USA freight: A banner year

Content sourced by JOC

Inland transportation, Cargo shipping

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WASHINGTON — The U.S. freight industry will have a banner year in 2014, having already seen some of the strongest freight growth since the end of the Great Recession, a transportation analyst said Tuesday.

Although general U.S. economic growth was lackluster in the first five months because of severe weather and flat exports, freight shipments rocketed 13.1 percent and freight payment rose 11 percent in the same period, said Rosalyn Wilson, of Parsons. Wilson authors the
Council of Supply Chain Management Professionals’ annual State of Logistics report.

After a sluggish start, the overall economy is improving, with retail sales and home construction sales picking up and the employment picture brighter, she said. However, she noted that GDP improvements don’t always equate to freight growth because reduced imports and higher inventories, both positives for the broad economy, lower transport
demand.

“The health of the freight market is a solid indicator of the direction the economy is moving,” Wilson said at the unveiling to the annual report in Washington. “All indications are that freight
will grow moderately for the rest of the year and the economy should follow suit.”

That would be a welcome change from an erratic 2013. Monthly freight traffic hit five three-year lows last year, but freight payment reached three-year highs for eight of the 12 months. Even though volume rose, pricing, particularly in the trucking industry, remained mostly flat. A lack of needed pricing gains, coupled with rising costs for drivers, equipment and maintenance, pushed the number of trucking company bankruptcies to a three-year high, Wilson said, citing research from Donald Broughton, chief market analyst at Avondale Partners.

Very moderate U.S. economic growth didn’t help, either. The economy only expanded 1.9 percent last year, compared with 2.8 percent in 2012, Wilson said. Logistics costs for U.S. companies increased 2.3 percent in 2013, a sharp deceleration from the 3.4 gain seen in
2012. U.S. logistic costs in relation to nominal GDP fell 8.2 percent from 8.5 percent, as the freight logistics sector grew slightly slower than the broader economy.

Lower volumes and transportation spending pulled down the share of logistics cost compared to total economic output, but, “it does seem to be very normal for what the pattern has been
since we’ve come out of the recession,” Wilson said. She said the industry continues to make efficiency improvement in how it moves goods, but there hasn’t been an innovation to create a major improvement.

“We have a decrease in reliability from where we were prior to the recession across all modes, but especially in the ocean mode,” Wilson said. “Those kinds of disruptions are the things we are going to be fixing over the next year or two if freight continues to grow, which I think it’s going to do. Then we will have the ability to start some of the productivity enhancement, and do a better job of” planning.

The anticipated freight growth will exacerbate capacity problems across the network, and chokepoints are already seen on the highways and rails. But tightening capacity will help truckload carriers raise rates 5 percent to 8 percent this  year.

Tightening truck capacity—  fueled most recently by new hours of service rules for drivers — is a major concern for Bayer HealthCare, said John Herzig, vice president of distribution and logistics. The major pharmaceutical shipper is increasingly turning to truckload services
instead of less-than-truckload to handle larger orders of over-the-counter medicines, he said.

Penske, which presents the report, has seen the new HOS rules reduce its capacity across the board by 3 percent, and between 10 to 18 percent for food transport and other verticals, said Mark Althen, Penske Logistics president.

Even though the trucking industry is at near 100 percent utilization, shippers still believe they can hold the line on rates increases, Wilson said. That attitude could quickly change if freight
demand ramps up as she expects.

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