FTR Shippers Condition Index remains down, due to challenging market conditions

Like last month, the current state of affairs was presented in somewhat stark terms in the most recent edition of the Shippers Condition Index (SCI) recently issued by freight transportation consultancy FTR.

FTR describes the SCI as an indicator that sums up all market influences that affect shippers, with a reading above zero being favorable and a reading below zero being unfavorable and a “less-than-ideal environment for shippers.”

For September, the most recent month for which data is available, the SCI was -0.5, following August’s -0.8, July’s -1.3, and June’s -2.0. 

The current SCI level, said FTR, “reflects benign conditions for shippers,” with the index expected to continue to decline from the fourth quarter of this year into 2016, which it noted is based on expected rate hikes coming from freight haulers closer to the end of 2016.

This guidance is not unexpected, as FTR has repeatedly stated that this current SCI level and those in preceding months continue to show the “moratorium” in truckload rate growth during the summer months, adding that it is expected that market conditions will become more difficult for shippers in 2016 en route to the expected negative impact regulations are expected to have on capacity, with the regulatory crunch expected to be in full effect in 2017.

What is coming down the road in the form of rate hikes, coupled with the currently underwhelming market conditions was laid out in clear form by FTR Director of Transportation Analysis Jonathan Starks in a statement.

“There are definite signs of a slowdown in activity throughout the North American supply chain,” he said. “High inventories, weak manufacturing, and slowing intermodal moves are all indications of this slowdown. Slowing order activity from truck fleets for new tractors is another indication of the slowing market, as well as the fact that the driver shortage is less persistent than it was one year ago. It is a good sign that the economy continues to grow, and this weakness shouldn’t persist; however, that also means the coming regulations in 2016 and 2017 will have a greater impact if they occur when the market is more robust. Weak pricing may persist through the winter, but keeping abreast of regulatory action is necessary to understand the coming impacts on truck capacity.”

Even though economic growth is not happening at the same pace it was earlier in the year, and capacity is not nearly as tight, the aforementioned level of uncertainty is having an impact on shippers’ supply chain operations from various perspectives, including strategy, planning, and procurement.

This, in turn, has seen shippers try to lock in more contractual pricing instead of spot pricing, with carriers able to leverage that into future capacity commitments.

Industry stakeholders have told LM that the next year could prove to be an interesting one for shippers, depending on economic growth levels and expected significant impact of industry regulations like electronic logging devices, and the possible resumption of motor carriers hours of service rules, among others.

At the recent RailTrends conference in New York, which was hosted by Progressive Railroading magazine, and independent railroad analyst Tony Hatch, Larry Gross, FTR senior consultant, said that his firm expects truckload volumes to see annual gains of 4.2 percent, 3.3 percent, and 3.0 percent, respectively, from 2015-2017, which he said were relatively decent.

But he cautioned that dry van numbers, especially long-haul of 550 miles or greater, will see very low growth, which will be a headwind and hinder intermodal growth, and are directly tied to the aforementioned regulatory environment, specifically for trucking.

“The rollback of the hours-or-service restart provisions freed up a fairly substantial amount of capacity to about 3 percent or so,” he said. “We were operating at a very high level of capacity utilization. The winter of 2014 was a very tough time for truck availability, with trucking operating basically at 100 percent. And right now during Peak Season 2015, truck capacity is relatively abundant, which has had an effect on rates and intermodal.”

Looking said, Gross said if the economy continues to move along at about 2.5 percent, with pending regulations not further delayed, FTR expects 2017 to experience a major capacity shortage or at least a strong possibility.

And a shortage of that magnitude, he said, has the potential to be very disruptive for the economy.