Some KPIs to Monitor the Transportation Industry

There are a host of economic indicators that provide economists, academics and transportation professionals with insights into how the general economy is performing. Data on gross domestic product, imports, exports, housing starts, stock market trends, consumer confidence and unemployment levels are barometers of the level of economic activity in a particular country. These indicators, while somewhat indirect, highlight trends in the economy. Declines in unemployment levels indicate more people are working and as result buying more goods and services. Increases in housing starts suggest that a growing number or people are buying homes, furniture, appliances and carpets. These indices correlate somewhat with freight transportation activity levels. The same applies to other measurements of economic activity.

However, these types of general economic indicators, while helpful, don’t necessarily provide direction as to the specific segments of the economy experiencing the strongest or weakest growth. They don’t shed light on whether there are higher levels of growth in dry van, refrigerated or flat bed traffic.

As a result, transportation professionals need to turn to other indices to understand where the freight industry is going. Some of these measurements are outlined below.

1. ISM Managers’ Index (https://www.instituteforsupplymanagement.org/ )

The Institute for Supply Management (ISM) is the oldest, and one of the largest, supply management associations in the world. Founded in 1915, the U.S.-based not-for-profit educational association serves professionals and organizations with a keen interest in supply management, providing education, training, qualifications, publications, information, and research. The Purchasing Managers' Index or PMI is an indicator of the economic health of the manufacturing sector.

The ISM Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. A PMI of more than 50 represents expansion of the manufacturing sector, compared to the previous month. A reading under 50 represents a contraction, while a reading at 50 indicates no change. PMI levels are supplied for individual industry sectors to provide insight into where the economy is growing or declining. This index is helpful to people trying to gauge the level of freight activity in different sectors.

2. Retail Sales Index (http://www.tradingeconomics.com/united-states/retail-sales )

This indicator tracks the dollar value of merchandise sold within the retail trade by taking a sampling of companies engaged in the business of selling end products to consumers. Both fixed point-of-sale businesses and non-store retailers (such as mail catalogs and vending machines) are used in the data sample. Companies of all sizes are used in the survey, from Wal-Mart to independent, small-town businesses.

The data released, typically around the 12th of each month, will cover the prior month's sales, making it a timely indicator of not only the performance of this important industry (consumer expenditures generally make up about two-thirds of total gross domestic product), but of price level activity as a whole. Retail Sales is considered a coincident indicator, in that activity reflects the current state of the economy. It is also considered a vital pre-inflationary indicator. The release will contain two components: a total sales figure (and related % change from the previous month), and one "ex-autos", as the large ticket price and historical seasonality of auto sales can throw off the total figure disproportionately.

3. ATA For-Hire Truck Tonnage Index (http://www.trucking.org/News_and_Information.aspx )

This index measures the gross tonnage of freight that is transported by motor carriers for a given month. The truck tonnage index serves as an indicator of shipping activity in the U.S., and it can be used by analysts to help determine the state of the economy.

4. Rail Traffic Indices (https://www.aar.org/Pages/Freight-Rail-Traffic-Data.aspx )

Each week, the major North American railroads report their traffic for the previous week to the AAR (American Association of Railroads). This data is published in AAR's Weekly Railroad Traffic report each Wednesday. Carload traffic is classified into 20 major commodity categories such as coal, chemicals, grain, and primary metal products. Rail intermodal traffic (shipping containers and truck trailers moved on rail cars) is reported separately.

Statistics Canada publishes a Monthly railway carloadings publication provides monthly statistics of rail car loadings in Canada. The publication offers a brief analysis along with a number of tables showing car loadings and tonnes carried by 64 commodity groupings. These data are considered to be a good leading indicator of current business activity.

5. The Sales Managers Index: NAFTA (http://www.worldeconomics.com/SMI/SalesManagersIndex.efp )

The North American Free Trade Agreement, signed over 20 years ago, represents one of the largest trade agreements ever established. The World Economics Headline Sales Managers’ Index (SMI) for NAFTA (Canada, US, and Mexico) produces the earliest monthly source of understanding about the speed and direction of business conditions in the world’s largest trading area. Canada remains the second largest trading partner for the US while the U.S. is Canada’s largest trading partner. The volume of goods moving between Canada and the United States is critically important to truckers and rail service providers.

6. Freight Rate Pricing Indicators

Various indices are available on Canadian and US freight pricing trends. The Canadian General Freight Index, published free of charge by Nulogx (http://www.nulogx.com/cgfi/results/ ), highlights changes in the prices paid for freight transportation by Canadian shippers. The index represents general truck transportation, and excludes bulk, liquid and other specialty transportation services. The index tracks changes in base rates and fuel surcharges. In the United States, there are a number of companies that track truckload rates for both contracted and spot market pricing.

The Cass Truckload Linehaul IndexTM (http://www.cassinfo.com/Transportation-Expense-Management/Supply-Chain-Analysis/Transportation-Indexes/Truckload-Linehaul-Index.aspx ), the DAT indexes (http://www.dat.com/resources/trendlines ), and the Stephens Freight Index are three well-know information sources. Cass Information Services (in association with Avondale Partners) publishes the Cass Truckload Linehaul IndexTM based on data provided to them by large shippers. DAT publishes a number of indexes and rate information focused on the spot-market primarily derived from their experience as an intermediary in the spot-market. Stephens Research publishes a rate index based on data from large, publicly traded trucking companies.

7. Diesel Fuel Pricing

Fuel costs are a major component of truck and rail freight costs and are passed on to shippers as fuel surcharges. It is very important for shippers to be aware of changes in fuel costs so they can adjust their freight rate negotiating strategies accordingly. The U.S. Energy Administration (http://www.fca-natc.org/ ) publishes weekly statistics on gasoline and diesel fuel rates in all regions of the United States. The Freight Carrier Association of Canada (FCA) publishes weekly bulletins on domestic Canada and cross-border fuel costs (http://www.fca-natc.org/FuelPriceTrends.pdf ) and on currency exchanges.

Georgia Logistics (www.GeorgiaLogistics.com ) makes it easy

Transportation professionals can simplify their lives by signing up to receive free monthly snapshots from Georgia Logistics. Many of the indices mentioned above appear in this very handy report. Each month this organization publishes a snapshot of a variety or economic and transportation indices in a PDF format. Visit their website to be placed on their e-mail list.

To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Daily Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).