Syleconomics January 2012 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 December, 2011 Activity (demand, supply and rate-per-mile data)
  • What will 2012 bring to the trucking industry in North America?
  • Very important discussion regarding North American inventories and their effect on transportation.
  • 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 December business was quite a bit lower than November, but December had one fewer working day than November and December has several “slow working days” due to the holidays.  December is always a bit slower due to the Christmas holidays.  The good news is that the rate/mile inched up in December as the tight capacity in the market kept carriers busy and trucks moving.

      From a “year over year” perspective, December 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.  In fact, if you look at the average rate/mile for 2011 (see tables below), carriers were able to keep rates high even through normally slower seasonal periods like January, July and December.

      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.

        December 2011 vs.
      December 2010
      December 2011 vs.
      November 2011
      Business Days 18 vs 19 19 vs 20
      Trip Count +7% -9%
      Total Miles +7% -11%
      Average Length of Haul +13% -2%
      Total Revenue +16% -10%
      Linehaul Revenue +16% -10%
      Fuel Revenue +52% -11%
      Accessorial Revenue -8% -11%
      Total Revenue / Mile +8% +1%
      Linehaul Revenue / Mile +8% +1%

      My Syleconomics commentary ...

      Do we have a clearer picture of 2012 yet?

      I waited a few days into 2012 before collecting all my information.  This gives me 6 or 7 days of 2012 data to see how the year is starting out.  There is lots of good news:

      1. Load volumes remain strong and the first few days of 2012 exceed the same days of 2011.  Remember that 2011 was a good year!
      2. Capacity remains tight.  I talked to a few Sylectus customers and they are already in the recruiting mode.  Typically, January is a slow month, but my customers are telling me they are already running into “truck shortage” issues.
      3. Rates remain stable.  Again an indication that the supply/demand ratio still favors those carriers with trucks.

      If you look at all the volume based charts below (load index, truck searches, posted loads) you will see that the first few days of January are all above the same periods from prior years.

      Let’s talk about inventories.

      There is a very powerful economic statistic that was sent to me just prior to Christmas from Mr. Todd Fowler from Key Banc.  It is a measurement of Retail “Sales to Inventories” and, with permission, I am copying it here.

      The full report is over 21 pages and is just chock full of great economic data. For example, the above chart is "Retail" inventories to sales. The "total" inventory to sales chart looks like this:

      So what do these inventory numbers this mean to you?

      If these inventory numbers remain low and lean (which is highly likely), it will have a very positive impact on carrier rate structures.  Trucking capacity is already tight.  Inventory levels are low which means replenishment will start sooner in 2012 than in past years. This means carriers will be busier.

      Given these factors, what is the impact on the first half of 2012?

      1. Manufacturers and Retailers will experience more “stock out’s” and “parts shortages” due to leaner inventories.
      2. Manufacturers and Retailers will continue to rely on the supply chain to keep their inventories low.  Supply chain companies that can continually deliver “just in time” will have the competitive advantage.
      3. Shipping demands will outpace the economy.
      4. Rates will remain strong and likely increase during the first six months.  Carriers that reduce their rates assuming seasonal slowness will be leaving money on the table.
      5. Drivers will remain in short supply (not only from the busy trucking activity, but also from the new safety regulations being implemented this year).
      6. Driver turnover will increase.  Transport Topics recently published several articles citing higher driver turnover.
      7. 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.
      8. There will an increase in Mergers and Acquisitions (M&A’s) in the transportation industry as major players attempt to “buy capacity”.  Again, recent Transport Topics articles have predicted this same trend in 2012.
      9. 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.

      Here are a few quotes from recent Transport Topics articles:

      • “The domestic freight market remains remarkably resilient,” -David Tamberrino, an analyst for the investment firm Stifel, Nicolaus & Co., said in a report published Dec. 5. “Supply and demand in the trucking sector are in balance, even though demand has recovered only about two-thirds of what it lost in the Great Recession,” he said. Tamberrino said he expects freight rates to rise faster than inflation in 2012, and for both truck and rail operators to enjoy expanding profit margins.  (Source: Transport Topics, January 2, “Nation’s Freight May Push Capacity Limits, Helping Boost Carrier Profits, Experts Say.”)
      • Trucking industry mergers and acquisitions are expected to surge this year because of factors such as tight capacity and eager private-equity buyers, several industry experts have said. Some analysts predicted transactions could double or even triple this year, compared with 2011, and they said that many deals are aimed at acquiring drivers or new business, rather than equipment.  (Source: Transport Topics, January 9, “Experts Predict More Mergers as Trucking’s Fortunes Improve.”)
      • While heavy-duty truck makers said last week that they do not share Navistar International’s assessment that engine castings are in short supply, foundry executives said the recession eliminated industry capacity and problems could become more noticeable if demand for metal parts continues to rise.  (Source: Transport Topics, January 9, “Engine Casting Capacity Shrank In Recession, Foundries Say.”)
      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. 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.
      3. 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.
      4. 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.
      5. 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.
      What is the impact of these market forces on Sylectus?

      Sylectus normally sees a spike in requests to move to our Pro version of our Transportation Management System (TMS) between January and April.  In traditional years, these are the “quieter” months where carriers invest in technology so they are fully prepared to deal with increased shipment volumes in the latter part of the year.

      2012 is well ahead of 2011 already as many companies have reached out to us asking to move up to Alliance Pro.  Our annual conference is also well ahead of last year's attendance as more people want to network with other Alliance carriers at the conference.

      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 and has stagnated over the past 7 months. 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 – 2007-2012

      Below you will find the same 2007, 2008, 2009, 2010, 2011 and 2012 numbers used in the first graph, except the data is shown year-over-year.  2011 was a good year for trucking.

      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, the gold line tracks 2011 and the turquois line tracks the 2012 number so far.

      Truck Searches – 2007-2012

      Below you find the same 2007 through 2012 numbers for the number of TRUCK SEARCHES done on the system. 2011 was a very strong year for truck searches.

      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, the gold line tracks 2011 and the turquois line tracks the 2012 number so far.

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

      Load Posting – 2007-2012

      Below you find the same 2007 through 2012 numbers for the number of LOAD POSTINGS done on Sylectus Load Board.  2011 was a very strong year for load postings on the private Alliance load board.

      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, the gold line tracks 2011 and the turquois line tracks the 2012 number 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!