THE ROAD AHEAD shippers and brokers see the next six ......increase in rates, driven by slightly higher volumes. The majority of respondents, 52 percent, believe freight volumes will

THE ROAD AHEAD

How North American shippers and brokers see the next six months

November 2016

Produced by

THE ROAD AHEAD: How North American shippers and brokers see the next six months

www.joc.com | www.nasstrac.org | www.truckstop.com

© Copyright IHSMarkit 2016 ii

WHITEPAPER, NOVEMBER 2016

TABLE OF CONTENTS

I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . 1

II. Executive Summary . . . . . . . . . . . . . . . . . . . 2

III. Who Did We Survey? . . . . . . . . . . . . . . . . . . . 4

IV. Freight Volumes: Looking Up (from the Bottom) . . . . 6

V. Rates: A Soft Rebound, for Some . . . . . . . . . . . . 8

VI. Transportation Budgets: Spending to Rise . . . . . . . 11

VII. Truck Capacity: No Crunch in Sight . . . . . . . . . . .12

VIII. Inventories: Drawn-out Destocking . . . . . . . . . .16

IX. Truckload Spot Market: Volumes to Increase Slightly .17

X. Specialized Services: Dedicated to Dedicated . . . . . .18

About The Journal of Commerce and JOC.com . . . . . .19

About Nasstrac . . . . . . . . . . . . . . . . . . . . . . . .20

About Truckstop.com . . . . . . . . . . . . . . . . . . . . .20

TOP TAKEAWAYS

l Shippers expect freight volumes to rise slightly in the next six months

l Freight rates, except for truckload pricing, are largely expected to be flat

l More shippers think intermodal rates will fall than believe they will rise

l No truckload capacity crunch is anticipated through the first half of 2017

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© Copyright IHSMarkit 2016 iii


TABLE OF FIGURES

Exhibit 1. Percentage of Survey Respondents by Revenue .......................... 4

Exhibit 2. Shippers Surveyed by Type ............................................................ 5

Exhibit 3. Do you feel your transportation spend influences rates

and capacity availability? ................................................................................ 5

Exhibit 4. Expected Change in Freight Volumes ............................................ 6

Exhibit 5. Will Freight Volumes Rise, Fall or Stay Flat Over the

Next Six Months? ............................................................................................ 7

Exhibit 6. Truckload Rates ............................................................................... 8

Exhibit 7. Expectations for Rail Intermodal, Carload Rates ........................ 9

Exhibit 8. Expectations for Ground Parcel Rates ....................................... 10

Exhibit 9. Expectations for Transportation Budgets/Spending ...................11

Exhibit 10. How Would You Characterize Current Truckload Capacity? ...... 12

Exhibit 11. JOC Truckload Capacity Index ..................................................... 13

Exhibit 12. Expectations for Truckload Capacity: Next Six Months............ 14

Exhibit 13. How Shippers See Current Capacity ......................................... 14

Exhibit 14. Expectations for LTL Capacity: Next Six Months ..................... 15

Exhibit 15. Inventory to Sales Ratio. ............................................................ 16

Exhibit 16. What are your current inventory levels compared

with this time last year? ............................................................................... 17

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© Copyright IHSMarkit 2016 1


I. INTRODUCTION

The outlook for the domestic US shipping environment is at best opaque, if not downright muddy, as 2016 draws to a close. Shipper expectations are measured and tamped down at the lowest point yet in the seven-year US economic recovery from the Great Recession.

In late September, the first joint Shipper Survey by The Journal of Commerce/IHS Maritime & Trade, NASSTRAC and Truckstop.com took the pulse of a domestic transportation market at an ebb point, asking shippers and freight brokers about their expectations for the next six months and year ahead.

Nearly 120 businesses, including manufacturers, retailers, wholesalers that ship freight and brokers that arrange transportation, responded to a range of questions relating to trends in freight volumes, pricing and services. Their answers reveal that businesses moving freight within the US expect change in 2017, perhaps most importantly by suggesting that pricing in most transportation modes will flatten, rather than fall further, and even increase tentatively for some modes as the US economy slowly emerges from its latest soft patch and as freight volumes rise.

The answers reveal that businesses moving freight within the US expect change in 2017

http://www.joc.com/







II. EXECUTIVE SUMMARY

The JOC-NASSTRAC-Truckstop.com Shipper Survey indicates the days when shippers could double down on discounts and demand deep price breaks may be drawing to a close. That doesn’t necessarily mean rates will increase rapidly or much at all, but the shippers surveyed apparently expect pricing, volumes and the economy to get a bit of a bounce in 2017.

At the same time, shippers have no expectation of a capacity crunch in the truckload sector and don’t appear to believe capacity will tighten considerably in advance of a federal electronic logging mandate for all interstate truck drivers scheduled to take effect next December1.

