Much has been said and written about the Great Recession and its impact on the freight market.  The question on the minds of many shippers, carriers and consultants as we approach the end of quarter 1, 2012 is what is the current state of the freight recovery and where are freight rates going?  When one tries to assess the state of demand for freight services and the level of capacity, how do these compare to pre-recession levels?

This week considerable light was shed on this topic during a webinar hosted by the Journal of Commerce.  The webinar focused on the current and projected state of supply and demand in order to provide some insight into projected changes in freight rates over the next 6 to 18 months.  Here are some of the highlights.

John G. Larkin, Managing Director, Transportation & Logistics Equity Research at Stifel Nicolaus made the case that retail sales (excluding food) in America, despite lingering high unemployment have returned to pre-recession levels.  The ISM Purchasing Managers’ Index has been above 50 since January 2010, signaling a growing economy.  The Weekly Market Demand Index (MDI), a measure of relative truckload demand, has been In favour of the trucking industry since January 2011.

Large fleets (with greater than $30 million in revenue) are now at 9.5% below their capacity at the peak (Dec.06) while smaller fleets are 17.9% below their peak (in December 2003).  Drawing on other sources, Mr. Larkin highlighted that truck fleet removals are forecast to remain at historically low levels.  Since peaking in May 2007, the number of LTL power units has declined 19.3% as of December 2011.  October and November 2011 saw slight year-over-year increases in the tractor fleet, which had last occurred in March 2008, but December 2011 reverted back to a slight year-over-year decline.

Drawing on data supplied by the American Trucking Associations, Mr. Larkin then showed that after the huge disconnect in 08 and 09, with truckload capacity tightening, truckload demand and supply have come back into line. Surprisingly, Mr. Larkin’s data also showed that LTL demand is now exceeding supply. 

Over the past week, there has been a barrage of comments posted in one of the Procurement groups in LinkedIn on the topic of why so many of these activities fail.  For those of you interested in this topic, please sign in to the group or read the following blog prepared by Tony Colwell, Executive Interim Manager and Director at Acuity (Consultants) Ltd.   (http://acuityconsultants.com/wp/2012/01/avoiding-the-pitfalls-of-centralised-procurement-18-reasons-why-procurement-cost-saving-initiatives-fail-to-deliver-to-the-bottom-line/). 

In Tony’s blog, he tabulates the results of 311 comments that he received.  For those of you who take the time to read the postings in the LinkedIn group and Tony’s summary, you will see a fair bit of commonality.  For the benefit of the readers of this blog, I will take the ten most frequently mentioned reasons for failure and elaborate on them based on years of experience in dealing with shippers on freight RFP projects.

1. Cost Inaccuracies/True Costs not understood

My company has confronted this problem repeatedly over the past eight years.  In many shipper organizations, the freight transportation data is not clean and well organized.  The data may or may not include fuel surcharges and other surcharges.  In some cases, it is not possible to discern whether the freight costs include or exclude fuel.  A lack of standardization of fuel surcharge formulas may further impede the work of calculating an accurate base cost estimate and detailed lane data.

2. Poor Planning and Leadership/Unclear Objectives

I have written about intermodal transportation several times over the years that I have been preparing this blog.  I became a big fan of intermodalism during the 90’s when I ran Canada’s largest IMC (Intermodal Marketing Company).  Each time I wrote a blog on this topic, I felt that the service was on the brink of making a major breakthrough in customer acceptance and market penetration.  While intermodal activity has shown steady growth over the past 10 to 15 years, this mode of transport is still viewed as a niche market by some folks or a slow and unreliable mode by others.    

These attitudes and perceptions appear to be changing.   Mark Yeager, Vice Chairman, President and CEO of the Hub Group, one of North America’s largest intermodal operators, has labeled 2012 a “transformational” year for Intermodal transportation.    A year is a short period of time.  My own belief is that by the end of the decade, intermodal service will reach significantly higher levels of market acceptance.  Here’s why.

