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Freight environment weak but still growing slightly, FTR says

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FTR estimates that the GDP Goods Transport Sector rose at a seasonally adjusted annual rate (SAAR) of just 0.5% in second quarter 2019 from the first quarter of the year. To put this into context, the GDP Good Transport Sector grew 3.2% in 2018 and 5.7% in 2017. (The Trucker file photo)

BLOOMINGTON, Ind. — Although initial Gross Domestic Product (GDP) figures for the second quarter of 2019 show economic growth at 2.1%, the components of GDP linked to demand for and transportation of goods was far weaker, according to an analysis by FTR Transportation Intelligence.

FTR estimates that the GDP Goods Transport Sector rose at a seasonally adjusted annual rate (SAAR) of just 0.5% in second quarter 2019 from the first quarter of the year. To put this into context, the GDP Good Transport Sector grew 3.2% in 2018 and 5.7% in 2017.

“It’s a slow growth environment now, but it feels worse than that because the freight markets were so extraordinarily hot in 2018,” said Eric Starks, FTR’s chairman and CEO. “However, while freight volumes are holding up as of now, most of the risks seem to be on the downside, especially with tariffs and the overall trade climate. We’re getting mixed signals on manufacturing at the same time that construction is weak. Consumer spending remains strong, although we’re finally starting to see a slight deceleration in job growth. Also, Midwest flooding earlier this year likely will hurt grain volumes. After a couple of years of constant pressure on the transportation system we’re just in a more volatile and dynamic environment that requires shippers, carriers and intermediaries to be especially vigilant.”

GDP figures released by the Bureau of Economic Analysis (BEA) include economic activity in both goods and services. Also, while exports naturally count positively in the government’s GDP calculation, imports are counted negatively. For example, the surge in imports of Chinese goods in anticipation of a January 1, 2019, tariff increase was a significant reason why GDP in 2018Q4 was just 1.1%. This accounting is logical for the entire U.S. economy, but the transportation sector obviously benefits from import activity as well as exports. Although GDP for the Goods Transport Sector was not strong in the fourth quarter of last year, it did outpace overall GDP, rising 1.8%.

Data for the second quarter did bring some encouraging news for the freight demand outlook. It may seem counter-intuitive, but the inventory decline seen during Q2 has potential benefits down the road. Inventories count positively in the GDP calculation, but they tend to depress future freight volumes. When we exclude the impact of inventories, GDP for the Goods Transport Sector in 2019Q2 rose at an SAAR of 2.0% over the first quarter, significantly better than the overall results indicate. Growth of 2% in GDP for the Goods Transport Sector is typically seen as the minimum level needed to keep the freight markets stable.

 

 

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One sure way to increase profits is understanding in and outs of fuel surcharge

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Every truck owner, whether operating under their own authority or leased to a carrier as an independent contractor, should be aware of the exact amount of the surcharge for each load. (The Trucker file photo)

For many truck owners, independence means freedom. When you own your own tractor, you can go for the bigger engine. The dual exhaust. The long hood and the fancy chrome bumper.

Truck owners have more freedom in how they choose to drive, too. Company idle standards don’t apply, and in many cases, neither do company speed limits.

One advantage those carriers have with their plain vanilla tractors is that they can maximize fuel efficiency. That’s something that savvy truck owners should be thinking about, too.

There are a lot of reasons why saving fuel is important to a small trucking business, but one you may not have thought about is maximizing fuel surcharge payments. Many drivers look at fuel surcharges as another line on their settlements without realizing that the payment can help them reduce their out-of-pocket per-gallon fuel cost.

Every truck owner, whether operating under their own authority or leased to a carrier as an independent contractor, should be aware of the exact amount of the surcharge for each load. Many carriers accomplish this with a surcharge chart that allows each owner to determine the surcharge payment for each mile. These are usually based on average diesel fuel prices published each Monday by the U.S. Energy Information Administration (eia.gov/petroleum/gasdiesel/). As fuel prices rise and fall, so do fuel surcharges.

It’s important to understand that carriers and shippers calculate fuel surcharges based on an average miles per gallon (mpg) figure. In simple terms, if the fuel surcharge is based on a fleet average of 7 mpg but your truck achieves more than the average, you’re generating additional revenue for your business. That’s because the surcharge amount is calculated based on trip miles – it doesn’t change based on your truck’s fuel consumption.

