John Wagner Jr. looks at problems facing logistics companies at the moment and provides a round up of current news and figures from the industry.
I have to admit that I’m tired of writing about the effects of the rough winter, but here we go again as March rushes in like an angry lion, disrupting the flow of commerce. Much of the weakness in the economy in January and February can be attributed to snow, ice and sharply colder weather across the country that is keeping shoppers home and causing retailers to be slow to replenish inventories.
While the bitter cold kept housing starts down by 16 percent and existing home sales fell 5.1 percent, new home sales increased 9.6 percent in January, the largest increase in five years at 468,000 homes.
These new homeowners must have run right out and bought refrigerators and furniture, as the durable goods numbers bounced in February. Sales of products meant to last more than three years increased 1.1 percent after dropping almost that exact amount in January.
Shipments of durable goods fell for a second straight month in January and inventories increased 0.3 percent after being up 0.9 percent in December.
Winter Woes Continue in Trucking
This awful winter hammered the trucking industry as well in January, pushing down tonnage by 4.3 percent from December. Industry leaders believe the trucking industry is improving but the numbers are masked by the continuing widespread winter storms.
While February is traditionally a slow time for trucking, the weather has kept fleets bottled up and unable to keep their service commitments, causing shippers to scramble for capacity. Selling snowblowers is a better bet for profits than trying to run trucks these days. Selling road salt isn’t a bad business either, when Chicago is buying it for $250 a ton (up 50 bucks).
All of this weather drama has pushed truckload van rates up to a national average of $1.97 per mile in February. With produce season approaching in a few weeks, expect van and reefer rates to jump further if you need capacity in the Southern states. You can also expect to pay more for fruits and vegetables.
With road and construction projects hitting stride this spring, capacity will be impacted even further so don’t expect any pricing relief soon.
The trucking industry is also going to have to take several factors into consideration for pricing, including more driver pay, higher driver recruitment costs, lost productivity in hours-of-service regulations, and higher equipment costs to comply with EPA mandates. I expect to see companies look at private fleets as truck rates climb 3-5 percent this year.
As motor carriers fight for drivers and capacity, I also expect to see more acquisitions this year. Most recently, Roadrunner bought Rich Logistics of Little Rock to expand capacity into Mexico, and last year Heartland Express bought Gordon Trucking. Celadon Group has said it has $300 million to spend and CRST is looking for the right target companies too. Even as the large carriers get larger, it’s good to realize that the top 10 truckload companies control only 7 percent of the freight market. The industry remains highly fragmented.