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State of Freight analysts caution wariness as slow growth predicted


BLOOMINGTON, Ind.–In a webinar analyzing the current North American “state of freight” from a shipper perspective, FTR Transportation Intelligence analyst and senior consultant Noël Perry noted that the transportation industry faces the weakest recovery since 1965 and the 4th longest recovery time.

“We should all be wary about growth over next few years-it could be interrupted by recession,” Perry noted, adding that everyone has been operating at lower level over the last economic recovery in 2004, except for intermodal which is at a “new peak”. 

Trucking has been having some serious problems with fewer assets to move freight.

“The big difference from 2004 is that capacity utilization will last for more than a few quarters. if you’re trying to find trucks, that’s very hard right now. It’s a critically tight market. Any kind of interruption causes problems,” Perry noted.

Seasonal peaks are also becoming more problematic, and weather delays hasve “much more meaning.”

Both contract and spot rates have become strongly segmented, with extra demand increasingly pushed out into the spot market. 

Rail has been down in price, but we expect it to come up next year, Perry noted.

Shippers have indicated that the effect of the driver shortage is greater in the long haul segment.  Rates remain important until the threat of missed loads affects what shippers are willing to pay.

Carrying some inventory is cheaper than spot pricing. As a result, “people are holding a little bit more inventory rather than trying to find a truck. They are also beginning to use electronic tools to find carriers and assign loads,” said Perry. 

Shippers are trying to find more capacity using new tools, and they are maximizing their capacity at reasonable rate levels.

“There’s a big shift in the paradigm,” Perry said. 

Larry Gross, a senior consultant with FTR, said that service issues continue to plague the transportation industry.

“Right now it’s all about service or the lack thereof,” he said.

Overall rail service cannot improve until rail yard dwell times improve. 

“This message carries through with regard to train speeds, which have dropped significantly over the past two years. The polar vortex really walloped the industry but the problem was already starting by the 3rd quarter 2013,” he said.

Locomotives and crews are contributing to the problem.

“They are long lead items-the rail industry has a difficult time coping with increases in traffic. Things have started to accelerate into 2014 and the winter disruption added fuel to the fire,” said Gross. 

Intermodal train speeds are averaging only 28.3 miles/hr, and speeds are continuing to slowly decline.

The industry is not able to move any more than it is moving right now, Gross commented. 

On the high seas, it’s a situation of turmoil and overcapacity.

Mega-ship deliveries continue at a strong pace (Drewry projects a 7.6% increase in fleet capacity, mostly in 10,000+ TEU ships), and capacity will continue to grow faster than freight despite projected market improvement. Pressure from mega-ships is cascading “large” ships into Trans-Pacific (USWC and USEC via Suez) and North/South trades, said FTR.

Rates will continue to be under pressure and carrier profitability will continue to suffer.

A “relentless focus on cost reduction is the result  ans slow steaming is here to stay,” said the analysts.

China’s rejection of the P3 alliance led “scrambles the situation”, and means that volatility will continue, Gross commented.

At marine ports, shippers face problems “almost wherever they turn”, Gross said, and there is pressure on drayage drivers who cannot turn their loads fast enough, he said.

Ongoing threats of labour disputes at various West Coast ports creates continued uncertainty as well.