Sylectus released their Syleconomics report for January 2011 with much of the results we expected. After watching 2010 grow into one of the best years for trucking on record, and many of the predictions Sylectus made for 2010 coming true, are we facing an even better year in 2011?
January numbers would seem to say so – though that data is too small to establish a prediction for the whole year. Sylectus notes that January 2011 experienced a 9% increase in rate per mile over January 2010, dropping only 3% from December 2010 – in a month that typically drops rates to compensate for reduced demand. January 2011 bucked that trend with only a very slight price erosion between December 2010 and January 2011. One thing to consider is that the price could reflect rising fuel cost and rising fuel surcharge.
Sylectus indicates that the first six months of 2011 should be as good as in 2010. Now, with the head start that January gave us, and some concerted effort to minimize risk with regard to fuel prices, the industry should be able to fulfill that prediction.
Capacity continues to lag behind demand, but it is slowly creeping up. Driver shortage is also keeping capacity tight, which is (or should be!) driving rates up, especially when you consider that there was a 3-4% reduction in fleet. That, combined with strong demand and stable rates, is what Sylectus attributes its customers success to. Not a strong, rebound- ing economy as a whole, but rather the continued, prolonged shortage of capacity.
The other remarkable point about January 2011 is that the fuel surcharge rate per mile is the highest that Sylectus has reported since the fuel crisis of 2008 and the second highest recorded since 2005, when they started tracking this information. This should tell you to keep a close eye on your fuel surcharge pricing. Be aware of the trend, make adjustments accordingly, and as Sylectus says, in bold type with three exclamation points, “Make sure your fuel surcharge pricing policies are properly set with your customers!!!” Failure to properly calculate and set your fuel surcharge pricing is one mistake that will certainly cost you profit, but could cost you your business.
Sylectus made some other predictions for 2011 that are holding true, as well. Debt continues to be the largest single factor keeping the economy weak and lessening consumer spending. Corporate level debt is slightly better, though corporations are still reluctant to spend for new drivers, looking to technology to make them more efficient instead. “Employment rebounding slowly” is evidenced in that point. Inventory has been managed efficiently, with production of trucks matching the consumption – which matches the driver shortage that we’ve been experiencing for some time.
Enjoy the increased revenue and look forward to 2011 as an even better year, but now is the time to evaluate the efficiency of your business and prepare yourself to take advantage of any opportunity arising in the new year. Sylectus advises trucking carriers to consider the trends evident recently and keep an eye on them.
Is the “used truck equipment” market shrinking? If so, truck manufacturers will start ramping up production. Headlines in recent Transport Topics include “Volvo reports 4Q profit, boosts 2011 forecast” (February 4, 2011) and “Class 8 sales hit two year high” (January 17, 2011).
Is the CSA 2010 implementation shrinking the driver pool as predicted? Recent rulings regarding Electronic On Board Recorders (EOBR) being mandated in fleets with marginal safety records could force carriers and individual drivers out of the business. This could exacerbate the driver shortage. Lower capacity (fleet count) without a similar reduction in demand (freight volumes) usually drives up prices.
Are banks maintaining their “low risk/ conservative lending” policies? If so, there will continue to be barriers to entry into the industry since anyone wanting to start a trucking company will most likely need to self fund the start up. This gives existing trucking operations opportunities to solidify existing customer relation- ships or build new customer base without the fear of new entrant competition.
Are inventory levels lean? If so, a small uptick in consumer demand will put upward pressure on manufacturing and transportation.
What is the trend with the price of fuel? This is one potential negative trend that needs watching. If fuel prices climb like they did in 2008, this could trigger another “correction”. Again, make sure your fuel surcharge pricing policies are properly set with your customers!!! If fuel prices start to rise, don’t let improperly calculated pricing policies eat at your profit and put you out of business!
