With it being the last day of the month and leap year at that, I thought I would write a quick blurb about the week and what I have noticed.
Trucks are beginning to demand more money to haul the same loads than they have in the past six months. Is this because of the higher fuel prices or is it because it is the last week of the month? Trucks traditionally become scarce during the last week of the month as freight picks up with shippers trying to get everything they can off of their dock and out of their inventory. If the demand for higher rates continues, it could begin to create a disparity in the market with some customers continuing to pay lower rates and others paying higher rates, but it should eventually level out.
Economic indicators continue to be bleak with concerns over inflation and stagflation. Citizens should receive their checks from the economic stimulus plan sometime in May, giving everyone a chance to spend it on vacation or Spring spruce-ups around the house. Will it be enough to revive our sagging economy? Will it help jump start more business in the transportation industry?
The company I work for is hell bent on growing, which is a good goal. A company never wants to get smaller or back up if at all possible. And we have been fighting the good fight, battling with the oodle of other brokers/logistics companies out there, using lower rates as one of the primary weapons. For the past year, service has not been an issue. Everyone has been able to find trucks and it has been a struggle for everyone to try and capture new business, making relationships critical as competitors call on our customers every day. In a way, I'll be glad when business picks up and we aren't in such a price driven market. Maybe some of these people I have been making sales calls on will finally give us a chance to handle their business.
Yours truly....the Transportation Peddler
Friday, February 29, 2008
Tuesday, February 26, 2008
Update on Market Climate
I receive a regular report from Morgan Stanley listing a Truckload Freight Index and according to the information provided on the report, truckload carriers are not doing enough to take truck capacity out of the equation to bring supply and demand closer together. Trucking companies are still purchasing new trucks to replace their older models, (they held off on doing this in 2007 because of emission standards being changed). It appears most carriers are in a Catch 22 situation, trying to gain incremental revenue by not reducing capacity. If capacity is not voluntarily reduced by the carriers, the market will correct itself when companies begin to go out of business.
This report takes me back to my previous post-higher fuel prices will cause carriers to change their strategy in the marketplace. We are seeing the continued corrections in the residential construction market and financial market. Freight rates have dropped tremendously due to competition for market share-the correction in the trucking industry will involve trucking companies going under unless the economy makes a quick U-turn. The problem is, we don't have a GPS to tell us when to turn, where we are and where we are going.
This report takes me back to my previous post-higher fuel prices will cause carriers to change their strategy in the marketplace. We are seeing the continued corrections in the residential construction market and financial market. Freight rates have dropped tremendously due to competition for market share-the correction in the trucking industry will involve trucking companies going under unless the economy makes a quick U-turn. The problem is, we don't have a GPS to tell us when to turn, where we are and where we are going.
Monday, February 25, 2008
Higher Diesel Fuel Prices
Each week the Department of Energy releases a report showing the National Average price of diesel fuel as well as showing the average price in different regions throughout the country. The California region consistently leads the average among the regions with their strict emission standards and taxes included in the price of diesel at the pump and this weeks jump in diesel prices is causing a stir among the trucking companies that travel to and from California. We are experiencing multiple California carriers requesting rate increases due to the sudden spike in diesel prices and they are doing this for a good reason.
Trucking companies have already felt the pinch of lower rates due to excess truck capacity and the freight recession that has been in play for the past year and I believe they are about to cry "Uncle" with the recent climb in diesel prices. The National Average price of diesel is reaching levels that will affect freight rates, despite the fact that almost every customer pays a fuel surcharge.
Sure the fuel surcharge is intended to compensate the truck for higher fuel costs, but it only pays for the miles the truck is hauling the freight and doesn't take into account any deadhead miles the truck might face before picking up the load or after delivering the load. These are the miles that eat into any profit made on the load in the first place and the expense for the deadhead miles is difficult to recover, and it makes the dispatcher/driver manager's job that much more important. Too many deadhead miles and the truck is losing money no matter how much the load pays.
Will the higher fuel costs turn the tide on rate reductions??? Only time will tell. But if fuel prices continue to go up, I believe trucks will become more selective about the loads they haul and begin to demand higher rates.
Trucking companies have already felt the pinch of lower rates due to excess truck capacity and the freight recession that has been in play for the past year and I believe they are about to cry "Uncle" with the recent climb in diesel prices. The National Average price of diesel is reaching levels that will affect freight rates, despite the fact that almost every customer pays a fuel surcharge.
