Monday, September 27, 2010

Truckload Pricing - Where is it Going?

Truckload pricing has a big impact on the bottom line of our customers. Of course, truckload pricing also has a big impact on the carriers as well. There never seems to be a happy medium between shippers and carriers - if there is, just wait - it will certainly change with the market conditions.

This is a good article that we found on Transport Topics. We hope that it will give you a good feel for where the market is heading and why.

Transport Topics - 9/24/10
NEW YORK — Many carriers, particularly in the truckload sector, said they are winning rate increases from shippers that typically are at least 5%, reflecting the industry’s tight capacity.
As truckload fleets report rate increases, third-party logistics firms such as Transplace Inc. are trying to minimize them, and less-than-truckload carriers want more price increases, executives said at Dahlman Rose’s investor conference here Sept. 8-9.

“Shippers wouldn’t be giving 7% to 10% increases if they thought they could get someone to cover their freight [for less],” said Paul Will, chief financial officer at truckload carrier Celadon Group Inc. “We are able to lead the pricing discussion with our customers,” said David Jackson, chief financial officer at Knight Transportation, another truckload fleet after seeing rates fall 7% and 10% since the recession began. “In the end, [shippers] haven’t given back all that they took,” he said, noting that Knight is particularly focused on boosting profits on 30% of its freight that has the lowest margins. “They are at risk of not getting capacity,” he said, referring to shippers in that lowest margin group.

Third-party logistics companies acknowledged the price pressure. “The challenge we have with our customer base is setting their expectations that rates are going up, not down,” said Robert Bianco Jr., president of Con-way Inc.’s Menlo Logistics unit. “The pendulum has swung in favor of asset-based trucking companies. Our challenge is to be the middleman and limit those” increases.

“We have been moderately successful in holding off the increases,” said Matthew Menner, a senior vice president at Transplace Inc., Frisco, Texas. “We had to push the eject button for carriers that were pushing yield.”

Dana Burleigh, senior supply chain manager for Schneider Logistics, said, “We took advantage of double-digit decreases. Our goal is to try to mitigate the increases. Some carriers are asking up to 5% across the board.” Schneider Logistics’ parent company is truckload carrier Schneider National Inc., which declined to comment on the carrier’s rates.

Other sources confirmed the rising rate pattern. Transport Capital Partners’ August carrier survey showed 63% reported rate increases of 5% or more. Jason Seidl, a Dahlman Rose analyst, said a major less-than-truckload carrier has notified customers it plans to raise rates by about 5%.

“Now that someone has [raised rates], there is a higher likelihood others will follow suit,” Seidl said. “There is a better chance this increase will stick in this current period because there is a lack of capacity in LTL.” Seidl said such increases apply to 20% to 30% of freight and occur two or three months later in the year.

Some LTL executives welcomed the change without saying whether they also would boost prices. “The industry needs price increases,” suggested Richard O’Dell, chief executive officer of Saia Inc., Duluth, Ga. “Anytime someone takes a general rate increase out of cycle, that should be a positive.”

“There is an opportunity to move price,” said Richard Gaetz, CEO of Vitran Corp., Toronto, which raised rates 4% this year. “We are hearing a lot of good chatter in the marketplace. It’s a good opportunity for the LTL industry to catch up with the pricing initiatives of the truckload, rail and ocean carriers.”

Others were more circumspect.

“We haven’t seen any price increases on paper,” said Wes Frye, the chief financial at Old Dominion Freight Line Inc., Thomasville, N.C. “It will be difficult for competitors to have further wage and benefit cuts, so [margin improvement] will have to come from pricing.”

“ABF is not going to be a leader in [raising prices],” said Arkansas Best Corp. CEO Judy McReynolds, whose LTL carrier is based in Fort Smith, Ark. “It remains to be seen if someone will follow.”

While some shippers raised rates this year, Wal-Mart Stores Inc., Bentonville, Ark., wasn’t one of them. Greg Forbis, senior director of corporate traffic for Wal-Mart, said, “We gave a rate increase in 2009, but not in 2010.” Carriers that forgot about that increase and tried to raise rates more recently are finding that “their business is a lot smaller now.” Wal-Mart is moving to control inbound shipments from major consumer goods suppliers such as Procter & Gamble, intending to lower costs for both the retailer and its customers. He acknowledged that Wal-Mart struggled at times with volume surges when it did take over inbound shipments. “Any burp in the volume tended to take things into a tailspin,” he said.

He also noted that Wal-Mart is converting inbound shipments to intermodal whenever possible.

Click here for a link to the actual article from Transport Topics.

Tuesday, September 7, 2010

Transportation Economy

The Transportation Economy is affected by manufacturing.

