Supply Chain News Bites - Only from SCDigest
 

-April 25, 2007

 
 

Transportation News: Reduced Demand, Added Capacity, Make Life a bit Easier for Shippers

 
 

Housing slowdown helps retailers, manufacturers with freight rates; how long will it last?

 
 

SCDigest Editorial Staff

 
 

There have been numerous signs that after several years of the supply-demand balance being largely in the carriers’ favor, a combination of factors is giving more clout to shippers, and lowering rates. The real question – how long will it last?

For example, in the Q4 2006 Bear Stearns' Shippers survey, approximately 80% of respondents thought there was overcapacity in the truckload market, one of the highest percentages in the history of the survey (see Transportation News: Survey Finds Continued Improvement in Trucking Capacity, Rate Pressure, for Shippers.

The Wall Street Journal found similar trends last week, noting that shippers were benefiting from both reduced overall demand and increased carrier capacity. What’s interesting is that much of the reduced demand is coming from the dramatic slowdown in the housing and some construction markets. As truck and rail carriers move less dry wall and plumbing fixtures, it’s opened capacity for retailers, wholesalers and other manufacturers, pushing rates down.

In addition, carriers finally started adding some additional truck capacity in the last half of 2006, driven in part by the need to comply with new engine emission standards in 2007. Part of the upward pressure on rates in 2004-2006 was an unusual level of restraint by most carriers in terms of adding capacity in the face of strong demand.

One sign of the changing dynamics: truckload carrier JB Hunt announced a 10% drop in profits in the first quarter, citing softer demand.

The Wall Street Journal article quotes Donald Biggs, Director of Customer Logistics at Welch Foods, Inc., as observing the freight market "isn't where it was five or 10 years ago when it dramatically favored shippers. But the pendulum is swinging back slightly in our favor.”

An increasing number of shippers are being aggressive in bidding out freight contracts, much less worried about just finding capacity than they were in past few years.

Other shippers are saying that LTL carriers are being less stringent about surcharges for last minute pick-ups, with capacity more slack.

While the relief is welcome, the important question for shippers is - how long it will last? Several carriers have already announced decreases in existing spending plans for additional capacity.

 
     
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