When fuel prices are high and surcharges are at a peak, it’s possible to cut your out-of-pocket fuel cost in half, or even lower.

Consider a 1,000-mile trip. If your truck achieves 7 mpg, you’ll burn 143 gallons of fuel. If the price of diesel fuel is $2.55, your fuel cost for that trip, at 7 mpg, would be $364.65. If you receive a fuel surcharge of $0.15 per mile, you’ll get $150.00 in fuel surcharge for that trip, reducing your fuel cost to $214.65.

But, if your tractor achieves 9 mpg, you will only consume 111 gallons of fuel for the dispatch. At $2.55 per gallon, your initial cost would be $283.05, a savings of $81.35 from our example above. Subtract the $150 total fuel surcharge from $283.05 and you’ll get $133.05. That’s your final cost for the 111 gallons of fuel you burned on the 1,000-mile trip. That’s a fuel price of less than $1.20 per gallon. The secret to making fuel surcharges pay is getting better fuel mileage than the fleet average used to calculate the surcharge..

If you can increase your fuel efficiency, you’ll burn less fuel AND you’ll pay less for the fuel you burn. The higher the price of fuel, the greater the potential savings to the owner-operator. In fact, when fuel prices are highest, it’s possible to realize a final fuel cost of ZERO.

Taking full advantage of surcharges, however, means adopting many of the practices of the larger carriers. Reducing speed and keeping idle time to a minimum can have a huge impact on fuel mileage. Out of route miles don’t generate revenue and they don’t generate fuel surcharge income, either. The most efficient route is usually the best one. Trucks with sloped hoods, wind fairings, low-profile tires and aftermarket aero treatments like flow-through mud flaps and hub caps will generally get better mileage.

If you lease equipment to a carrier and you’ll be pulling their trailers, ask how the trailers are equipped for aerodynamics. Trailers that aren’t equipped with side skirts, undercarriage “scoops” or collapsible “tails” will require more fuel to pull, at your expense.

When leasing to a carrier or signing an agreement with a customer, be sure you understand how the fuel surcharge is calculated, what it’s based on and when you’ll be paid. Unfortunately, some carriers can be very ambiguous about how the fuel surcharge is paid, so be careful about leasing equipment to a carrier who can’t clearly explain the surcharge.

The fuel surcharge was developed to help carriers and shippers cope with fluctuating fuel prices. By understanding how it works and making it work to your advantage, you can add revenue to your bottom line.

 

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Winding down the year by talking about value of safety in trucking industry

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Every driver wants to avoid accidents. Many are trained in various programs of defensive driving, but the true professionals want to make the roads safer for everyone – even the bad drivers everyone encounters. (FOTOSEARCH)

Find the comment section of any news article about a traffic accident involving a truck and a smaller vehicle and you’ll discover it is filled with input from those determined to defend the honor of trucking and truck drivers. Someone will surely raise the point that 70% of the time (or 75% or 78.3%) the automobile driver is at fault. Another will claim that drivers of 4-wheelers frequently make hazardous maneuvers that truck drivers (and trucks) can’t react to in time. Undoubtedly, somebody will repeat the adage that none of us would have much if it wasn’t for trucks. Most of the comments will be true or at least have elements of truth in them. None of them will do anything to make the highways safer for a single person.

So, as we’ve done in past Decembers in the pages of The Trucker, we’re going to wind down the year discussing your value of safety.

When there’s a loss of life or a serious injury resulting from an accident, some people will get wrapped up in determining who was at fault. Once fault is established, then it’s time to decide on costs.

Somebody pays for hospital bills, ambulance rides, vehicle repairs and sometimes repairs to roads and bridges. Values will be placed on missed time at work, missing limbs and even on lives lost. Somebody pays; it’s just a matter of who pays and how much.

SAFETY SERIES

If you make your living behind the wheel of a truck, there’s only one question that matters: How can we prevent accidents from happening? When a life is lost in a traffic accident, does it really matter whose fault it was?

Every driver wants to avoid accidents. Many are trained in various programs of defensive driving, but the true professionals want to make the roads safer for everyone – even the bad drivers everyone encounters.