In 2016, shippers gained the type of pricing power2 in most US transportation modes they typically command only in times of economic recession, with rates tumbling on land and sea. Logistics managers purchasing transportation services from truckload carriers and intermodal operators began to enjoy the type of negotiating advantage their counterparts buying space from ocean container lines and non-vessel-operating common carriers have leveraged in recent years.

Several contributing factors gave manufacturing and retail organizations that price-negotiating muscle and delivered substantial transportation savings. High US inventories that depressed replenishment and freight demand often receive top credit, along with the decision by transportation providers, particularly truckload motor carriers, to increase capacity by ordering tens of thousands of new trucks when freight demand surged in 2014 and early 2015.

Data from IHS Automotive shows new heavy-truck registrations in the US increased 12.9 percent year-over-year in 2015, reaching a monthly peak of 23,746 that June, as trucking operators replaced older vehicles and expanded fleets to pursue business that later didn’t materialize. Since last December, IHS Automotive, a sister organization of The Journal of Commerce within IHS Markit, has tracked a steep decline in monthly truck registrations.

The convergence of unexpectedly low demand amid slower economic growth and the addition of truck capacity, coupled with a dramatic drop in fuel prices and carrier fuel surcharges, resulted in a significant decline in over-the-road truck and intermodal rail pricing and revenue.

According to the Cass Truckload Linehaul Index, truckload rates dropped year-over-year for at least seven consecutive months in 2016, from March through September, the longest such decline since 2009-20103. Cass truckload rates over that period dropped an average 2 percent year-over-year, though shippers reportedly asked individual carriers for much deeper cuts.

1. “Electronic logbook mandate could drive supply chain gains,” JOC.com, Aug. 27, 2015, by William B. Cassidy. 2. “Wielding pricing power, US shippers push for lower truckload rates,” JOC.com, Oct. 5, 2016, by William B. Cassidy. 3. “US truck tonnage, truckload rates take a tumble,” JOC.com, Oct. 18, 2016, by William B. Cassidy.

Truckload rates dropped year-over-year for at least seven consecutive months in 2016, from March through September, the longest such decline since 2009-2010

http://www.joc.com/







Intermodal pricing turned negative on an annualized basis much earlier, starting in January 2015, according to the Cass Intermodal Pricing Index. Over the 21 months between the first month of 2015 and September 2016, intermodal rates on average dropped 2.3 percent per month year-over-year, depressed by lower truckload pricing and falling fuel surcharges.

Change is in the air, and on the highways, however. The results of the JOC-NASSTRAC-Truckstop.com US Shipper Survey indicate shippers don’t expect surface transportation prices to continue their freefall. Shippers and carriers may have hit the bottom of the pricing trough in this year’s third quarter, as uncertainty built up in advance of the US presidential election, but transportation buyers told The Journal of Commerce and its partners they anticipate a gradual and slight increase in rates, driven by slightly higher volumes.

The majority of respondents, 52 percent, believe freight volumes will increase, though not by leaps and bounds. About a quarter of those respondents expect an increase of 5 percent or less through the second quarter of 2017. Roughly another quarter expect volumes to drop.

The results support conclusions that the current economic expansion still has a pulse, albeit a weak one. The survey also suggests shippers don’t see current excess capacity in trucking as a particularly deep, or lasting, phenomenon. Several quarters of US economic growth short of 2 percent helped mask the fact that truckload capacity is still 13 to 14 percent below peak pre-recession levels in late 2006, as shown by the JOC Truckload Capacity Index.

IHS Markit predicts US real gross domestic product will expand 1.9 percent in 2016 and 2.4 percent in 2017, as the economy expands after the election and inventories contract. That’s likely to move truckload capacity, now considered adequate by most shippers responding to the survey, back toward a rough equilibrium as freight slowly fills more trailers. More aggressive forecasts call for capacity to tighten, thanks to regulatory pressure, by the end of 2017.

The results support conclusions that the current economic expansion still has a pulse, albeit a weak one.

http://www.joc.com/







III. WHO DID WE SURVEY?

Exhibit 1. Percentage of Survey Respondents by Revenue More than half of the companies surveyed, 54.7 percent, had less than $50 million in annual revenue, while 39.8 percent had more than $100 million in annual revenue.

Percentage of Survey Respondents by Revenue More than half of the companies surveyed, 54.7 percent, had less than $50 million in annual revenue, while 39.8 percent had more than $100 million in annual revenue.

