Troubling Trends in Transportation

The events unfolding in Libya are troubling on multiple fronts, especially the violence against protesters. And the unrest is now impacting the oil markets, since Libya is an important supplier of crude oil. According to an article in today’s Wall Street Journal, “the oil market is bracing to lose most or all of the country’s estimated 1.3 million barrels a day of exports. Much of that oil is of a relatively high quality, making it more difficult to quickly replace.”

Although Saudi Arabia, for example, could make up the difference, the fear is that this wave of political unrest could eventually reach other oil-producing countries in the region. This near term risk coupled with what’s happening now in Libya is putting upward pressure on oil prices, which reached a 2-year high yesterday (Brent Crude Oil Futures closed at $107.44 per barrel yesterday).

But as the chart below from WTRG Economics shows, the rise in recent days is just part of a upward trend that has been occurring for several months.

Brent Crude Oil Futures (Source: WTRG Economics; click to enlarge)

And, of course, this has led to an accelerated rise in diesel prices over the past six months.

Weekly US Retail Diesel Prices (Source: EIA; click to enlarge)

Rising fuel prices is bad enough, but shippers also have to deal with tightening capacity, as the latest Morgan Stanley Dry Van Truckload Freight Index indicates. You can see the chart in a blog posting published yesterday by Transplace CEO Tom Sanderson, where he comments: “Morgan Stanley’s dry van truckload freight index indicates tighter than normal capacity for this time of year. The Q1 index has now risen slightly above the trucking boom years of 2004 and 2005. The index did not drop at the end of 2010 contrary to most years.”

It’s still early in the year and a lot can change over the coming months, but the early signs point to tighter truckload capacity in 2011. And don’t forget the potential impact of Hours-of-Service (HOS) and CSA 2010.

The bottom line: Take a look at what you budgeted for transportation costs this year, especially fuel surcharges. Still feel good about your budget? If not, what are you going to do about it?


  1. If we look at what the shippers have done in the past they will look for price reductions, add carriers to approved list and possibly pass some of the cost to the customer. The fuel cost problems of the early 1970’s had an added component, “No Fuel.”

    I have been in the industry for 42 years and we still use the same method to manage “Supply Chain Cost” Is this due to the same people using the same methods? Do the “C” level management people have an awareness of the expected disorder?

    I know the carriers will never be able to control the addition of more and more equipment, in all modes, and then figure out how to reduce or eliminate the added capacity.

    Just where are the value drivers? What are the metrics to reduce inventory? How do you speed to market new approaches? Pricing managers should now become yield managers based on what the customer and market demand with daily, weekly and as needed adjustments.

    Dave Ward wrote in his article” Upgrade Your Sales Process” in Transport Topics November 1, 2010 Page 7, what I feel is the basic problem with Transportation. (Dig a copy up, and make all your supply chain people read this article). I have always said if you know how your carrier operates and makes money you will be a great partner.

    To me education of the players should start as early as high school. Adrian expressed this same thought in his visit to the Atlanta CSCMP round table in February. Will there be a CEO, CFO, COO with the vision to insist that his company invest at least one hour per week to get the “silos” talking to each other and learning supply chain skills of sharing of expertise that exist within the walls of their company?

    There is a new normal out there now. How about trying to work in vested relations with your suppliers and carriers. The bottom line is we need to learn how to work together more efficiently.

  2. I couldn’t agree more with Hank. Its all about vesting time and money into your carriers, and suppliers. That’s something you can control, more than you can, than trends in the market.

    Jarrod Marinello