Transportation Costs in 2012 - Could They Explode?

Transportation Costs Have Been On the Rise - What About a Rail Strike in 2012?

There have been some major concern of U.S. workers in contract negotiations with railroad companies. There was a December 6th, 2011 deadline that if an agreement could not be reached, there would be a massive rail shutdown.

There has been a recommendation that the 132,000 negotiating workers reach tentative agreements to end a two year stalemate between workers and railroads. Unions that do not reach an agreement by December 6th may begin strikes and the railroads can lock them out.

According to the Association of American Railroads, a walkout on December 6th would cost the American economy approximately $2 Billion a day.

The Good News

The good news is that one of the unions that represent approximately 19 percent of U.S. workers still negotiating their contracts, said that it would like to continue talks at least through February

“We have no intention of striking” on Dec. 6, said Fred Simpson, president of the Brotherhood of Maintenance of Way Employes, which represents workers who build and maintain tracks and other structures. “We sent all the railroads a letter saying, ‘We’re not going to strike, we’d like to bargain until Feb. 10 to see if we can get something done.’”

Impact on Trucking Costs

Of course, any reduction in the supply of transportation means an increase in other sectors, such as truckload. Normally products and goods are shipped at a much lower rate across country when rail is used. Once the products are shipped to the rail yards, they are normally finalized by trucks.

Think about the impact, for example, if coal fired power plants cannot ship their coal via rail. The price of electricity would obviously go up considerably. How about the price of automobiles? Most autos are shipped via rail across the US then finished with car carriers. The impact on the auto industry could also be significant.

Companies would be forced to utilize long haul trucking to get their goods to their customers or face severe financial hardships. This would also drive the transportation costs "through the roof" as the simply rules of supply and demand dictate higher prices when more demand is placed on a commoditized service, such as transportation.

For now, it appears that the railroad strike may be averted. Let's keep our fingers crossed that a settlement can be negotiated - our county would have a difficult time rebounding from the past recession should this important part of the shipping equation shut down.

Trucking Capacity... Better or Worse for 2012?

Trucking Capacity for 2012 Is On Every Transportation Manager's Mind

Let's face it... many companies are reviewing budgets for 2012 and transportation costs are one of the largest expenses any manufacturing or distribution company has. Trucking capacity is one of the biggest issues in transportation pricing.
Here are some articles around the globe that should give you a pretty good idea of what is going on and what is expected to go on in regards to the supply of drivers in the transportation industry. We may be able to make equipment, but it's hard to get a truck to move without a driver.
Click on any of the links below to read more.

Panelists agree driver shortage is 'going to get harder' | Truck Parts ...
http://www.truckpartsandservice.com/panelists-agree-driver-shortage-is-%E2%80%98going-to-get-harder%E2%80%99/11/14/11
The Aftermarket Authority – Truck Parts and Service.

Driver Shortage, Tight Fleet Capacity Fuel Growth of Intermodal ...
http://www.intermodalinsco.com/2011/11/14/driver-shortage-tight-fleet-capacity-fuel-growth-of-intermodal-shipping/11/14/11
By Rip Watson, Senior Reporter, Transport Topics The truck driver shortage and related fleet capacity constraints are driving strong growth in domestic.

FTR: Capacity to remain tight, driver shortage to worsen ...
http://www.ccjdigital.com/ftr-capacity-to-remain-tight-driver-shortage-to-worsen/11/8/11
FTR: Capacity to remain tight, driver shortage to worsen. By Jeff Crissey. Published November 8, 2011. During a presentation at Commercial Carrier Journal's Fall Symposium in Scottsdale, Ariz., Eric Starks, president of FTR Associates, told ...

Where are all the great tank truck drivers? - Modern Bulk Transporter
news.google.com
Where are all the great tank truck drivers?Modern Bulk TransporterThe continued driver shortage may very well be the most critical factor in the future success of tank truck fleets. Even with unemployment well above 9% and despite hefty hiring and re ...

Mike O'Connell on the Truck Driver Shortage
CVTA's Executive Director Mike O'Connell on the push to increase the number of truck drivers in the US

The driver shortage is already a factor in rising transportation costs. According to the experts above, it is likely to become a much larger problem for 2012.

How the Global Economy Can Affect Trucking Capacity

The Global Economy Directly Affects Trucking Capacity

It's safe to assume that most transportation managers have felt the "sting" of a tightening truck capacity in the full truckload world. Flatbeds have been hard to find - rates have been increasing. Vans have also tightened and rates have increased.

Bottom line - if you want to attract a truck, it's probably going to cost you more than it did a year ago.

So what is driving the demand for trucks? Let's start with manufacturing and see what is happening.

Even though the global economy is playing a more critical role than ever before, such as the deficit crisis in Greece, freight demand has continued to be brisk, due to a bounce back of manufacturing activity.

According to data by the National Association of Credit Management (NACM), manufacturing increased in September from a dissapointing showing in August. The Credit Managers’ Index (CMI) jumped from 57.2 to 58.9. This seems to indicate that the summer slowdown appears to be lifting.

“The anecdotal evidence is that demand for new machinery is starting to pick up steam,” noted Chris Kuehl, NACM’s economist. “Many of the bigger trade shows in the manufacturing sector are reporting much larger attendance numbers than last year and those that are coming to these shows are far more interested in buying than before.”

That trend is reinforced by the CMI numbers, he added. “There is abundant evidence that business activity is ramping up again from the drops in August, and it is looking like much of the summer slowdown was prompted by all the political infighting,” Kuehl said.

Kuehl stated that the manufacturing activity isn't necessarily enough to indicate the manufacturing crisis is over, but that the manufacturing side of the economy is playing a big role in the freight markets.

"It has been noted elsewhere that outbound container traffic is about 8 points higher than this time last year, indicating that the export sector is still performing well in many categories,” he said.

According to a recent article in Fleet Owner, "the key “poker piece” for trucking in all of this is that capacity still remains well short of freight demand, Kenny Vieth, president and senior analyst at ACT Research Co., told Fleet Owner. “As long as freight volumes exceed capacity, then trucking companies can still achieve a reasonable profit,” he said. “Though we’ve changed our forecast, with freight demand now expected to plateau rather than accelerate into 2012, that plateau will still produce enough freight to exceed capacity. That means trucker profits should still remain up.”

For example, it has been reported that the number of trucks operated by the truckload industry is still down about 12% from the height in late 2006, yet tonnage levels are about the same as in late 2006; thus capacity remains tight.

According to Vieth, Greece still remains a wild card. The impact upon the world economy when Greece defaults could have a substantial impact on not just the eoncomy worlwide, but that also means that trucking capacity could be affected - just not sure how just yet.