Source: JOC/NASSTRAC/Truckstop.com0% 5% 10% 15% 20% 25% 30% 35% 40%

Over $100 Million

$50 Million to $100 Million



$500,001 to $1 Million

$100,001 to $500,000

Under $100,000

Our survey was sent to more than 14,000 US businesses purchasing domestic surface transportation services, including shippers and truck freight brokers. The businesses included readers of The Journal of Commerce, customers of Truckstop.com and members of NASSTRAC, a US shippers association. A clear majority of respondents, 62.6 percent, identify as shippers, with 37.4 percent identifying as freight brokers or third-party intermediaries.

The companies range in size from small to large, with the biggest number of respondents, 39.8 percent, claiming more than $100 million in annual revenue. An almost identical number, 38.9 percent, had $1 million to $50 million in annual revenue, with 20.4 percent of respondents falling in the $1 million to $10 million category. A surprisingly large group, 15.8 percent, were small businesses with less than $1 million in annual revenue.

A majority of the shippers, 53.3 percent, were manufacturers, while only 9.3 percent were retailers and 15.9 percent identified themselves as wholesalers. The predominance of manufacturing companies shipping business-to-business goods among the respondents most likely weighted the responses to certain questions, such as whether they used or planned to increase the use of same-day delivery services, a trend driven by retail e-commerce consumer sales.

A clear majority of respondents, 62.6 percent, identify as shippers.

http://www.joc.com/







Exhibit 2. Shippers Surveyed by Type

Shippers Surveyed by Type

Source: JOC/NASSTRAC/Truckstop.com

Manufacturer 53.3%

Other 21.5%

Wholesalers 15.9%

Retailer 9.3%

A slight majority of the respondents, 53.2 percent, believe the amount they spend annually on transportation influences rates and the availability of capacity, with 21.1 percent saying they believe their transportation spend strongly influences rates and capacity. However, a large group, 22 percent of respondents, believe their spending level has little influence on rates or capacity and 9.2 percent said they had no influence. This almost certainly reflects the inclusion of a broad range of companies, large, small and mid-sized in terms of revenue, in the survey.

Exhibit 3. Do you feel your transportation spend influences rates and capacity availability?Do you feel your transportation spend influences rates and capacity availability?


Some Influence 9.2%

Little Influence 15.6%

Strong Influence 21.1%

Neutral 22.0%

No Influence 32.1%

The shippers included in the survey utilize multiple modes of transportation, but full truckload dominates, with 43.8 percent of respondents saying they ship 51 to 90 percent of their freight with truckload carriers. No other mode came close in that 51-90 percent segment.

The shippers included in the survey utilize multiple modes of transportation, but full truckload dominates.

http://www.joc.com/







The survey results for the 11-to-49 percent segment reveal the diverse nature of the respondents’ supply chains and where they allocate transportation spending. Twenty-two percent use truckload to move 11 to 49 percent of their freight; 36.7 percent, less-than-truckload or LTL; 16.7 percent, parcel; 9.8 percent air freight; and 31.5 percent, ocean carrier. That spread underscores the diverse transportation needs of companies moving US imports through inland distribution networks. High numbers of respondents, 89 and 73.8 percent, respectively, said they use parcel and air carriers less than 10 percent of the time. That’s likely a reflection of the strong manufacturing presence among the respondents.

IV. FREIGHT VOLUMES: LOOKING UP (FROM THE BOTTOM)

Exhibit 4. Expected Change in Freight Volumes Expected Change in Freight Volumes


0% 5% 10% 15% 20% 25% 30%Up more than 10%

Up 5-10%

Up less than 5%

Flat

Down less than 5%

Down 5-10%

Down more than 10%

Shippers are hoping for higher freight demand and volumes, but they’re not betting the holiday season will provide much lift before the retrenchment typical of the first quarter sets in.

A bare majority of survey respondents, 52.3 percent, expect their overall freight volumes to increase in the six months ending next March, but they don’t expect volumes to rise by much. A quarter of the respondents, 25.7 percent, forecast an increase of less than 5 percent, while 19 percent expect a 5 to 10 percent increase. In contrast, 30.4 percent thought volumes would remain flat or decrease less than 5 percent, with 11.4 percent opting for the decrease.

Altogether, 28.5 percent of the respondents expect freight shipments to decline, with 9.5 percent bracing for a drop of more than 10 percent. The largest grouping, however, is in the middle: 56.1 percent expect volumes to go up or down in a 5 percent range, or stay flat.

The responses became more diverse and complex when shippers and brokers were asked about freight volume trends by mode. Clear majorities thought LTL, intermodal rail, rail carload, and domestic ground package volumes would be flat in the six months

Shippers are hoping for higher freight demand and volumes.

http://www.joc.com/







ending next March (In descending order, 73 percent for rail carload, 59.4 percent for intermodal, 55.6 percent for ground parcel, and 52.6 percent for LTL.).