Rails have made and are continuing to make major Investments in Infrastructure

The six class 1 railways in North America have all made significant investments in their intermodal operations.  As examples, Norfolk Southern’s 1400 mile Crescent Corridor and its Heartland Corridor and CSX’s National Gateway (that is one third complete and will be fully operational in 2015) are just three examples of the major investments being made by two railways to allow taller trains carrying more cargo to move through the east coast of America.  The rails are better equipped to handle more intermodal traffic than ever before.

The Service in better

I have been writing a blog on the transportation industry for five years.  During this period I have received hundreds of postings and e mails from readers.  Every now and then I receive an e mail that stands out.  This week I received a thoughtful and interesting e mail and article from a truck driver, David Robson.  In the article, he shares his thoughts on what trucking companies can do to improve driver retention and increase trucking company profits.  With permission, here is an edited version of the article.

 The Future of the Professional Driver

“I was looking up the top 50 trucking companies and reviewed a few of the well-known companies CSA scores from the FMCSA website.  I was surprised and disappointed with what I saw.  Many of these carriers advertise on the backs of their trailers, “We hire only safe and professional drivers.”   If you saw their CSA scores I would think that the owners would be embarrassed to display those signs.  Perhaps the owners are not aware of their scores.

The first thing I noticed was that many were near the 60% intervention score. The other common factor involved “Subject to Placardable HM Threshold.“

I found some violations that were commonly high among most of the carriers.

Over the past two months Stephen Harper has presented a clear and compelling vision of where he wishes to take Canada during his tenure as Prime Minister.  First there was the border Security and Trade Agreement with the United States that he and President Obama announced to the world in December.  He followed this announcement with an important speech this week in Davos, Switzerland at the World Economic Forum in which he outlined his plans to expand trade with nations around the world.

It is important to put these initiatives in context.  Canada has the 10^th largest economy in the world.  Thirty percent of the country’s GDP comes from exports.   The United States is Canada’s largest trading partner receiving 73 percent of Canada’s exports and 63 percent of its imports.  Canada receives 23 percent of U.S. exports and 17 percent of its exports.  Canada is the number one export market for 35 of the 50 U.S. states.  Trade with Canada is more than twice the volume of all U.S. trade with the nations in the European Union.  While the north/south flow of goods has changed over the years due to the rise in the value of the Canadian dollar against the U.S. dollar, this is still a very large and important trading relationship for both countries.   

The Security and Trade agreement announced in December will facilitate freight flows by reducing the number of inspections and integrating the trusted trade programs of the two countries.  The rhetoric and political posturing over the past few weeks concerning the Keystone Pipeline project has overshadowed the size and scope of our trading relationship with the United States and the initiatives being taken to take this relationship to a new level.  “We will also continue working with the Obama administration to implement our joint ‘Beyond the Border’ initiative, our plan to strength and deepen our economic and security links to our most important partner,” stated Prime Minister Harper in Davos.

This week the Prime Minster made it very clear Canada will not put “all of its eggs in one basket.”  The nature of the Canadian economy, the need for Canada to market its energy, wheat, potash, pulp and paper and manufactured goods requires the country to sell and distribute these goods to other markets.  “However, at the same time, we will make it a national priority to ensure we have the capacity to export our energy products beyond the United States, and specifically to Asia.  In this regard, we will soon take action to ensure that major energy and mining projects are not subject to unnecessary regulatory delays - that is, delay merely for the sake of delay,” commented Prime Minister Harper.

“We will continue to advance our trade linkages.  We will pass agreements signed, particularly in our own hemisphere, and we will work to conclude major deals beyond it.  We expect to complete negotiations on a Canada-EU free trade agreement this year.  We will work to complete negotiations on a free-trade agreement with India in 2013.  And we will begin entry talks with the Trans-Pacific Partnership, while also pursuing other avenues to advance our trade with Asia.”