projects complete (at least 4-6 months from now), drivers will be freed up to go back to long-haul trucking.
During the recession, some excess truck capacity was shipped overseas to the “hot” Asian and India markets. In 2008-2009, excess truck capacity could be purchased in North America at a reasonable cost and shipped overseas and still make a profit. This reduced the physical domestic truck capacity.
The physical truck capacity that was “parked against the fence during the recession” was often the oldest, least road-worthy equipment in the fleet. Over the span of the past 2 years, these “parked trucks” were raided for parts as the in-service fleet needed quick, low-cost maintenance. As a result, many companies are now saddled with “parked” equipment that will cost significant money to make road-worthy again. It is not that easy to “insure / plate / turn-on” this parked inventory of trucks. On a side-note, I also question the “book value” vs. the “street value” of these assets. It is possible that the balance sheet is significantly offside here, which could cause additional financial stress to some trucking companies.
Rebuilding the truck fleets can’t be done overnight. There is currently a 4-5 month lead time between ordering a “new truck” and taking possession. So even if trucking companies ordered new equipment today, it may not be ready for use until December.
Even if trucking companies wanted to “order trucks”, many trucking CEO’s are still taking the “wait and see” attitude since they don’t know if this uptick in demand will last.
During the recession, there were many trucking companies that “got out of the business” (bankrupt, shut down, merged, retired, etc.). So as demand upticks, there are fewer companies to service the increased freight volumes.
Even though there are fewer trucking companies, there is a financial “barrier to entry” for someone wanting to start a trucking company. Banks are still frugal when lending money, especially to start-up trucking companies. Even if banks were to lend money to new trucking companies, it would be at a steep premium. So existing trucking companies have a “window of opportunity” to grow/secure/lock-in market share as the economy rebounds without worrying too much about new competition.
According to various industry journals, the impending CSA 2010 legislation could reduce the driver pool by 5-10% which would put additional strain on the capacity.
North America is at risk if a major catastrophe occurs (like the Katrina hurricane of 2005) that could put additional strains on the trucking capacity.

So success and growth of trucking companies over the next 6-18 months will be dependent on:

Their ability to RETAIN their existing driving resources.
Their ability to HIRE new, quality driving resources.
Their ability to find QUALITY PARTNERS (like companies on the Sylectus Alliance) to provide additional capacity at a reasonable cost for their customers.
Their ability to price their service properly based on the limited capacity.
Their ability to build up their reserves to help weather any future economic uncertainties (re-build the war chest).

Looking Forward

We continue to see strong volume numbers for the first few days of August. Everything continues to point to a positive 2^nd half of 2010, and the rates continue to reflect the shortage of trucks and drivers. If rates can “stay the course” or even increase, it will be a good year to be in trucking!

July 2010 Analysis

In terms of July 2010 vs. June 2010 – business volumes were down 14% over June, but July has a holiday and July is traditionally a slow month. Unlike prior years, the automotive sector had fewer plant shut downs, resulting in a strong July showing.

In terms of "raw" comparisons between July 2010 to June 2010 ...

Orders were down 15%
Billable miles were down 14%
Billable revenue was down 12%
Linehaul revenue was down 10%
Linehaul rate per mile was up 8 cents per mile (July over June - WOW!)

In terms of July 2010 vs. July 2009 – For the 12th month in a row, numbers are above last year, and, in fact, significantly higher than last year.

Orders were up 36%
Billable miles were up 49%
Billable revenue was up 75%
Linehaul revenue was up 87%
Fuel revenue was up 93%

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 now has moved ahead of most prior years!

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.

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

Total Revenue per mile (includes line haul, accessorial and fuel)
Line haul revenue per mile (rates are well above last year values and exceeding 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 3 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 3 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 data. 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) is well below demand. This is reflected in the strengthening “rate per mile” our customers are seeing.
The Demand (loads) chart is tracking better than 2007. If this tracking continues, the latter part of 2010 should be a record year for carriers.
Although both graphs tend to TREND in tandem, the DJIA tends to be lower that Load Index for most data points. The survivors of the recession are reaping the benefits of the business volume uptick.

Load Index – 2007-2010

Below you will find same 2007, 2008, 2009 and 2010 numbers used in the first graph, except the data is shown year-over-year. 2010 is starting out similar to a “normal” year and is trending very close (or better) than 2007. 2010 is shaping up to be a good year in trucking.

Consider the following graph which shows the daily “Load Index” for January 2007 through April 2010.

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 and the purple line tracks 2010 (so far).

Truck Searches – 2007-2010

Below you will find 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 10,000 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 and the purple line tracks 2010 (so far).

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

Load Posting – 2007-2010

Below you will find 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 and the purple 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 the 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).

How to keep busy???

First ... make sure your dispatchers are creative with load opportunities. Try not to turn down any reasonable load opportunity. Use the resources of the Alliance to move that freight if your own trucks cannot cover the freight. This keeps your customer calling you and you keep the alliance working. Also ... the other alliance members will keep your trucks moving for the same reason (share the love!!).

Second ... make sure you keep your truck postings current. There are thousands of users on the Alliance system that could potentially see your truck and move it for you - as long as the truck information is kept current! Those of you using our integrated Qualcomm or GPSPhone interface know that your truck locations are always current. But those of you manually updating your truck locations risk missing good business opportunities if your available truck locations are wrong.

Third ... turn your dispatchers into an internal sales force! If times are slow, your dispatch area is not as busy. So convert that "down time" into productive, pro-active, person-to-person marketing time. The following two suggestions will keep YOUR COMPANY NAME on the "top of mind" of all your customers. How? First ensure that you use the Sylectus e-mail system to email your truck availability to as many customers as possible. This keeps them aware of your available equipment. Second, try to pro-actively find back haul loads for your drivers by calling customers directly. Generate a list of your customers in the area of your selected truck and start making calls (for those of you on Alliance Pro, use the backhaul assistant tool). Your customers may not have a load immediately, but they might have a load in 2 hours. By generating the truck-availability-emails and by making the solicitation calls, you will keep YOUR name on the top of THEIR mind. When a load does become available, you want them thinking about YOUR company first! The cost (risk) of this program is minimal. The potential benefits are huge.

Fourth ... if you are an AlliancePro subscriber, take advantage of the various AlliancePro tools (backhaul assistant, load board, bid board, virtual fleet, automatic emails, customer track and trace, etc.) to creatively say "Yes" to your customers and to keep your trucks moving with paying freight!

Fifth ... build those inter-company relationships with other Alliance companies. Sharing loads and trucks is built around trust. Build that trust level, nurture that trust level and mend strained or broken relationships. You never know when you will need each other.

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