More respondents, however, believe their truckload volumes will rise, 43.5 percent, than expect truckload shipping to stay flat, 34.1 percent, or to fall, 22.4 percent. The shippers and brokers in the survey appear to see a stronger revival for the truckload sector, perhaps as cargo owners draw down inventories.

More respondents expect volumes for the other modes will rise rather than fall. For LTL trucking, the rise or fall percentages are 31.6 and 15.8. For intermodal rail, 32.8 percent think volumes will rise, with only 7.8 percent expecting a decline. Rail carload shippers were divided evenly, with 13.5 percent on either side, and 33.3 percent of the respondents thought domestic ground parcel volumes would rise, and 11.1 percent that their parcel shipping volumes would fall. The results may indicate shippers are looking for more opportunities to cut costs by consolidating smaller shipments.

Exhibit 5. Will Freight Volumes Rise, Fall or Stay Flat Over the Next Six Months? Will Freight Volumes Rise, Fall or Stay Flat Over the Next Six Months?


0%

20%

40%

60%

80%

Domestic Ground Parcel

Rail Carload

Intermodal railLTLTruckload

■ Fall ■ Stay Flat ■ Rise

More respondentsbelieve their truckload volumes will rise.

http://www.joc.com/







V. RATES: A SOFT REBOUND, FOR SOME

Exhibit 6. Truckload Rates Truckload Rates


0 5 10 15 20 25 30 35 40Up more than 10%

Up 5-10%

Up less than 5%

Flat

Down less than 5%

Down 5-10%

Down more than 10%

1. TRUCKLOAD & LTLAs freight volumes are expected to increase incrementally, the respondents expect

transportation pricing to creep up over the next six months as well, although again, not

by much. When it comes to trucking, a plurality of the shippers and brokers surveyed,

39 percent, think truckload rates will rise, compared with 36 percent that expect

truckload rates to remain flat through March. A quarter of the respondents believe

truckload rates will fall.

An increase in truckload rates would reverse the pricing trends of 2015 and 2016.

Monthly rate increases slowed in the first year and rates then dropped year-over-year

in much of 2016.

As with volumes, the largest number of the respondents — 25 percent — anticipate a

moderate increase in truckload rates, less than 5 percent, with 13.1 percent bracing for

a 5 to 10 percent price hike. Only 1.2 percent thought truckload rates might rise more

rapidly. Of those anticipating a decline, 11.9 percent expect truckload pricing to drop

less than 5 percent, 7.1 percent said rates will fall 5 to 10 percent, and 6 percent said

more than 10 percent.

That indicates a small, yet significant, number of shippers expects to reduce rates

even further during annual contract negotiations with truckload carriers in early 2017,

perhaps planning to compensate in advance for potential increases in late 2017 and

2018, when the electronic logging mandate is expected to reduce truckload capacity.

Any such plans may depend on whether or to what extent freight demand increases in

the fourth quarter.

The respondents are equally divided on whether LTL rates will rise or stay flat, with 43

percent choosing either of those options and only 14 percent expecting lower LTL pricing.

The largest number of the respondents — 25 percent — anticipate a moderate increase in truckload rates.

http://www.joc.com/







Unlike their truckload counterparts, LTL carriers were able to prevent a pricing freefall

in the first half of 2016, maintaining rate and yield levels and continuing to press rate

increases. The pricing discipline LTL carriers gained since the 2008-2009 recession

and LTL price war appears to be holding despite widespread decline in LTL volume,

tonnage and revenue in 2016.

The vast majority of the shippers and brokers that expect LTL rates to rise in the next six

months, 63.6 percent, anticipate price hikes of less than 5 percent. Those respondents

account for 25 percent of the total survey audience. Most LTL carriers plan general tariff

rate hikes of 4.9 percent, and they continue to push for rate increases in contract renewal

talks with shippers. While there’s no reason to expect a reversal of LTL pricing trends,

there’s little reason to expect a surge in volumes or rates as long as LTL market conditions

remain stable. The LTL industry, which has total annual revenue of about $32 billion,

according to SJ Consulting Group data, is much more consolidated than other sectors of

trucking, with the 25 largest carriers accounting for 91.5 percent of all LTL revenue in 2015.

2. INTERMODAL RAIL & RAIL CARLOAD

Exhibit 7. Expectations for Rail Intermodal, Carload Rates Expectations for Rail Intermodal, Carload Rates


0 10% 20% 30% 40% 50% 60% 70% 80%Up more than 10%

Up 5-10%

Up less than 5%

Flat

Down less than 5%

Down 5-10%

Down more than 10%■ Intermodal Rail■ Rail Carload

Intermodal and truck pricing have declined this year, as intermodal operators hit by

weak demand also lower rates to compete with trucking companies. But shippers and

brokers don’t expect intermodal rail pricing to rise alongside truckload pricing. In fact,

more survey respondents — 28 percent — think intermodal rates will fall than believe

they will rise, 22 percent. Intermodal rail is the only mode the survey tracks in which

more respondents expect rates to fall than rise. Half of the respondents said intermodal

rates would remain flat through March.

