May 152012

Don’t use CSA/SMS data to select carriers

Posted By: Tom Sanderson
Date Posted:  Tuesday, May 15, 2012  5:49 PM

I finally got some insight on the FMCSA’s claim to be measuring 200,000 carriers in the CSA/SMS program even though every month there are only 91,000 carriers with a score on at least one BASIC. The answer is more disturbing than being in the dark.

There are two criteria that must be met before SMS percentile scores are calculated. First, the carrier must have at least 5 inspections. That turns out to not quite be the case as in March we know from the data that 2,387 carriers with 4 or fewer inspections do have at least one SMS score but that is out of 182k carriers carriers with 1-4 inspections so less than 2% of these carriers have a score. That accounts for an extra 179k carriers that are measured, but the results are not made public.

The second criteria is that unless a carrier has at least one inspection with violations, they are not assigned a percentile score. That is not a big deal for a large carrier, but is quite likely for a small carrier. Consider this fact from the March SMS data: out of 326k carriers with at least one inspection in the last 2 years, 80k have had exactly one inspection in the last 2 years. There are 62k carriers that had 5-9 inspections, but only 30% of those carriers have an SMS score compared to 96% of the carriers with 20 or more inspections. That totals another 44k carriers who have 5-9 inspections but no scores. So if a carrier has 5 or 6 or 7 clean inspections the SMS methodology does not assign them a percentile score. Rather than have a good score, they have no score. If a shipper or broker is looking at that small carrier how are they to interpret the absence of a score? Is the carrier flying under the radar screen and either intentionally or randomly avoiding inspections or have they had only clean inspections? There is no way to know.

The only conclusion a shipper or broker can draw is that there is simply no meaningful way to draw any conclusion from looking at SMS data. Shippers and brokers should rely on the FMCSA to uphold its duty to determine which carriers are fit for service. We should choose carriers based on service, capacity, and price as long as those carriers have valid operating authority, adequate insurance, and do not have a Safety Fitness Determination of “unsatisfactory”.


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May 102012

CSA/SMS scores do not indicate anything about accident frequency

Posted By: Tom Sanderson
Date Posted:  Thursday, May 10, 2012  6:25 AM

In November, Wells Fargo released a report showing that SMS scores have no relationship with accident frequency for the 200 largest carriers. In March, FMCSA responded in a written report claiming that Volpe and UMTRI had larger data sets proving that such a relationship does exist. However, the data FMCSA uses is a regression of the average carrier accident frequency for each of the 100 percentile points on the SMS scale. There are only 100 points in their regression data set. The problem with this is that SMS is supposedly indicating that higher scores are indicative of safety performance for individual carriers, not for the average result across hundreds of carriers. The publication of scores is harming individual carriers, not the average of a large group of carriers. Regression is supposed to explain variance, but by averaging accident frequency across hundreds of carriers most of the variance in the underlying data is already eliminated before the regression is calculated.

Common sense is probably a better way to prove the lack of any relationship between SMS scores and crashes. We ran the data for 26,435 carriers for Unsafe Driving and 35,933 carriers for Fatigued Driving showing the SMS score on the horizontal axis and accidents per million miles on the vertical axis. You don’t have to be a mathematician to know with certainty when looking at this data that there is no relationship between accident frequency and SMS scores.

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Categories: CSA 2010
May 092012

Stifel Nicolaus reports strong Q1 for TL carriers

Posted By: Tom Sanderson
Date Posted:  Wednesday, May 09, 2012  4:52 PM

Stifel Nicolaus (www.stifel.com) reported yield and financial performance gains for publicly traded truckload carriers in Q1. The Stifel industry sector Snapshot for the TL sector showed a year-over-year gain of 3.8% in revenue per loaded mile excluding fuel surcharge. That makes eight straight quarters of increases. The rate impact of the heavy bid activity of 2009 has faded and contract rates are rising. It was a pretty tough pricing market for the TL carriers from Q4 2006 through Q2 2010, but that has changed. Operating ratios improved over Q1 2011 but were slightly worse than Q4 2011. Truck utilization was down 0.3% from Q1of 2011 and down slightly from Q4. A strong growth in yield led to a doubling of EPS over Q1 2011.

Stifel Q1 2012 TL

Graph reproduced with permission from Stifel Nicolaus. For more information contact: JGLarkin@Stifel.com.


