With the over all status of the freight sector viewed as “benign,” the most recent edition of the Shippers Conditions Index (SCI) from freight transportation consultancy FTR indicates that things are likely to be changing and not necessarily in a good way.
FTR describes the SCI as an indicator that sums up all market influences that affect the transport environment for shippers, with a reading above zero being favorable and a reading below zero being unfavorable and a “less-than-ideal environment for shippers.”
For December, the most recent month for which data is available, the SCI was 1.9, which was an improvement over November’s -0.6 and October’s -3.1.
As for the coming months, FTR said that it is likely that the current market environment for shippers will lead to what it said would be rate and supply trouble this year, due to a steady increase in capacity utilization, which it expects to occur through 2017 and come to a head in early 2018.
But that thesis, it said, comes with the caveat of the pending Electronic Logging Device (ELD) mandate set to take effect in December, which FTR said could be tempered by the “deregulatory forces of the Trump administration,” adding that “[c]hanges to the ELD mandate, though still unlikely, would alleviate some shortages.”
FTR COO Jonathan Starks noted in a statement that freight markets are currently running at a relatively optimal level, with plenty of capacity to carry small increases in freight levels, which continues to give transportation managers the opportunity to focus on negotiating the best rates.
“However, the shipping environment is approaching a transitional time, with the potential for significant capacity shortages by the end of the year,” he said. “Despite the rhetoric by the new administration to reduce the regulatory burdens on companies, the ELD rule is a safe bet to be implemented in December. As of now, the main uncertainty relates to the enforcement environment. Without a clear answer from an administration that is still in its infancy, shippers are wise to prepare for a full implementation, and to send clear signals to their carrier base that they need to be in compliance as well.”
Starks also noted that it is imperative for shippers to monitor how their negotiated contracts would be impacted by a severe capacity shortage, explaining it may be wise for transportation managers to begin thinking about securing capacity, rather than focused on a purely rate-based negotiation.