Keeping rates flat, at least, might benefit intermodal operators if truckload rates begin

to rise in the next few months, as the shippers and brokers surveyed anticipate.

Keeping intermodal rates low could help jumpstart highway-to-rail conversions that

stalled in the past year.

The vast majority of the shippers and brokers that expect LTL rates to rise in the next six months.

http://www.joc.com/







Industry analysts say they don’t expect to see a rebound in intermodal demand until

the latter half of 2017, even as late as 2018, beyond the scope of this survey. Meanwhile,

the impact of lower intermodal rates was clear in third-quarter earnings reports from

Class I railroads.

Canadian Pacific Railway’s domestic intermodal volume rose 8 percent year-over-year,

but revenue dropped 2 percent. Kansas City Southern Railway’s intermodal volume

declined 5 percent and related revenue dropped 7 percent. CSX Transportation’s

intermodal volume was down 7 percent year-over-year in the quarter, as revenue from

the segment fell 6 percent.

Union Pacific Railroad intermodal revenue declined 9 percent year-over-year in the

third quarter, to $975 million, on a 7 percent decline in total intermodal volume and a

2 percent decline in average revenue per car. All the revenue figures point to a drop in

intermodal pricing.

The vast majority of shippers surveyed, 72.7 percent, expect no change in rail carload

pricing, with only 16 percent expecting rail rates to rise and 11 percent expecting lower

rates. In a third-quarter earnings call, CSX officials said they were taking carload prices

down for commodities such as coal in order to keep the segment viable and “sell

through the trough.”

3. GROUND PARCEL

Exhibit 8. Expectations for Ground Parcel Rates Expectations for Ground Parcel Rates


0% 10% 20% 30% 40% 50%Up more than 10%

Up 5-10%

Up less than 5%

Flat

Down less than 5%

Down 5-10%

Down more than 10%

Despite general rate increases announced by major parcel shippers this fall and

inexorably rising e-commerce demand, slightly more respondents, 50 percent, think

ground parcel rates will remain flat over the next six months than think those rates will

rise, 45 percent. Still, more respondents believe ground parcel rates will rise than rates

for any other mode. Again, a plurality, 42.2 percent, think those price increases will be

something less than 5 percent.

The vast majority of shippers surveyed, 72.7 percent, expect no change in rail carload pricing.

http://www.joc.com/







That left 5 percent of respondents believing ground package rates will drop. Interestingly,

that 5 percent includes 3 percent who believe their ground package rates will drop by more

than 10 percent through the start of the second quarter. That likely has more to do with the

industrial concentration of the survey respondents and changes in those shippers’ parcel

shipping strategies than the actual pricing plans of ground package carriers.

VI. TRANSPORTATION BUDGETS: SPENDING TO RISE

Exhibit 9. Expectations for Transportation Budgets/Spending Expectations for Transportation Budgets/Spending


0% 5% 10% 15% 20% 25% 30% 35%Up more than 10%

Up 5-10%

Up less than 5%

Flat

Down less than 5%

Down 5-10%

Down more than 10%

A majority of shippers, 58 percent, said their transportation budgets will rise over the next year, reinforcing expectations of higher volumes and some increase in transportation rates. Of that subgroup, 54.2 percent expect spending to rise less than 5 percent year-over-year, with 39.6 percent planning for a 5 to 10 percent increase, and 6.2 percent expecting transportation budgets to expand by 10 percent or more. A smaller 3.6 percent segment of the total respondents anticipate year-over-year increases in transportation spending to rise more than 10 percent.

Almost a quarter of all the shippers surveyed said they expect transportation budgets to remain flat with 2016 spending, while 18 percent expect their transportation spend to decrease, whether due to cuts or because they believe they haven’t exhausted potential supply chain savings or rate reductions. Forty percent of the subgroup, and 7.2 percent of the total, believe their transportation budgets will be cut by more than 10 percent year-over-year.

In addition to higher rates and volumes, the reasons respondents cited for expecting higher transport spending in 2017 include:

l Higher oil and fuel costs.

l Higher interest and borrowing costs.

l Higher insurance costs.

l Expansion in existing and new markets.

A majority of shippers, 58 percent, said their transportation budgets will rise over the next year.

http://www.joc.com/







VII. TRUCK CAPACITY: NO CRUNCH IN SIGHT

1. TRUCKLOAD

Exhibit 10. How Would You Characterize Current Truckload Capacity?


0%

20%

40%

60%

80

Tight,Restricted

GettingTighter

RoughEquilibrium

Adequate,Some Excess

Abundant,Loose

How Would You Characterize Current Truckload Capacity?

