Despite some promising signs, 2015 not expected to match 2014 in terms of freight performance

The saying “what a difference a year makes” appears to be a decent thesis when gauging how things are going on the economic and supply chain fronts in 2015.

Coming off of 2014, which in many ways is viewed as a banner year for freight, it appears that some tailwinds have firmly kicked in, as 2015 enters its official homestretch, according to Rosalyn Wilson, senior business analyst at Parsons, and author of the Council of Supply Chain Management Professionals (CSCMP) Annual State of Logistics (SOL) Report at last week’s CSCMP Annual Conference in San Diego. The SOL report is sponsored by Penske Logistics.

Looking back at 2014, Wilson explained that the U.S. economy was on very solid ground, with consistent levels of new job creation, income increased, inflation growth was low to moderate, and gas prices tumbled.

“There was a real belief that when gas prices fell, we would see a dramatic increase in the amount of money that consumers were willing to spend in terms of retail sales, but what happened was the savings rate went up instead of consumers spending that money,” said Wilson.

With a slow economic recovery intact over the last five years, Wilson said that freight shipments have been similar over the last five years, although they were down in August, which she said is a departure from what has occurred in the past.

That is due, to an extent, to current shipper inventory levels as they plan for working through the holiday season.

“One major thing we are seeing globally is that new orders are way down from eight-to-ten percent, but order backlog is up,” she said. “And for a lot of companies…I think what we are going to see over the next couple of months is not a lot of tremendous growth for new orders while waiting to see that backlog work its way through the system. That means we may see a slight dip in freight levels with inventory still high. For the rest of the year, I think we will see mostly flat growth, with maybe a little bump because of holiday sales, but we will not see any tremendous growth between now and the end of the year. The end of the year will be similar to how it has been the last three years; I really don’t see any difference.”

For 2015 on a year-to-date basis, Wilson observed how second quarter GDP growth is now estimated to come in at 3.7 percent, adding that the Institute of Supply Management’s key manufacturing index, known as the PMI, has slid in recent months while still showing slow growth. What’s more, she pointed out that the current inventory-to-sales ratio of 1:7 is roughly double where it was compared to a year ago.

And she noted how import levels are increasing, while exports are lagging, due largely to weak economic growth, coupled with the high value of the U.S. dollar relative to other currencies.

“My read on things is that things will be slower as we end the year, but they are still much better when compared to recent years, and despite the fact that there are numerous headwinds that we are going to have to face that are not within our control, like the global markets, we certainly do have control of what we are going to do about our inventory or are considering what to do about our inventory,” she said. “I think we still need to see the kind of sustained growth we had last year and this year before we see an increase in rates, but I do think the increases in costs everyone is facing are going to have an effect on decision-making for rates.”

Even with the expected slowdown towards year-end, Wilson cited positives for various transportation modes in 2015, including:
-trucking tonnage gains at a time when capacity continues to tighten;
-increases in rail carload revenues per ton mile;
-strong performance in domestic intermodal, with over all gains in rail and truckload volumes a good sign