Monday, March 8, 2010

Flatbed Freight Pricing Affected by Growth in Steel

6 months ago, we warned shippers that demand pressures would force flatbed freight pricing up. Looks like we were right - AND wrong.

Our reasons for price increases were that there were many carriers going out of business, which lowered the overall capacity in the market. Lower supply means increased demand (at least that is what our college econ teachers taught us). We were right in this prediction.

Another prediction that we made back in October of 2009 was that financing (or lack thereof) would keep small and middle privately owned companies from being able to purchase new trucks. We were also right on, as finance companies are still reluctant to lend to trucking companies, since most have not shown a profit for a very long time.

So how were we wrong??

We didn't see the rebound in steel throughout the midwest coming on so strong. We knew there would be a comeback, but we weren't expecting it to be this powerful.

According to the USGS (United States Geological Services) Metal Industy Indicators February Report, the Primary Metals Leading Index increased 1.4% in January to 142.2 from a revised 140.3 in December 2009. The 6 - month "smoothed" growth rate continued to rise, climbing to 19.2% from a revised 18.3% in December.

Will this continue??

The 6-month smoothed growth rate is a compound annual rate that measures the near-term trend. Usually a growth rate above +1.0% signals an increase in metals activity, and a growth rate below -1.0% indicates a downturn in activity. The leading index has increased every month since March, 2009 and its high growth rate is indicating that activity growth in the primary metals industry should continue. This is reflected by the high growth rate in the coincident index. Increased domestic manufacturing activity and the high metals demand from emerging economies appear strong enough to underpin a recovery in U.S. primary metals industry activity.

So Now What? What About Transportation Costs?

To translate what this means to shippers. Shippers have two options at the moment.

1) Play the spot market for pricing (remember that rates attract or scare away trucks during times of demand crunches). When demand for trucks increases, these shippers will be paying the highest rates in order to attract trucks;

2) Get trusted carriers to agree to "fair" pricing and take care of those carriers. Many shippers have changed their philosophy of trying to get the lowest priced carriers to taking a core group of carriers, giving them modest increases now, and saving on higher costs later compared to only doing spot rates.

Transportation managers are going to have some rough roads ahead for the flatbeds. Even vans are beginning to become a little more in demand, as some shippers are doing everything they can to convert some of their flatbed shipments to vans, where the demand is not so high - yet.

For the complete report of the USGS, click here


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