First, the sub-prime mortgage meltdown has put financial strain on North America. There are many articles written on this subject that can partially explain the slowness in freight. But this is a business-cycle issue. Eventually it will be corrected.
***image2***As a company that caters to the technology needs of the Expedite Carrier, we have seen the Expedited business cycle disrupted over the past several years. This cycle is currently being challenged.
The typical annual Expedite cycle starts slow in January, creeps higher in February and has a mini-peak in March at the end of the quarter as shippers try to meet Quarterly sales quotas. April tends to lag behind March and then May and June tend to be strong as manufacturing “pushes” to meet quarterly quotas before summer recess begins.
The second half of the year starts like the first half. July is slow as manufacturers shut down for re-tooling and North America takes a few weeks’ vacation to rest. Then August demand steadily increases while September through November is usually stronger. The year closes with December business typically starting strong, but quickly waning by mid month.
2006 followed that pattern and 2007 started out the same way. Except that September and October 2007 have been disappointingly at-or-below seasonal numbers. Carriers who recruited heavily for the fall shipping season are finding it hard to keep their fleets fully utilized. What happened to the freight? Where did the fall “push” go?
There are several possible explanations.
First, the sub-prime mortgage meltdown has put financial strain on North America. There are many articles written on this subject that can partially explain the slowness in freight. But this is a business-cycle issue. Eventually it will be corrected.
Second, it is a negotiation year for the UAW. We noticed a surge of Expedite trucking activity in August and we mistakenly took this as an early surge of the typical 2nd half shipping season. Instead, it was likely driven by the North American automakers stock piling inventories in anticipation of work stoppages. When the September strikes were announced, the big-3 had excess inventory on dealer lots and could weather a protracted work stoppage at their assembly plants. Once the strikes were over (and they did not last long), manufacturers needed to slow production to get their “dealer inventories” back to acceptable levels. But this is a business-cycle issue. Eventually inventories will get back to normal.
Third is the excess transportation capacity in North America. Two years ago (just after the Katrina catastrophe), much of the excess trucking capacity was consumed by the emergency in the “gulf states” resulting in higher demand for the trucks remaining in the Northern states. That “gulf state” truck capacity has since returned to the North American availability pool and, coupled with softer freight volumes, means there are more trucks to handle the available freight – so far. But this is a business cycle issue. Eventually freight demands will pick up OR drivers will exit the industry to reduce excess driver capacity.
Fourth is a more pervasive issue. Manufacturing of goods in North America continues to decline as more companies find lower-cost manufacturing facilities offshore. At the corporate board-room level, these offshore manufacturing directives are sound decisions that make financial sense to the shareholders … but at the same time … have a significant NEGATIVE impact the North American economy (and the transportation industry). This is NOT a business cycle issue. As North American manufacturing continues to migrate offshore, demand for transportation will drop proportionately.
Fifth is a new phenomenon that has been changing the way the world operates. The internet and the power it provides the consumer to source their purchases from the comfort of their homes and have the product delivered to their doors … is re-shaping transportation needs. Retailers are being systematically removed from the supply chain as consumers buy directly from manufacturers or wholesalers around the world. The goods are often delivered by parcel courier which will increase the LTL / Courier demand as this phenomenon gains momentum. This is not a business cycle issue. This is a change in the way the world operates.
These five issues (and there are more if we consider fuel prices, insurance costs, security issues, exchange rate issues, etc.) are having a negative impact on the traditional Expedite Transportation demand cycle.
Our company (GPSNet Technologies) sees other “indicators” of a slowdown in the Expedite business volumes:
We see more trucking companies trying to find more load sources (subscribing to our truck posting and load board services or to other load board services like getloaded.com or dat). We see more Logistics companies asking to subscribe to our services to find lower-cost truck sources. We are not seeing the traditional increase in “Revenue per Mile” or “Revenue per Load” that we would normally see at this time of year. Carriers are aggressively bidding for freight to keep their fleets moving – which tends to drive down prices. Fleet counts have remained relatively stable at a time when they are normally increasing. Fleet turnover is higher than normal for this time of year as drivers try to find a carrier with “more” or “better paying freight”.
In summary, we all know that freight volumes are soft right now and will likely remain soft for the final few weeks left in this “traditionally peak” freight shipping period. Carriers now need to plan for the next “push” which will start in late February of 2008. The smart Fleet Owners, Owner Operators and carriers will have kept some cash aside in preparation for these slow periods. They will have pared their fleet size to keep their best drivers. Finally, smart carriers will begin “re-positioning” their business in terms of investing in technology, people (training) and processes so that when the next “push” comes, they will be ready to exploit it.
About GPSNet Technologies Inc.
GPSNet Technologies Inc. is one of the premier software providers for the Expedite and Truckload markets. They provide a web-based Transportation Management System that includes order entry, dispatch, satellite tracking, billing, payroll, document imaging, customer track and trace, driver portal, NLM interface, Comdata Interface, Accounting interfaces, automated email notifications, load board and truck sharing technology used by over 350 companies across North America. Since it’s inception in 2001, they have won a Business Excellence award and an Outstanding Business Achievement Award. For more information, go to www.gpsnettech.com
Stuart Sutton is the President of GPSNet Technologies Inc and has been developing software and process solutions for the Expedite Transportation market since 1995. He hosts an annual Expedite Convention and annually distributes awards to Expedite Carriers in various performance categories. He has a University degree in Computer Science and a Masters of Business Administration in Finance.