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Categories: Stifel Nicolaus carrier financial results
May 092012

Diesel prices drop again but remain above $4 per gallon

Posted By: Tom Sanderson
Date Posted:  Wednesday, May 09, 2012  4:33 PM

Weekly retail on-highway U.S. diesel prices decreased by 1.6 cents to $4.057 per gallon. Diesel topped $4 in November, then dropped to $3.78 by the beginning of the year, but has been above $4 since 2/27; 11 straight weeks. The recent low price point for diesel was $2.023 on March 16, 2009. A view of weekly prices over the last 3+ years shows much higher prices in each year over the preceding year (second graph) until the last few weeks with fuel about equal to this time last year. Diesel prices peaked at $4.771 per gallon in July of 2008 and were above $3 per gallon from September 24, 2007 to November 3, 2008 (over 13 months). Prices have been back over $3 since October 4, 2010 (19 months). In 2008, diesel exceeded $4 per gallon for 23 straight weeks, compared with 6 straight weeks early in 2011 and now 11 weeks in 2012.

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Categories: Diesel fuel prices
May 072012

Should transportation brokers be required to post a $100k surety bond?

Posted By: Tom Sanderson
Date Posted:  Monday, May 07, 2012  3:00 PM

An interesting issue is getting attention in the current highway funding bills in the House and Senate. Both bills have provisions that would require FMCSA licensed truck brokers to hold a $100k surety bond to reduce the fraudulent activity that occurs when fly-by-night brokers collect money from shippers but skip town rather than pay carriers. The proposed legislation in backed by the Transportation Intermediaries Association, the ATA, and OOIDA. Opposed are mainly small brokers who may be hard pressed to come up with $100k in cash or a bank letter of credit in that amount. The TIA is offering such a bond to qualified brokers for $10,000 up front plus $2,000 per year. That offer does not sit well with other companies that provide bonds to brokers. You can read an excellent summary of the issues in DC Velocity.

Quite a number of people have asked if I support this requirement or assume that I do support it because large financially strong brokers will benefit if some of the smaller of the 20,000 U.S. brokers are forced out of business. Actually, while I acknowledge there is a serious problem with fraudulent brokerage and my company would benefit from the legislation, I am opposed to the bond requirement. I am always amazed to hear how many shippers and carriers are willing to do business with small brokers that they don’t know and have not properly vetted. Why would a shipper trust its freight and its freight bill to a company (or person) that it does not know and that likely has limited financial wherewithal? The answer is most likely that they are desperate to move a load, see a chance to save a few bucks, and are counting on not needing to make good on the freight payment if the broker stiffs the carrier. On the other side, why would a carrier haul a load for a small broker that it does not know and has not properly vetted? Probably because they are desperate to move the truck and figure they can always go for after the shipper if the broker does not pay.

Is it really the job of the federal government to protect us from our own stupidity and poor business practices? I don’t believe so, and that is why I don’t see the need for this requirement. High quality small brokers who do pay their carriers in full and on time should not suffer economic harm because other companies are not willing to do their homework.


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Categories: Highway funding
May 032012

Total fatalities are up, but accident frequency ratios show great improvement

Posted By: Tom Sanderson
Date Posted:  Thursday, May 03, 2012  5:47 PM

Total fatalities in large truck crashes (>10,000 pounds GVW) increased from an all-time low of 3,380 in 2009 to 3,675 in 2010, an increase of 8.7%. Vehicle miles travelled in 2010 will not be released until later in the year so it is too soon to say the exact change in fatalities per million miles, but that measure is also likely to have increased because while it is likely miles travelled increased over 2009 it is not likely that they increased by 8.7%. The 2010 number does not diminish in any way the tremendous improvements in safety made by the trucking industry over the last 35 years. The absolute number of fatalities have declined as the number of miles driven have increased. Fatalities per 100 million miles driven have fallen from 6 to 1. Congratulations and thank you to the trucking industry.

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In comparison to passenger vehicles, the fatal accident frequency rate for large trucks and passenger vehicles are now identical at just over 1. This also represents a dramatic improvement in safety in the trucking industry. In 1979, the last year before trucking deregulation, the gap was 2.4 fatal crashes per 100 million miles.

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Every highway fatality is a tragedy and we should all strive to reduce accident frequency. The data shows that the trucking industry has a fantastic track record in improving safety. The lack of science behind changing the hours-of-service restart rules and the clear lack of any correlation between CSA/SMS scores and accident frequency suggest that the current regulatory environment is focused more on the appearance of doing something to improve safety while ignoring the government’s own data which shows the progress the industry is making on its own.


