It’s a shipper’s market

It’s a shipper’s market

A new report by Ariba North America, a spend management solution company, speculates that because of the day-to-day survival mode of many carriers, the market remains “shipper friendly.” As a result, shippers should, and will, “continue to look to the carriers that can maintain high levels of customer service and grow their relationship, while carriers must continue to examine their cost model to ensure their sustainability,” the report, written by Rachel Rutkoski, said

A new report by Ariba North America, a spend management solution company, speculates that because of the day-to-day survival mode of many carriers, the market remains “shipper friendly.” As a result, shippers should, and will, “continue to look to the carriers that can maintain high levels of customer service and grow their relationship, while carriers must continue to examine their cost model to ensure their sustainability,” the report, written by Rachel Rutkoski, said.

Rutkoski is a senior category manager, transportation and logistics, Ariba North America. In her report, she noted that “activities that typically reflect the health of the transportation industry continue to show that we are moving in the right direction.”

Among the many positive signs is the rail industry. Intermodal container volume was up 3.6% year-over-year, the report noted.

“The railroads are an excellent barometer for the health of the U.S., economy,” the report said, “and are in position to rebound faster than other modes since rail transports goods for a wide variety of industries. Shippers should keep an eye on activity in this industry, particularly since it serves as an effective leading indicator for the health of the U.S. economy and overall transportation industry.”

The report also noted that Warren Buffett’s investment in Burlington Northern Santa Fe signals market confidence “that the rail industry’s financial health is stronger than other modes of transportation.”

Another sign of positive turnaround is a report by Cortera. The community-driven business credit bureau released its January 2010 Supply Chain Index (SCI) report, a monthly index of accounts receivable activities covering manufacturers, distributors and wholesalers, retailers, services and transportation companies.

The January report indicates a 9.05 days beyond term (DBT) rate, a 9.95% increase over the December report. What that means is that businesses’ rate of payment is improving, leading to increased confidence that businesses are on the path to recovery.

“If history is a guide, we’re about to see a steady, multi-month improvement in payments, cash flow and debt reduction throughout the supply chain,” said Jim Swift, president & CEO. “For stakeholders, quick, reliable payments remain the best way to fuel continued growth through the entire supply chain.”

The Cortera SCI tracks late payments against agreed upon terms, measuring late accounts receivable (late A/R), excessively late accounts receivable (late A/R greater than 30 days), and overall average days beyond terms (average DBT). A two year view of this data is available on Cortera’s web site. The Cortera SCI report is published monthly.

According to Ariba, low pricing continues to plague the less-than-truckload (LTL) segment, although some improvement is expected. With year-over-year tonnage down 23.2% and shipments off 22.4%, Ariba believes growth is expected to remain flat to 2% in 2010.

“The LTL industry continues to operate in a state of flux, with many waiting to see which carriers will survive the downturn in the freight market,” the report said. “Analysts feel that the industry currently is over capacity approximately 25%; however that number will drastically change if YRC files for bankruptcy.”

In fact, the report notes that there is speculation that the low rates the segment is experiencing could be due in part to YRC competitors artificially keeping rates low.

“Some speculate that the low rates are a potential competitive pricing strategy by other carriers to test YRC’s financial sustainability,” the report said. “The other challenge to LTL pricing is competition from other modes. As truckload rates remain depressed, some shippers are seeing additional price benefits by optimizing modes and shifting freight from LTL to truckload.

In the truckload segment, signs of recovery are appearing. Despite that, the report noted, changes in capacity are not expected until the end of the third quarter at the earliest.

“Carriers can take two different approaches in tightening up capacity,” Ariba said. “Some are taking a strategic look at their fleet and either removing equipment or choosing not to replace aging vehicles, while other carriers are becoming aggressive in their pricing in order to secure freight and utilize capacity. Regardless of what strategy is being employed, noticeable changes in capacity are not expected until at least the end of the third quarter of this year, and shippers should continue to benefit in the meantime.”

The report concluded that as the industry continues to change, opportunity remains for buyers.

“Buyers are advised to continue to monitor the market closely and maintain a number of active carrier relationships to mitigate any market fallout from financially troubled providers,” the report said.

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