Freight Market – Opportunity and Risk

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Logistics, Sourcing Strategies

A review of the current freight market in Logistics Management paints a pretty dire picture of the state of our shipping and trucking industry. The good news for anyone with goods to move is rates are way down, likely to stay down and shippers are aggressively seeking new or incremental business. The caveat is some shippers will not be there by year end.

Traditionally the Hong Kong ” Los Angeles run is the benchmark for Asia Pacific shipments and as an example, 40ft standard container rates are down from $1800 last year to less than $1000 this year. Even though lines are playing with surcharges, any increases can’t begin to make up for the loss in the basic rate. Lines are withdrawing vessels to try to match supply to demand but capacity utilization is still way down. This, combined with the mothballed vessels is jeopardizing the viability of some lines.

If anything the situation is worse on the roads. Trucking can broadly be broken down into less than truck loads (LTL) and full truck load (FTL) movements. LTL is showing over capacity but one carrier, YTL which represents 25% of the national capacity, is in crisis and has asked the government for support. If this is not forthcoming and the company fails, the situation could change rapidly into deficit and rates would rise.

A spokesman for AlixPartners, a turnaround firm, is quoted in the article as estimating that 150,000 units are standing idle. To put that in perspective, that is ten times the fleet size of Swift Transportation the nation’s largest truckload provider. Truckers are keeping a close eye on diesel prices. The low prices this year are all that has kept some of them afloat. Although diesel prices have risen a little this year they are still, on average, below the level at the beginning of January 2007. A rise in refined diesel product prices could be the end for some firms.

As the most expensive form of transportation, air freight is suffering worse than any. But the major carriers, UPS, Fedex, etc moved swiftly to park planes and cut costs. Even the newly deregulated USPS is flexing its muscles looking to take business from the established players. Ground parcel deliveries are the only sector showing growth this year as shippers look to save costs at the expense of slower deliveries.

Lastly industry experts do not see the situation changing this year or early next, so what should be our takeaway? While this represents a welcome cost saving for shippers, it comes with risks. Some shipping companies and trucking firms will fail, and it won’t necessarily be the small ones. Take the time to keep tabs on how your shipping and trucking firms are managing financially. Keep a close look for early signs of service degradation and delays indicating possible financial problems. Renegotiate freight rates during the second half if you can fix them far enough forward but don’t drive your provider to the very last cent. They may not be around for you to collect it. A little give and take with a view to the long-term may yield a bonus in terms of relationship when the markets finally do return to some semblance of balance.

–Stuart Burns

Comment (1)

  1. As shippers may be dissappearing so are many LTL and TL carriers. The 2nd. qtr. financial reports paint a more bleak picture of the welfare of our nations trucklines.

    Several large multi-regional carriers along with a national carrier or two are on the ropes and face a tremedous uphill battle just to stay in business facing this economic depression and under capacity.

    Currently there is too many carriers for the under capacity of tender from shippers and the one’s with cash and low overhead costs will survive.

    Once the “weeding” of the transportation carriers takes place the surviving carriers will increase prices by double digits to make up for lost revenue and capacity will be absorbed by the the remaining players.

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