Available truckload capacity is neither too loose, nor too tight, survey respondents

said, and there’s no capacity crunch in sight, at least through the first half of 2017.

Despite many reports that truckload capacity was abundant, depressing rates

throughout much of 2016, the largest group of shipper respondents, 46.3 percent,

labeled capacity “adequate, with some excess.” Only 8.5 percent said truckload

capacity is “abundant, loose” in late 2016, and 25.6 percent said available capacity was

in a “rough equilibrium” with demand.

Only 17.1 percent of the respondents characterize current truckload capacity as “getting

tighter,” while 2.4 percent see available capacity as “restricted, tight.”

That 72 percent of the respondents see capacity as either “adequate” or in “rough

equilibrium” indicates the excess capacity that built up in 2015 and 2016 as trucking

operators introduced new vehicles and freight demand moderated may not be that deep.

Even during 2016, there have been points when freight brokers saw available capacity

tighten significantly. “The difference between loose capacity and tight capacity seems

like it’s closer than it’s ever been,” the CEO of a large third-party logistics provider said

this summer4, after produce season, the fourth of July holiday and a national roadside

truck inspection program combined to temporarily sap trucks and trailers from the

market, spiking spot rates.

4. “Merger powers Echo Global revenue, volume growth,” JOC.com, July 28, 2016, by William B. Cassidy.

“The difference between loose capacity and tight capacity seems like it’s closer than it’s ever been.”

http://www.joc.com/







Exhibit 11. JOC Truckload Capacity Index

100 = Tractor count in 4Q 2006 Source: Company reports; JOC analyses

78%

82%

86%

90%

94%

1Q2016

1Q2015

1Q2014

1Q2013

1Q2012

1Q2011

1Q2010

1Q2009

JOC Truckload Capacity Index

Available capacity at large truckload carriers, as measured by the JOC Truckload

Capacity Index, has dropped from its third quarter 2015 peak and is now about 13

percent below pre-recession peak levels. In this year’s third quarter, the quarterly JOC

index dropped a full percentage point sequentially to 86.6, its lowest reading since the

first quarter of 2015.

Truckload capacity levels, while still above their 2012-2013 lows, are still substantially

lower than in 2006-2007. Available capacity seems looser because freight demand

hasn’t fully recovered from the 2009 recession, and is lower than in 2014, when the

capacity index level was lower.

The survey respondents, however, don’t expect much change in capacity levels, with

91.5 percent of respondents believing truckload capacity will either tighten moderately

over the next six months or stay the same. Of that clear majority, 52 percent think

capacity will be flat.

The next JOC-NASSTRAC-Truckstop.com survey will capture what shippers and

brokers expect for the second half of 2017. Many shippers as well as logistics providers

and carriers expect more tightening of capacity as the December compliance deadline

for electronic logging approaches. The regulatory mandate’s impact on capacity will

become clearer in 2018.

The survey respondents, however, don’t expect much change in capacity levels.

http://www.joc.com/







Exhibit 12. Expectations for Truckload Capacity: Next Six Months


0%

10%

20%

30%

40%

50%

BecomeMore Available

Stay aboutthe Same

TightenModerately

TightenConsiderably

Expectations for Truckload Capacity: Next Six Months

2. LTL

Exhibit 13. How Shippers See Current Capacity


0%

10%

20%

30%

40%

50%

Restricted,Tight

GettingTighter

RoughEquilibrium

Adequate,Some Excess

Abundant, Loose

How Shippers See Current LTL Capacity

Despite the years-long efforts of the largest LTL companies to reorganize and shrink

their footprints, a surprisingly large group of survey respondents, 20.5 percent, see

LTL capacity as abundant or loose. That’s doubly surprising because most respondents

think LTL pricing will rise or stay flat. The largest group of respondents, 44.9 percent,

see LTL capacity as adequate, with some excess. Only 11.5 percent of shippers said LTL

capacity is getting tighter, and none saw it as restricted or tight at present.

http://www.joc.com/







Therefore, a majority of respondents, 65.4 percent, believe there is some level of

excess capacity in today’s market for palletized LTL freight shipping. That excess

hasn’t been reflected in LTL rates in 2016. Unlike their truckload counterparts, LTL

carriers have largely managed to maintain rates and boost them5 despite lower freight

demand.

LTL capacity typically is measured differently from truckload capacity. Instead of

focusing on tractor counts, LTL operators measure capacity by terminal doors and the

rate by which palletized freight flows through terminals in a hub-and-spoke network, or

throughput.

Excess capacity on the LTL side of trucking more likely reflects lower overall freight

demand and tonnage enabling faster throughput and less congested terminals, rather

than a shortage of physical plant or equipment.

