Syleconomics December 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."

In this newsletter ... you will find:

  • Overview of November, 2011 Activity (demand, supply and rate-per-mile data)
  • What will 2012 bring to the trucking industry in North America?
  • Lots of charts showing a continued strong freight demand and a continued weak truck supply side.
    • Below is a summary of transportation industry numbers from our databases.

      On the surface, it would seem that November business was quite a bit lower than October, but November had one fewer working day than October.  November is always a bit slower due to the holidays.  The good news is that the rate/mile remained constant, even though the volume of business dropped a bit.

      From a “year over year” perspective, November 2011 was another positive growth month for most of our subscribers.  Trip counts were up year-over-year and revenues were up even more.  Again an indication that rate/mile continues to be strong.

      The lack of capacity is showing up in several of the charts (below).  We continue to see record truck searches and load postings, up almost 100% from the same time last year.  We suspect our customers could make more money if they could find more trucks.

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

        November 2011 vs.
      November 2010
      November 2011 vs.
      October 2011
      Business Days 20 vs 20 20 vs 21
      Trip Count +12% -8%
      Total Miles +14% -10%
      Average Length of Haul +13% -2%
      Total Revenue +26% -9%
      Linehaul Revenue +26% -9%
      Fuel Revenue +72% -4%
      Accessorial Revenue -4% -14%
      Total Revenue / Mile +10% No Change
      Linehaul Revenue / Mile +10% No Change

      My Syleconomics commentary ...

      What will 2012 bring to the trucking industry in North America?

      First, let’s review the last few years since the end of the recession and note the significant economic trends that shaped the trucking industry.

      1. Through the recession, trucking companies downsized, merged, sold or went out of business.  The estimate is that roughly 70% of the trucking companies survived the recession.  Likewise, the driver fleet reduced by about 35% during the recession.
      2. Post-recession, new entrants into the trucking industry were hindered by lack of capital (banks were not lending to new trucking companies) and drivers were not getting back into the industry.  The result was a drop in trucking capacity.  So the post-recession modest manufacturing growth coupled with the driver shortage (lower capacity) resulted in healthier trucking revenues and stronger balance sheets for transportation companies.
      3. Even though employment levels have not rebounded (and probably won’t rebound for a while) and even though growth cycles are muted, many transportation companies made healthy and sustainable profits during 2010 and especially during 2011.  The smart trucking companies (the one’s who realized the supply/demand conundrum in the trucking industry) leveraged their knowledge to make very good money. I say this because I know of some trucking companies who continued to run at low profit margins fearing loss of business.  These “not so smart” trucking companies ran freight for shippers the smart companies refused to haul for.
      4. Companies (manufacturers, distributers, retailers, etc.) reduced their overhead and inventories during the recession and became very cautious about taking on unnecessary inventory post-recession.  More “just-in-time” programs were implemented to streamline the supply chain, putting more pressure on trucking companies to meet tighter delivery schedules.  Small up-ticks in consumer demand can put a strain on the “already tight” supply chain and limited trucking capacity.  Small “down ticks” in the consumer demand will have limited impact on transportation since inventories are already low.
      5. Even though Europe is facing another recession, North America seems poised to grow in 2012, although growth will be minimal.
      6. Base case truck capacity is about to tighten under pressure from regulations about to be implemented.  Governments will magnify the challenge of hiring due to new policies on driver health, training, security, Hours of Service controls, CSA, forced use of Electronic On Board Computers (EOBRs), etc.
      7. Before the recession of 2008, there was significant concern about a driver shortage.  Post-recession, driver shortage will become worse.

      Given these factors, what will 2012 bring?

      1. The economy will remain sluggish, but will still expand.  This expansion, tied with the tight driver capacity, will result in higher transportation rates / profits.  Recently large companies (as reported in transport topics) raised their rates by as much as 4.5%.  Expect more similar announcements.
      2. Shippers will try to “lock in” transportation capacity so they can better control their transportation costs.  Shippers will be looking to their carriers to develop long-term contracts and ensure their supply chain needs are not jeopardized.
      3. Driver pay will rise as a driver retention incentive.  Furthermore, trucking companies will look to other innovative ways, besides higher pay, to retain their drivers.
      4. Driver turnover will rise.  Drivers will be looking for the company that offers the best return for their services.  This has already begun.  A recent transport topics article cited the 4th straight quarter of higher “driver turnover” statistics, which is now running at a clip of 89%.
      5. The most sought after personnel in a trucking company will be the pricing officer.  The person who can establish new pricing strategies and negotiate the best cost/price for the tight available truck capacity.
      6. There will an increase in Mergers and Acquisitions (M&A’s) in the transportation industry as major players attempt to “buy capacity”.
      7. Short-term disturbances in the supply chain system (like a major hurricane or other natural disaster) will send significant, short-term price shock-waves through the industry.  A good indicator of these impacts was hurricane Irene that spiked.
      8. Companies without their own fleet (freight forwarders, logistics companies, etc.) will feel margins pinched as they try to service existing, long-term contracts in an environment where costs are rising.  This is especially true in the spot rate market.
      9. Governments, trying to implement new safety and security policies, will continue to face strong opposition from carriers and shippers claiming the policies will both reduce available driver capacity as well as raise costs.

      What will the smart transportation companies do?

      1. Review your pricing policies and strategies to ensure your rate increases remain pricing-competitive, yet have sufficient margin to increase driver pay to retain drivers.
      2. Review your customers and focus on the customers who understand the value of the transportation services you provide.  Growth does not have to come from increased shipment count. In 2011 we had a customer that grew their revenues by 15% over 2010, but their shipment count was the same as 2010.  They worked smarter, not harder, to grow their profitability.  Don’t be afraid to “fire a customer” that does not meet your profitability targets.
      3. Look to the Sylectus Alliance to forge strong partnerships with other Alliance carriers.  This will provide you with the flexible capacity to still say “yes” to your customer, even though you may not have your own truck available.
      4. Network with your Sylectus Alliance partners.  A great way to meet over 100 of these intelligent, forward thinking, progressive, growing companies is to attend our annual user group meeting in Orlando February 10-12, 2012.  For more information, go to http://www.sylectus.com/sylectus/events/orlando2012/ for more information.
      5. Develop innovative new driver retention programs and tools.  For Sylectus Alliance Pro subscribers, consider getting the Fleet Vision module that allows drivers to see their pay sheets online and submit paperwork online.
      6. Invest in technologies that will reduce your costs and improve your customer service and/or driver retention.  If you are not using the Sylectus Alliance Pro software, ask us for a demo.  Better yet, ask our Alliance Pro customers how the technology works.

      Business is good right now and 2012 is shaping up to be a strong year for transportation.  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.

      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, line-haul 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”

      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 the first 9 months of 2011 is the better than last year.  The effects of hurricane Irene can be seen in the latter part of October 2011.
      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::

      1. Turn every load opportunity into an order
      2. Turn every order into repeat business
      3. 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!