According to Businessweek, the U.S. Economy shows that manufacturing is expandedat a faster pace than expected during the month of August.

Rather than creating an entire article that is going to tell you the same thing, I found a great report from Businessweek

Bottom line is that there are many people screaming "the sky is falling" (insert the word "economy for sky"). Have we heard this before? Does chicken little ring a bell from your elementary school days??

While there are people screaming that the end is near, why don't we look at the facts concerning the economy and make our own conclusions.

The article from Businessweek puts everything in perspective and you may be surprised to hear that manufacturing is still expanding.

By Courtney Schlisserman
Sept. 1 (Bloomberg) -- Manufacturing in the U.S. expanded at a faster pace than forecast in August as factories added workers and cranked up production.

Stocks rallied as U.S. and China manufacturing figures tempered concern the global economic recovery will wane without more government stimulus. Production gains may partially compensate for a slowdown in consumer spending and sluggish housing market that are causing the world’s largest economy to cool in the second half of the year.

Manufacturing is “one of the bright spots,” said Hugh Johnson, chief investment officer at Hugh Johnson Advisors LLC in Albany, New York, the only analyst surveyed to predict the index would rise. Still, “you have to have increased demand from consumers and businesses for these numbers to be sustained.”

The Standard & Poor’s 500 Index increased 3 percent to 1,080.29 at the 4 p.m. close in New York, the biggest gain since July 7. The yield on the 10-year Treasury note rose to 2.57 percent from 2.47 percent late yesterday.

China’s purchasing managers’ index rose to 51.7 last month from 51.2, a government-backed report showed. A separate measure released by HSBC Holdings Plc and Markit Economics also increased.

U.S. manufacturers are benefiting from growth overseas. Caterpillar Inc., the Peoria, Illinois-based maker of construction and mining equipment, may add as many as 9,000 workers worldwide this year, Chief Executive Officer Doug Oberhelman said at a meeting with analysts Aug. 19.

Housing Weakens

While factories are helping extend the recovery, the housing slump keeps taking a toll on the economy. Construction spending in July fell twice as much as forecast, led by a slump in homebuilding that will depress growth, Commerce Department figures showed today.
The 1 percent drop brought spending to $805.2 billion, the lowest level in a decade, after a revised 0.8 percent decrease in June that wiped out a previously estimated gain.

President Barack Obama said yesterday reviving economic growth was his “central mission” after declaring the U.S. combat mission in Iraq over. The president, in a nationally televised speech, underscored that he’s focused on the economy at a time when voters are increasingly skeptical of his policies and congressional elections are a little more than two months away.
ADP Employment

Another report today raised concern about employment. Companies in the U.S. unexpectedly cut employment in August, data from a private report based on payrolls showed. Employment fell by 10,000, according to figures from ADP Employer Services.

Manufacturing, which accounts for about 11 percent of the economy, spearheaded the recovery from the worst recession since the 1930s as rising export demand led companies to ramp up spending on equipment and to replenish stockpiles. Estimates in the Bloomberg survey of 78 economists before the U.S. figures ranged from 49.9 to 56.

The group’s production index increased last month for the first time since April, while the employment gauge rose to the highest since December 1983.

Production may start to cool as the report showed a gauge of bookings fell in August to the lowest level since June 2009, while backlogs eased.

A gauge of factories’ inventories showed stockpiles increased for a second straight month.
Federal Reserve

Federal Reserve Chairman Ben S. Bernanke last week said the central bank “will do all that it can” to ensure a continuation of the economic recovery, and outlined steps it might take if growth slows.

“Investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace,” Bernanke said.
Intel Corp., the world’s biggest chipmaker, last week cut its third-quarter revenue projection, citing weaker-than- expected consumer demand for personal computers in mature markets as the reason for the adjustment.

Cisco Systems Inc., the world’s largest maker of networking equipment, in August forecast first-quarter sales that missed analysts’ estimates. Chief Executive Officer John Chambers said the San Jose, California-based company was seeing “unusual uncertainty” and getting “mixed signals” about the health of the economy.

Cuts in Forecast

Economists at BofA Merrill Lynch Global Research in New York today cut U.S. growth forecasts for the rest of this year and next. The world’s largest economy will expand at an average 1.65 percent annual pace from July through December and grow 1.8 percent in 2011, a half point less than previously estimated.

“ The two most important monthly indicators -- private payrolls and core retail sales -- have stalled,” the economists headed by Ethan Harris wrote in a note to clients. “At the same time, the post-tax-credit housing hangover has been worse than expected, and even the business equipment recovery shows signs of faltering. Our sense is that the growth recession is already here and it is likely to linger through the first half of next year.”

For a link to the article click here