BLOOMINGTON, Ind. — High inventories and loosening capacity are making it difficult for transportation companies to raise rates.
Jonathan Starks, chief operating officer of FTR, explained during a State of Freight webinar today inventory cycles are one of the variables making it a challenging environment for carriers.
The inventory-to-sales ratio is elevated – especially at the wholesale level – resulting in little freight growth.
“We saw the biggest jump (in inventory-to-sales ratio) at the wholesale level. They’re holding onto a substantial amount of inventory, which has to be worked out and it’s having ripple effects all the way through, specifically within manufacturing,” Starks explained. “If a wholesaler has it, you don’t need to manufacture it.”
Starks predicted it will take six to nine months for inventory levels to be reduced to the point where they’ll start driving freight growth.
“This will be a drag on transportation as we move through, at least to the end of this year,” he said.
FTR also tracks capacity utilization – the availability of a truck and driver – and has seen it drop to about 95% from close to 100%. However, when factoring in idle equipment, the number drops to about 85%.
“There is a fair amount of idle equipment out there,” Starks said.
That brought Starks to the question everyone wants to know: Is it possible to generate freight growth in such a sluggish economy? The bad news is, industrial production has been flat for a year and half, Starks pointed out. The good news is, it isn’t shrinking, which is usually a precursor to a recession.
“This is a completely different environment than we’re used to,” he said. “We’re not used to a completely stagnant manufacturing environment.”
Businesses are ordering less product, which Starks said “is not tremendously encouraging.”
“I don’t see businesses in the short-term being the stimulus for freight growth and I think that’s a little bit of a problem,” Starks warned.
However, the US consumer continues to buy stuff. “The retail market continues to trend higher,” he said. “Over the last several months we have seen noticeable growth within that retail market; that is a very positive sign. The disconnect between what is happening in the business environment and consumer side is very noticeable.”
While it’s a slow period for trucking, Starks said shippers aren’t necessarily entirely in the driver’s seat when it comes to rates. He said these are fairly neutral conditions for shippers and carriers when it comes to rate negotiations, however he added smart shippers are locking in rates now knowing that some productivity-choking regulations for trucking are on the horizon and capacity will once again tighten.
“We have seen where rates have fallen off relatively dramatically as we moved into the first part of 2016 but they seem to be stabilizing,” Starks said.
He indicated anecdotally he’s hearing shippers are pushing back hard on rates.
“They have to be careful,” he cautioned. “What goes around comes around and if you push too hard, as things start to return, the carrier pushes back.”
July 14, 2016
by James Menzies
http://www.trucknews.com
July 14, 2016
by James Menzies
http://www.trucknews.com
No comments:
Post a Comment