The majority of respondents, 66.7 percent, expect LTL capacity to remain about the

same over the next six months. Another 26.9 percent expect LTL capacity to tighten

moderately, a much smaller percentage than those who expect truckload capacity to

contract. Only 3.8 percent expect LTL capacity to tighten considerably, and only 2.6

percent said LTL capacity will become more available. Expanding existing terminals or

building new ones is a lengthy and costly business.

Exhibit 14. Expectations for LTL Capacity: Next Six Months


0%

20%

40%

60%

80%

BecomeMore Available

Stay aboutthe Same

TightenModerately

TightenConsiderably

Expectations for LTL Capacity: Next Six Months

5 “US LTL trucking firms push for fall rates hikes,” JOC.com, Sep. 13, 2016, by William B. Cassidy

The majority of respondents, 66.7 percent, expect LTL capacity to remain about the same over the next six months.

http://www.joc.com/







VIII. INVENTORIES: DRAWN-OUT DESTOCKING

Exhibit 15. Inventory to Sales Ratio.

Source: U.S. Census Bureau

1.35

1.40

1.45

1.50

1.55

1.60

1.65

201620152014201320122011201020092008

US Retail-Inventory-to-Sales Ratio

Higher-than-expected and higher-than-normal inventory levels have depressed truck demand since mid-2015 by reducing the need and frequency of product replenishment. US retail inventory-to-sales ratios have been above 1.50 for six of the seven months ending in August 2016, the last month for which data was available at the time of this survey. Those are the highest retail inventory-to-sales ratios, a measure of how long it takes to sell goods and complete an inventory turn, since the last months of the recession in early 2009.

An inventory correction or stock drawdown has long been expected but slow to start. Consistent, lower investment in private inventories has cut into the expansion of US real GDP, helping to keep US economic growth below 2 percent for three consecutive quarters through the second quarter of 2016. But inventory levels measured by the US Census Bureau show less change. In terms of dollar value, total US business inventories rose 0.7 percent to $1.8 trillion in August, the US Bureau of Economic Analysis said in October6.

As e-commerce sales increase, distribution channels multiply and the speed with which products reach consumers becomes ever more critical, larger inventories may be the new norm7 until shippers in general improve their ability to forecast sales and track goods.

Survey respondents did show progress toward destocking. A majority of shippers, 52.3 percent, said their inventories were lower than September 2015, with 33.8 percent reporting a drop in the less-than-5-percent range and 15.4 percent saying stocks were down 5 to 10 percent. Only 3.1 percent expect a more rapid inventory reduction. Meanwhile, 47.7 percent said their stockpiles had grown year-over-year, with 24.6

6. https://www.census.gov/mtis/www/data/pdf/mtis_current.pdf 7. “Higher US inventories could be the new normal,” JOC.com, June 29, 2016, by William B. Cassidy and Reynolds Hutchins.

An inventory correction or stock drawdown has long been expected but slow to start.

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https://www.census.gov/mtis/www/data/pdf/mtis_current.pdf





percent saying inventories were up 5 percent or less, 16.9 percent reporting a 5 to 10 percent increase and 6.2 percent seeing inventory growth above 10 percent.

If there’s a conclusion that can be drawn from the disparate information provided by the survey and federal data, it’s that inventory destocking is likely to be slow, capping increases in freight volumes and rates, absent stronger consumer sales this holiday season and in 2017.

Exhibit 16. What are your current inventory levels compared with this time last year?


0

10

20

30

40

Down morethan 10%

Down5-10%

Down0-5%

Up0-5%

Up5-10%

Up morethan 10%

What are your current inventory levels compared with this time last year?

IX. TRUCKLOAD SPOT MARKET: VOLUMES TO INCREASE SLIGHTLY

A majority of the shippers surveyed, 82.7 percent, expect to increase or reduce their use of the truckload spot market moderately over the next year, with only 17.4 percent expecting a strong departure from this year’s use of spot market load boards in either direction.

Altogether, however, more of the respondents said they plan to look for more trucks on the spot market, 58.7 percent, than thought they would decrease spot market load postings, 41.4 percent. Only 2.7 percent said their use of the spot market would decrease strongly, while 14.7 percent forecast it would increase strongly.

Spot market freight currently accounts for approximately a third of all truckload freight, according to Truckstop.com. As capacity tightens, brokers tend to look to the spot market to find additional capacity. As supply chain efficiencies and technologies have evolved, spot market tools have evolved as well, making it easier for shippers to tap spot capacity and make the spot market an integral part of supply chain sourcing strategies. The survey results indicate that trend is likely to continue in 2017, even as some larger carriers moderate their exposure to the spot market.

Inventory destocking is likely to be slow, capping increases in freight volumes and rates, absent stronger consumer sales this holiday season and in 2017.

