Syleconomics for June 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.
May 2010 was the best May ever since we started tracking our load index. Not only were volumes higher, but the rate per mile is now moving back into a more profitable range for carriers.
- May 2010 volumes (trip counts) jump 47% above May 2009.
- More important was that May 2010 revenues were a whopping 91% above May 2009.
- Finally, we are starting to see the "rate per mile" for linehaul move back into a more profitable range. It is still not ideal, but it is better.
- With the increased business volumes, we are seeing a significant tightening of capacity. I encourage everyone to read some "pricing policy suggestions" below. Don’t miss out on this opportunity to replenish your cookie jar.
Consider the graph below which looks at a "normalized" load index for the past 4 years. The first five months of 2010 (the purple line) exceeds the 2007 and 2008 numbers for the same time period. If the traditional trend continues, June will be absolutely nuts in the trucking world. Combine increased demand (loads) with limited supply (available trucks) and there is a recipe for rate increases. Are you ready?
My Syleconomics commentary ...
The new word on the street is "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 CAPACITY (fleet counts) in our indexes. Here is a combined DEMAND / SUPPLY chart for the past 4 years:
What do these charts tell us?
- If June is a "typical June" (busiest month of the year), then June will be 5-10% busier than May. Our first few days of June are proving this to be true because we are seeing record trip counts through our system for the first few days of June.
- 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.
- Some Carriers are taking this opportunity to increase rates with their customers.
- 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 will become a problem soon.
- Some shippers will start to "demand" capacity and will be willing to pay for it.
What is driving this increased demand?
- Manufacturing has rebounded somewhat in North America
- There are fewer carriers than last year (due to the many business failures and bankruptcies that occurred during the 2009 recession), so as business volumes pick up, the "survivors" of the recession are reaping the benefits of less competition
- April through June is typically strong trucking months (seasonality).
- We are also seeing a large number of government funded infrastructure capital projects (roads, bridges, etc.) kick into high gear. This is a blessing and a curse. The blessing is that it puts people to work who will in turn, buy things, which keeps the economy growing. It is also a blessing because construction equipment and materials need to be moved by truck. It is also a curse because drivers will be recruited by construction companies to operate construction trucks and other heavy equipment, thereby reducing the available driver pool.
What are the risks out there? Unless you are a hermit, you know that some (if not most) European countries are struggling with government debt problems. Why should we be concerned here in North America? Because it can affect imports and exports – which directly affects trucking.
Do you have pricing policies? If not, consider some of these (special thanks to Jeff Curry from Express-1 for allowing me to share some of their concepts)
- Know your Gross Margin by Customer. In the Sylectus system, there are many Gross Margin reports that allow you to understand where you make your most (or least) money. One very important Gross Margin report is "Gross Margin by Customer". Know which customers give you the best returns and which give you the least. For customers that give you the best returns, ensure you do as much as possible with them. For customers that give you the worst returns, now is the time to work on a price increase or else lower your service to them.
- Don’t let emotion drive you to bankruptcy. Too many companies have that "very first customer" who they provide excellent service to, but generate minimal profitability. Sure, they may have been with you for 15 years, but have they ever taken a price increase? If they are a "low margin" account, you are risking your business based on emotion and longevity.
- Improve price responsiveness. As Jeff Curry notes, "We continually fine-tune pricing so that it aligns with market conditions." Knowledge of your market is key! Know your regional pricing and communicate it to your staff, your sales team, your partner carriers and your customers.
- Classify your customers. In the Sylectus system, you can set up "customer classes" that help you segment your business easier. Then you can run reports (including gross margin reports) against these customer classes. As Jeff Curry notes "Tough economic times demand tighter cost-to-serve policies. We can classify customers into ‘strategic’ and ‘opportunistic’ based on the level of opportunity they present. Tighter cost-to-serve pricing policies ensure appropriate pricing for opportunistic customers while serving the needs of strategic customers."
- Control "Maverick" selling. When new business opportunities present themselves, be careful not to be too aggressive just for the sake of "selling" and growing your business. Just like point #2 above, don’t let emotions take over in the sales process.
- Know your cash flow covenants. A major oversight with many small businesses is the cash flow crunch they experience during times of accelerated growth. Taking on a new, large customer means you must pay your drivers / carriers in 2-3 weeks while waiting 4-8 weeks for the new customer to pay you. This puts a tremendous strain on your cash flow and banking line. Banks are still very cautious about lending trucking companies money, so expanding a line of credit with a bank is difficult.
- Be cautious about factoring. Further to point #6, be cautious about factoring. You work hard to get new business, and now you are in a cash crunch. You negotiate a deal with a factoring company to provide instant cash at a cost of 2% of the invoice. That is a lot to give up for all your hard work. And once you start to factor, it is hard to get away from it. As one of my customers says "Once I see a company start to factor, it is just a matter of time before things get worse."
Looking Forward: We continue to see strong volume numbers for the first few days of June. Everything continues to point to a positive 2010, and the rates are starting to reflect the shortage of trucks. If rates can continue to bounce back, it could be a good year to be in trucking!
May 2010 Analysis
In terms of May 2010 vs. April 2010 – volumes were up 3% over April, but total miles and total sales were up even more.
In terms of "raw" comparisons between May 2010 to April 2010 ...
- Orders were up 3%
- Billable miles were up 5%
- Billable revenue was up 8%
- Linehaul revenue was up 8%
In terms of May 2010 vs. May 2009 – For the 10th month in a row, numbers are above last year, and, in fact, significantly higher than last year. May 2009 was in the major part of the recession "correction", so it was almost a given that we should be able to beat last year’s numbers.
- Orders were up 47%
- Billable miles were up 56%
- Billable revenue was up 91%
- Linehaul revenue was up 83%
- Fuel revenue was up 184%
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 is starting to show a decent rebound.
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 still below last year values)
- JustFuel revenue per mile (rates have stabilized since the 2008 fuel spike)
Sylectus created a new graph to try and compare how the "Expedite Load Index" 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 should put upwards pressure on rates.
- The Demand (loads) chart is tracking better than 2007. If this tracking continues, June should be a record month for many carriers.
- Although both graphs tend to TREND in tandem, the DJIA tends to be lower that Load Index for most data points. This would seem to indicate that the companies in the Load Index, in general, outperform the market.
- Over the past 18 months, the Demand Index has outperformed the DJIA by a significant amount. This can be explained as the "power of the Alliance" allowing companies to react better to economic fluctuations.
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 around 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 POSTINGS – 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.