That’s why every driver’s value of safety is so important. A person’s values are the standards of behavior or principles that he or she holds. Our values are deeply rooted, often formed in our youth, and shaped by family, friends, religious beliefs and other factors. Values determine what is most important in our lives and in many cases who we are. Values don’t change easily, and some don’t change at all.

Priorities are something else entirely. They can change, depending on need and circumstance. When you’re hungry, for example, finding a restaurant might be a priority. An hour later, something else is on the top of the priority list.

That’s why making safety a “priority” isn’t good enough. Our driving decisions must be based on our values.

When safety is only a priority, we check the phone to see who the text message is from before we decide if it’s important or it can wait. When safety is a value, on the other hand, we don’t read text messages while driving, period. A safety priority says we’ll drive at the speed limit unless the load is in danger of being late. If that’s the case, we’ll drive faster and cut corners to make up the time. A safety value means we’ll choose safety over timeliness. A safety priority says we’ll go a little long on driving hours because we’re almost home. A safety value means nothing trumps getting home safely, even if we need a break to do so.

So, as the Christmas season creeps closer, take a moment to examine your attitude towards safety. Is it a value for you? Do you take pride in knowing that you not only avoid accidents, but you help prevent them by considering the impact your driving decisions have on other motorists? Here are some simple things that have a great impact on the probability you’ll be involved in a crash:

Speed does kill: Slowing down gives you more time to react to hazards.

Following distance: Over time, it’s easy to become complacent about following distance, inching closer and closer to the vehicle ahead. It’s a good idea to test yourself, counting off the seconds it takes for the nose of your vehicle to reach a point the vehicle in front has already passed. If you don’t have five to six seconds of following distance, you’re living on borrowed time. Sooner or later, you will be involved in a rear-end collision with the vehicle in front.

Driving decisions: Very often, a driving decision isn’t as simple as “safe” versus “unsafe.” By considering the risks involved with each available option, you can make the choice providing the maximum benefit with the smallest amount of risk for everyone. Left turns are a great example. It’s easy to assume an oncoming driver will see your vehicle turning across their traffic lane and slow down before colliding. What if they don’t?

Remain in control: In the left turn example, you can’t be sure what will happen if you put your faith in other drivers reacting as you might expect. You can remain in control by NOT making the turn in front of them. Absolutely, it may mean waiting longer for a bigger traffic gap, but it also means you’ll never have to say, “I thought they would stop…”

As the year winds down, take some time to think about your value of safety and how it can apply to traffic situations. Remember that other drivers may not have your skillset—or your values. Your driving decisions should help protect them as well as yourself.

After all, we all have a better Christmas when we make it home.

 

 

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New Class 8 truck sales drop to lowest point since February 2018

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A Kenworth W990 transported the Capitol Christmas tree to Washington. Kenworth had the largest increase in month-over-month sales. (Courtesy: JAMES EDWARD MILLS)

November sales of new Class 8 trucks dropped to the lowest point since February 2018, according to information received from Wards Data. According to Wards, manufacturers reported sales of 18,545 new trucks, a decline of 19.4% from October sales of 23,001. It was the second consecutive month of double-digit decline in sales as October sales were 18.6% under September numbers.

On a year-to-year basis, sales declined 12.9% from November 2018 sales of 21,302 trucks.

The declines are in line with the “substantial correction” in the 2020 market predicted in Transportation Digest, published by ACT Research in late November.

For months, orders for new Class 8 trucks have lagged far behind sales as OEMs continued to reduce their build backlogs. Stagnant freight rates, the potential for recession and uncertainty over trade disputes with China and other international partners have resulted in some trepidation among potential buyers.

Year-to-date sales of 253,266 have already eclipsed 2018 sales of 250,627 for the entire year. December sales will push the annual total higher and 2019 is already the second-best sales year of the century-to-date. It’s doubtful the total will reach the high-water mark of 284,008, established in 2006, given the current downward trend.

Of the individual OEMs, only Kenworth, Peterbilt and Western Star saw sales increases in November compared to October numbers. International sales dropped a whopping 72.4%, primarily due to fluctuations caused by delivery dates. October Class 8 sales were unusually high, followed by a lower than normal November. Volvo sales declined as well, dropping 32.0% from October and likely for the same reason. Mack sales dropped a more reasonable 3.2%

It will be interesting to see if December is, as is typical, one of the best sales months of the year or a continuation of the decline.

 

 

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