Sure the fuel surcharge is intended to compensate the truck for higher fuel costs, but it only pays for the miles the truck is hauling the freight and doesn't take into account any deadhead miles the truck might face before picking up the load or after delivering the load. These are the miles that eat into any profit made on the load in the first place and the expense for the deadhead miles is difficult to recover, and it makes the dispatcher/driver manager's job that much more important. Too many deadhead miles and the truck is losing money no matter how much the load pays.
Will the higher fuel costs turn the tide on rate reductions??? Only time will tell. But if fuel prices continue to go up, I believe trucks will become more selective about the loads they haul and begin to demand higher rates.
Wednesday, February 20, 2008
Freight Brokers; Liability or Asset for a Shipper
As the freight world sits in a somewhat static freight recession, most of the business out there is being driven by rate reductions and cost savings, which slightly favors freight brokers and logistics companies. But it doesn't mean that every company will be opening their traffic doors to the non-asset based model, because asset based carriers are catching up to speed, trying to capture or recapture business based on price.
In my drivel today, I want to address the issue of shippers turning away brokers and logistics companies based entirely on the premise that they are an extra liability.
The fact of the matter is non-asset based companies can add liability to a companies transportation department if they are not run well or do not have the proper procedures in place. There are a lot of freight brokers and logistics companies out there who do not carry a Contingent Cargo insurance policy, which is not required by law for them to operate. And if you delve deep into most Contingent Cargo policies, you will find a lot of them have way too many exclusions. And speaking of exclusions, there are a lot of truckload carriers out there that have Cargo and Liability insurance only on scheduled autos. This means that the broker should verify coverage any time they see an insurance certificate showing coverage only for scheduled autos to make sure the VIN # of the truck hauling their freight is listed as one of the scheduled autos.
Another major risk posed by brokers is the unscrupulous get rich quick scheme of moving freight for some shippers, billing the shipper for the freight moved, collecting the money for the service and never paying the actual truck that moved the freight. Legally, the actual carrier of the load can bill the shipper for the service provided if they can prove they were never paid. (This actually protects the truck that moved the goods, which is the way it should be). And another form of this scam is the double brokering scheme, where a crooked company accepts loads from other brokers, posing as a carrier, (with what appears to be valid contract carrier authority and insurance), and then the same crooked company brokers these loads to actual carriers who move the freight. The crooked broker/carrier then collects money from the original broker, but never pays the actual trucking company that moves the load. These schemes happen every day in the transportation industry and they are the reason freight brokers earned a bad name in the 1990's.
But there a positive sides to shippers using a broker/logistics company. The first being that in the situations shown above, the broker should have procedures in place to keep these scenarios from happening. And if something does happen, the broker should protect the shipper by making sure the actual carrier is paid for the load, (even if it means they have to create a payment plan or borrow the money).
Other positive aspects of using a broker include added protection for the shipper through these procedures, technology for data and tracking, reduction in freight costs and additional insurance, (if it is a quality policy that carries merit). The broker can be an asset through the relationships it has developed over time with small, medium and large trucking companies and the broker can help a shipper fill its need for trucks, especially if their shipping volume is very inconsistent or volatile.
But probably the most important consideration for using a broker or logistics company is the ability of the broker to be flexible. The broker/logistics company must be able to adapt to the individual needs of the customer, (whether it be rates, equipment, time constraints, etc.). And this is where the people and technology of the broker have the chance to stand out.
I know I haven't addressed all of the pros and cons of using a broker. (There are far too many with most of them being basic arguments ie. control of the driver, knowing where the freight is, etc., but all of these can be defended by a reputable, experienced broker).
In my drivel today, I want to address the issue of shippers turning away brokers and logistics companies based entirely on the premise that they are an extra liability.
The fact of the matter is non-asset based companies can add liability to a companies transportation department if they are not run well or do not have the proper procedures in place. There are a lot of freight brokers and logistics companies out there who do not carry a Contingent Cargo insurance policy, which is not required by law for them to operate. And if you delve deep into most Contingent Cargo policies, you will find a lot of them have way too many exclusions. And speaking of exclusions, there are a lot of truckload carriers out there that have Cargo and Liability insurance only on scheduled autos. This means that the broker should verify coverage any time they see an insurance certificate showing coverage only for scheduled autos to make sure the VIN # of the truck hauling their freight is listed as one of the scheduled autos.
