Syleconomics August 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."

A quick technology update:

Flatbed Alliance – Sylectus started with an Alliance of expedite carriers and over the past few years we have expanded to include more truckload carriers.   We are now starting an Alliance of FLATBED carriers.  We are excited to say we have some flatbed carriers coming onto the system and providing existing Alliance members with even more options to satisfy their customer needs.   Watch for more exciting news about this new alliance!

Expeditors Interface – In early July we announced we now have an interface with Expeditors.  Trip updates (arrive, load, empty) done in the Sylectus AlliancePro system now flow automatically back to the Expeditors system without having to manually update their system.  If you are interested in learning more about this time saving integration module, send an email to sales@sylectus.com.

Fleet One Fuel Card interface – We are putting the final touches on an interface for the Fleet One Fuel Card.  This interface will take a group of fuel purchase transactions by date range (say for a day or week or month) and insert them into the driver deduction system in the AlliancePro system.  This new feature can significantly improve the productivity of your payroll staff since fuel transactions can be automatically inserted into the driver deduction system and included on their weekly pay sheet deductions.  .  If you are interested in learning more about this time saving integration module, send an email to sales@sylectus.com.

Below is a summary of transportation industry numbers from our databases.

To set up the July commentary, 2 significant points need to be made.  First, June is usually one of the strongest business months in trucking, and July is typically the weakest.  So July numbers usually look extremely poor when compared to June.  Second, July 2011 had two (2) fewer business days, so just by counting business days, it has 10% less opportunity to do business.

So when we see July 2011 coming in at 20% less revenue compared to June 2011, we can safely adjust that to 10% simply due to the business day difference in the months.   Considering June 2011 was such a good month, July 2011 was a relatively strong month and many Sylectus customers made money.

How?

  1. Rates are sticking and remain high.
  2. Demand for transportation services remains good.
  3. Driver and Truck capacity is still struggling to regain the pre-recession numbers.
  4. Sylectus subscribers are leveraging the flexible truck capacity in the Alliance to smooth the business demand fluctuations. By saying “YES” to their customers, they continue to build stronger business relationships with their customers and gain more of their customers business.

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

  July 2011 vs July 2010 July 2011 vs June 2011
Business Days 20 vs 21 20 vs 22
Trip Count +4% -17%
Total Miles +3% -17%
Average Length of Haul -1% --
Total Revenue +8% -20%
Linehaul Revenue +5% -18%
Fuel Revenue +72% -19%
Accessorial Revenue -12% +31%
Total Revenue / Mile +5% -4%
Linehaul Revenue / Mile +3% -1%

My Syleconomics commentary ...

Surviving the rough seas

I was about to publish this monthly newsletter a few days earlier, but the sudden market volatility immediately after the US congress approved the debt increase made me pause.  How can I publish such favorable data about the transportation industry when the stock markets and the economists are producing such negative news?

Well, one thing economist are saying is that there will be quick and large swings – like rough seas.  So the current situation is a trough and we will eventually bounce back. 

The second thing is the continued, protracted shortage of drivers.  In an Transport Topics article on July 25th, Rip Watson noted that carriers, brokers and shippers are shifting freight buying habits to spot markets and load boards.  This is because capacity is becoming so tight.  In last month’s Syleconomics commentary, I quoted a transportation expert who predicted “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.”  

Data from our system (see charts below) support the above comments.

  • Truck searches are at an all time high, reaching as high at 16,000 truck searches/day as carriers look for quality alliance partner equipment to move their customers freight.

  • Load postings are also at a record high, reaching over 1,000 loads per day.  Again, Sylectus subscribers looking for options to move their customers freight.

  • The core Sylectus customers are realizing strong demand for their services and using the flexible fleet capacity within the Alliance to smooth out their peaks-and-valleys in demand.

  • Rates are remaining at a 7 year high (we only have 7 years of data).  Again, this is a situation where demand exceeds supply, so rates can remain high and will likely move higher.

Beyond the Sylectus data, we also note that publicly traded trucking companies are posting strong 1st and 2nd quarter earnings (various Transport Topics articles), reinforcing the fact that business is stable and rates are solid.  The broad theme that most fleets emphasized was that improved earnings were tied more to rate increases than freight growth or economic strength.  Further indications of higher rates can be found in the August 8 Transport topics article stating “that FedEx freight (LTL) will implement a 6.75% general rate increase effective September 6.  The move follows average 6.9% rate increases announced recently by LTL competitors YRC Worldwide, UPS Freight and Con-way Freight.”

One segment that is experiencing a growth-spurt is truck production.  An August 1st Transport Topics article reviewed the challenges parts suppliers are facing as truck production ramps up.   In that article, they cited ACT Research Inc. saying “the class 8 build backlog totaled 126,207 units at the end of June, a 141.9% increase from June 2010 units.” 

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!