As capacity tightens, brokers tend to look to the spot market to find additional capacity.

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X. SPECIALIZED SERVICES: DEDICATED TO DEDICATED

The number of specialized services offered to shippers by transportation operators has proliferated since the end of the recession, and especially with the expansion of e-commerce. Concerns about capacity availability, supply chain efficiency and visibility, and fulfillment velocity are driving the growth of specialized services, especially amid lower demand for traditional truckload and LTL services. Dedicated trucking, also known as dedicated contract carriage, was by far the most popular of these services among the shippers who participated in this survey.

Almost half of the survey respondents, 45.8 percent, said they use dedicated trucking services. Another 37.7 percent said they would expand their use of dedicated trucking in the future. This is why transportation providers such as Swift Transportation8, J.B. Hunt Transport Services9 and ArcBest10 are shifting more resources to profitable and fast-growing dedicated divisions.

The most popular non-trucking service is long-haul intermodal, with 27.8 percent of survey respondents reporting they currently ship via long-haul intermodal rail and 32.1 percent saying they plan to increase use of long-haul intermodal. Only 2.8 percent said they use short-haul intermodal rail, and 7.5 percent said they would expand their use of the mode.

Expedited trucking, increasingly used not just during emergencies but also as an integral part of shipper supply chain strategies11, is used regularly by 22.2 percent of the respondents, and 18.9 percent said they plan to increase their use of expedited delivery services.

But they’re not planning on moving product too fast. Only 1.4 percent of the companies surveyed use same-day delivery services, and only 3.8 percent said they plan to increase same-day deliveries. That likely reflects the industrial bent of the respondents, as well as the relative youth and small scale of same-day fulfillment operations.

8. “Swift slices more capacity as pricing pressure persists,” JOC.com, Oct. 24, 2016, by William B. Cassidy. 9. “Low rates cut profit for intermodal trucker J.B. Hunt,” JOC.com, Oct. 10, 2016, by William B. Cassidy. 10. “US trucking provider ArcBest expands in dedicated sector,” JOC.com, Sep. 7, 2016, by William B. Cassidy. 11. “Expedited trucker V3 speeds its own growth,” JOC.com, Aug. 11, 2016, by William B. Cassidy.

The most popular non-trucking service is long-haul intermodal.

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ABOUT THE JOURNAL OF COMMERCE AND JOC.COM

The leading information and marketing services provider for the domestic and international containerized cargo community, the JOC delivers high-quality intelligence and expertise to help customers make better business decisions — in print, online and face-to-face at leading industry events. In addition, the JOC provides best-in-breed marketing channels to help companies reach their target audience. JOC.com is the foremost industry website covering international and domestic logistics issues on a daily basis, and The Journal of Commerce is, and has been since 1827, the source for authoritative editorial content relied on by international logistics executives around the world. The JOC organizes several leading industry events each year, including the flagship conference, TPM, in Long Beach, California, and the JOC Inland Distribution Conference, in Memphis Tennessee.

Both are divisions of IHS Markit, a world leader in critical information, analytics and expertise to forge solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. Based in London, IHS Markit has more than 50,000 key business and government customers, including 85 percent of the Fortune Global 500 and the world’s leading financial institutions.

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ABOUT NASSTRAC

Short for the National Shippers Strategic Transportation Council, NASSTRAC is a shippers association for transportation and logistics professionals who manage freight across all modes. Launched in 1952, NASSTRAC today represents mid- to upper-level freight decision-makers across a range of industries, from manufacturers and retailers to wholesalers and distributors throughout the US. Many industries are represented, including food and beverage, consumer goods, retail, manufacturing, pharmaceutical and industrial products.

NASSTRAC’s mission is to be the leading provider of advocacy, education, connections, and solutions to transportation and logistics management professionals who manage freight across all modes. For more information about our education, advocacy and provider relations initiatives, see www.nasstrac.org.

ABOUT TRUCKSTOP.COM

Truckstop.com is a one-stop connection between North America’s commercial transportation professionals. Founded in 1995 as the first freight-matching marketplace to hit the web, Truckstop.com has grown to provide load planning, transportation management, telematics, route optimization, real-time rates, powerful negotiation tools, and other logistics solutions. Truckstop.com is recognized as the leading resource for transportation data and trends, including the weekly Trans4Cast, which informs outlets such as BB&T and Bloomberg Financial. Truckstop.com also serves as the largest credit reporting entity in the transportation industry, helping companies guard against fraud and choose the right partners for their business. Visit us at www.truckstop.com.

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Documents

THE ROAD AHEAD shippers and brokers see the next six ......increase in rates, driven by slightly higher volumes. The majority of respondents, 52 percent, believe freight volumes will