Another major risk posed by brokers is the unscrupulous get rich quick scheme of moving freight for some shippers, billing the shipper for the freight moved, collecting the money for the service and never paying the actual truck that moved the freight. Legally, the actual carrier of the load can bill the shipper for the service provided if they can prove they were never paid. (This actually protects the truck that moved the goods, which is the way it should be). And another form of this scam is the double brokering scheme, where a crooked company accepts loads from other brokers, posing as a carrier, (with what appears to be valid contract carrier authority and insurance), and then the same crooked company brokers these loads to actual carriers who move the freight. The crooked broker/carrier then collects money from the original broker, but never pays the actual trucking company that moves the load. These schemes happen every day in the transportation industry and they are the reason freight brokers earned a bad name in the 1990's.
But there a positive sides to shippers using a broker/logistics company. The first being that in the situations shown above, the broker should have procedures in place to keep these scenarios from happening. And if something does happen, the broker should protect the shipper by making sure the actual carrier is paid for the load, (even if it means they have to create a payment plan or borrow the money).
Other positive aspects of using a broker include added protection for the shipper through these procedures, technology for data and tracking, reduction in freight costs and additional insurance, (if it is a quality policy that carries merit). The broker can be an asset through the relationships it has developed over time with small, medium and large trucking companies and the broker can help a shipper fill its need for trucks, especially if their shipping volume is very inconsistent or volatile.
But probably the most important consideration for using a broker or logistics company is the ability of the broker to be flexible. The broker/logistics company must be able to adapt to the individual needs of the customer, (whether it be rates, equipment, time constraints, etc.). And this is where the people and technology of the broker have the chance to stand out.
I know I haven't addressed all of the pros and cons of using a broker. (There are far too many with most of them being basic arguments ie. control of the driver, knowing where the freight is, etc., but all of these can be defended by a reputable, experienced broker).
Tuesday, February 5, 2008
1st Quarter 2008 Freight Broker Trends
I report to you from the trenches on the front lines of the brokerage industry, giving you up to date information on what I see.
Although the big rig called the U.S. economy appears to have hit the air brakes, it might be more akin to it hitting the jake brake. For our company, January was a very good month with great revenue weeks, besides the first week of the year. Was the freight held over from the end of 2007 with the slow shipping weeks of Christmas and New Years? Possibly. Or it could be a good push off for the beginning of 2008 that could stall out in February.
I recently had a customer call me to propose a 3% rate reduction for 2008, and if most of their core carriers agree to do so this customer will not put their freight out to bid until 2009. It protects the business for a year and guarantees (a word I never like to use in the transportation business) that the customer will reduce cost in their transportation department. For the record-we are on board and hope the rest of the core carriers vote aye with us.
Most of the forecasts I have seen or heard about call for the freight recession to make its rebound in the 1st quarter of 2009, which means more rate reductions are in line for the brokerage industry. The company I work for has been around since the early 80s and lucky for me, we have experienced slower trends before. We will rate joust with the best of them if the business is deemed worthy, so look out CH Robinson.
Mumblings and Rumblings about Rates-the lowdown on the cheapes rates I have heard
SC/NC to CA $.94/mile + fuel surcharge
SC/NC to TX $1.02/mile + fuel surcharge
SC/NC to IL $1.05/mile + fuel surchage
Talk about cheap. These prices are reflective of rates seen in the early 1990s. If this continues we will all be wearing Members Only jackets and parachute pants (both popular styles in the 80s).
Although the big rig called the U.S. economy appears to have hit the air brakes, it might be more akin to it hitting the jake brake. For our company, January was a very good month with great revenue weeks, besides the first week of the year. Was the freight held over from the end of 2007 with the slow shipping weeks of Christmas and New Years? Possibly. Or it could be a good push off for the beginning of 2008 that could stall out in February.
I recently had a customer call me to propose a 3% rate reduction for 2008, and if most of their core carriers agree to do so this customer will not put their freight out to bid until 2009. It protects the business for a year and guarantees (a word I never like to use in the transportation business) that the customer will reduce cost in their transportation department. For the record-we are on board and hope the rest of the core carriers vote aye with us.
Most of the forecasts I have seen or heard about call for the freight recession to make its rebound in the 1st quarter of 2009, which means more rate reductions are in line for the brokerage industry. The company I work for has been around since the early 80s and lucky for me, we have experienced slower trends before. We will rate joust with the best of them if the business is deemed worthy, so look out CH Robinson.
Mumblings and Rumblings about Rates-the lowdown on the cheapes rates I have heard
SC/NC to CA $.94/mile + fuel surcharge
SC/NC to TX $1.02/mile + fuel surcharge
SC/NC to IL $1.05/mile + fuel surchage
Talk about cheap. These prices are reflective of rates seen in the early 1990s. If this continues we will all be wearing Members Only jackets and parachute pants (both popular styles in the 80s).
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