Inside Logistics

State of Logistics Report author sees higher truck rates for 2Q 2015

October 21, 2014

WASHINGTON, D.C.–The 25th annual CSCMP “State of Logistics Report” authored by Roz Wilson, a Senior Business Analyst with Delcan’s Infrastructure National Business, and sponsored by Penske Logistics, was officially released in June, but was recently updated to reflect on the latest trends and findings.

The report offered a breakdown of where the economy is heading, given that the logistics and manufacturing industries are often the first to feel the dips and peaks of the state of the economy. Based on the report, Penske believes 2014 will be the best year for the logistics sector in 8 years. 

Roz Wilson and Joe Carlier, SVP of Sales for Penske Logistics, spoke with Canadian Shipper about the report’s finding.

“I stand behind the statement I made in June about this being a banner year for freight, despite some of the things we may be seeing in the economy overall. We tend to measure what GDP is doing as being the big indicator, but freight imports actually lower GDP, but are still good for freight,” said Wilson.

The inventory carrying cost number has also been rising-despite the fact that at least through September of this year, interest rates were still down, she said.

“Inventory is up above the level we were at prior to recession, but growth is at a much slower rate. A lot of folks I talk to are starting to talk about plans to draw down their inventory. Warehousing costs have been going up because of the actual level of inventory climbing, so there are low vacancy rates,” Wilson added.

Port congestion at US West Coast ports has not resulted in a significant inventory buildup.

“There are a lot of anecdotal stories about what people are doing. Railroads are responding by having more locomotives and personnel. But you can’t add more track. I’ve heard the railroads as well as trucking companies have plans they are putting in place in case of weather. I have not talked to many shippers who will build inventories in anticipation,” she said.

“We continue feeling the pressures of the capacity crunch in rail. It’s difficult to see whether the buildup is related to projected weather, or the capacity issue,” said Carlier.

“Getting freight off the dock is going to be more and more difficult. Large shippers are securing assets out of our rental product line to ensure assets ahead of the holiday season,” he added.

“I think most of the effects we’re seeing are as a result of people anticipating capacity problems. Weather problems are hard to predict. Looking into the transport costs: we’re seeing volumes climbing but we’re not seeing rates budging. We’re seeing shipping volumes rising but overall expenditures/payments are not rising as fast as volumes,” Wilson said.

A wide variety of carriers are saying that because fuel prices have been falling their fuel prices are smaller so their overall charge to the customer is smaller, she added.

“They do have to pull back when it’s not as costly for freight. As an economist I do not understand why rates have not gone up and burst the bubble. My feeling is we are not going to see a lot of movement between now and 2015. First we are seeing it on the spot market, and by second quarter 2015 we could be talking about 8-10% higher trucking rates,” Wilson said. 

“Carriers are coming in and asking for rate increases around 8-10% but settling for 1-3%. I agree with Roz that they are not feeling the big increases. It will be interesting to see Q2. I’m interested to see what will happen to the holiday season, and failures in getting product to the end user,” Carlier said.

Wilson noted that one of the things that is very different in the years following the latest recession is that consumers did not immediately get back in the game.

“Now we are seeing them do so. I have been following closely the plans that the FedExs etc. have been laying. They are building capacity as well from carriers that are not in their traditional group, i.e. rental fleets,” Wilson said.

“They are going to more non-traditional partners to move their freight. If the large shippers are buying up capacity this early what does this mean for the rest of the market? I’m kind of anxious about what will occur,” said Carlier.

If the holiday season is well supported, Wilson said, “What you’re first going to see is spot prices rising and these will carry over to general increases. I think the railroad industry, on paper, has what it needs to take up some of the slack but operationally they don’t have it all together to make that happen. We’re seeing strange capacity on high volume intermodal routes. I have talked to shippers who are making arrangements for merchandise to arrive closer to the East Coast population centres so as not to deal with West Coast congestion. We are also seeing a growth in 3PLs,” she said.

“We are very much feeling that we have come off a record year, with over 15% growth. A lot of the things that weave their way into the conversation are things like Hours of Service and a 3-5% drag on productivity as a result. The driver shortage is very real. Collectively everybody is feeling it. Within the supply chain professional area, talent is at a premium. There is a challenge with warehouse space, limitations in capacity, and a need for technology. It’s a convergence of so many different things,” said Carlier.