3PL Execs Pleased With Market Conditions, But Economist Warns of Possible Recession
This story appears in the April 17 print edition of Transport Topics.
LAS VEGAS — Third-party logistics companies generally were positive about business conditions despite tighter margins. However, FTR economist Noël Perry warned executives here at the Transportation Intermediaries Association Capital Ideas Conference & Exhibition that this year won’t be as fruitful as earlier in the decade and that a recession could be looming behind it.
In this short-term forecast, Perry told industry executives that 2017 would not be nearly as bad as last year.
“We’re gonna go back up to some reasonable growth this year, but we’re not gonna get the strong growth that made us all so happy earlier in the recovery,” he said.
While some executives characterized the first quarter as average or decent, others used words like strong, solid and robust to describe the first three months of the year, based on conversations Transport Topics had with more than a dozen third-party logistics providers. Several executives told TT that conditions turned positive in March after a difficult February but that some shippers are still holding firm against rate increases.
“This year has been a little bit of a ride. It started out strong with freight, then it dipped a little bit. There was some margin compression given the demand on trucks and shipper rates not keeping up with carrier rates, and we have to absorb that. But in the last six weeks, we’ve consistently seen freight strengthen, although margins are lower compared with 12 to 24 months ago,” said Jason Beardall, president of England Logistics, which ranks No. 15 on the Transport Topics sector list of top freight brokerage firms.
Choptank Transport Inc. President Geoff Turner called the first quarter “challenging” and ranked it a No. 5 on a scale from 1 to 10. His company ranks No. 31 on the freight brokerage list.
“There wasn’t a lot of spot freight, but it wasn’t bad by any stretch of the imagination. I’d say it was acceptable,” Turner said.
Syfan Logistics, No. 54, told TT that revenue was up in January, February and March on a sequential and year-over-year basis, despite flat conditions overall.
“When business is flat, you don’t just sit there and suffer on it. You go out and find new customers. So we’ve got our sales staff out there beating doors down, and we’re finding new people to haul for and adding them to our current portfolio to increase volume,” said CEO Jim Syfan.
Knichel Logistics told TT that volume was up about 8% and revenue increased more than 2% in the first quarter. President Kristy Knichel said that she’s starting to see recovery in pricing but that the market remains competitive with contract rates flat to slightly higher year-over-year and margins remain tight.
“Overall, numbers aside, it just feels to be a stronger environment than what it was last year, and I know from our standpoint — last year for the first half we were just trying to hang on to existing business, whereas this year, with all of the new bids and opportunities, there seems to be some more optimism,” she said.
Business also improved at Koch Logistics, No. 58, with Director of Operations Meg Duncan classifying conditions as “robust” in the first quarter. Koch specializes in the logistics of store fixtures for retail store remodels and new store openings.
“Business has started in January due to clients that have large projects that will take longer, and they wanted to begin earlier in the year,” Duncan said.
DRT Transportation President Robert Kemp also classified 2017 as robust for his company, which does a significant amount of intermodal business and end-to-end logistics. He said gross revenue was up 20% year-over-year in the first quarter.
“As a growth company, we’re gaining new customers each year. Our chemical business is up year-over-year. We also haul a lot of millwork and cabinets, and our customers’ businesses are strong there, too,” Kemp said.
Blakeman Transportation President Jeff Blakeman rated the first quarter a No. 8 on a scale from 1 to 10, calling business “solid.”
“For us, it’s been much, much better than 2016 and 2015,” he said. “Some of the rates we offered that we’re getting shut down [by shippers], now we’re getting some of those awards. We’ve had consistent business since January. I’m getting giddy.”
As for the overall economy, Perry forecasts gross domestic product will grow between 2% and 3% in 2017. He also predicts a robust trucking business environment in the fourth quarter and first two quarters of 2018. But Perry said the U.S. economy probably wouldn’t increase at the same level each year through 2020.
“In your three-year plan, you need to have a contingency plan to deal with recession. Recession means that prices are down 6% to 7%, and volumes are down by the same,” he said. “Don’t declare victory if ’17 is a great year.”