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Categories: Safety
May 032012

There will be no increase in weight limits on our highways

Posted By: Tom Sanderson
Date Posted:  Thursday, May 03, 2012  2:23 PM

It looks like 80,000 pound total weight limit will be with us for quite some time. The House had originally included a provision in its never-passed highway bill to allow states to approve 97,000 pound vehicles with an extra (sixth) axle. It never got out of the House Transportation and Infrastructure Committee which voted 33 to 22 to study the issue for the next three years rather than vote on it. The Senate never included higher weight limits in its highway hill. The alternative proposal, an 88,000 pound limit with the current 5-axle configuration, never gained traction.

The main support for higher weight limits comes from shippers who want to be able to reduce transportation costs per unit of product. The Coalition for Transportation Productivity, which represents about 200 shippers and carriers pushed hard for the legislation. NASSTRAC’s Stand Up For Trucking Fly-In on February 1 included 170 executives taking the message to DC that we need greater productivity and that larger trucks are just as safe as 80,000 pound trucks. Just one day after the fly in, the proposal was stripped from the House bill. The Coalition argues that higher weight limits means fewer trucks on the road which means great safety, less congestion, and less highway wear and tear. They also point out that Canada and most of Europe allow 97,000 pound vehicles with no impairment of safety or damage to highways and bridges.

While the ATA claims to support higher weights, they are not willing to expend political capital for the cause and many of their member carriers oppose the higher limits. In fact the ATA and the Association of American Railroads sent a joint letter to House members asking them to oppose higher weight limits. For carriers, the downside is the need to invest more money up-front in trailers and tires and spend more on maintenance, but their customers that cube out will not benefit so will not be willing to pay more. The carriers also feel they never got any additional money as they moved from 45’ to 48’ to 53’ trailers so are gun shy about paying up front this time around.

The opponents are lined up to fight higher weights, starting with the railroads who are willing to expend political and monetary capital to fight any relaxation of weight limits. Safety groups, OOIDA, and organized labor are also adamantly opposed, claiming lost jobs, more accidents, and infrastructure damage would result from the higher weight limits.

It looks like this issue is dead for quite some time to come.


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Categories: Truck size and weight
May 032012

Refrigerated capacity is very tight according to Morgan Stanley

Posted By: Tom Sanderson
Date Posted:  Thursday, May 03, 2012  1:53 PM

Morgan Stanley's refrigerated freight index indicates capacity is very tight, at or above the level of last year at this time, and significantly tighter than in other years. The index declined at the end of 2011, but refrigerated capacity is now  tighter again. The pricing environment in this segment favors the carriers. The index measures incremental demand for refrigerated truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

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Categories: Morgan Stanley capacity and demand graphs
May 032012

Why have diesel prices doubled in the last 3 years?

Posted By: Tom Sanderson
Date Posted:  Thursday, May 03, 2012  10:09 AM

Diesel prices reached a low point in recent history on March 16, 2009 at $2.023 per gallon. Diesel prices are now double that amount in a 3-year span, but what explains the increase? There are many suspects on the demand side including our own recovering economy and the continued growth and expansion of the middle class in China and other higher-growth countries. There are also the usual suspects on the supply side including Middle East uncertainties and greedy oil companies. Back in 2008, Forbes commented that almost the entire increase in oil prices over a 50-year period could be explained by weakness in the U.S. dollar expressed in terms of the price of gold which was also skyrocketing and is a better measure of dollar strength than a basket of foreign currencies. I have included the Forbes graph at the end of this post. We decided to look at more recent history and constructed an index of weekly diesel fuel prices and the price of gold as measured by the IShares Comex Gold Trust ETF (IAU) where each share represent about one-tenth of an ounce of gold bullion. We started the diesel price index on January 5, 2009 so as not to pick the absolute low point but to reflect prices since the beginning of 2009. The graph shows a very high correlation between the increase in gold prices and diesel prices over the last 3+ years. The price of both commodities has doubled in this time frame. The data suggests, as Forbes commented 4 years ago, that expansionary monetary policy drives up commodity prices and is a primary, if not the primary, reason for higher gas prices today.

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Oil & Gold


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Categories: Diesel fuel prices
May 022012

Manufacturing gains strength in April

Posted By: Tom Sanderson
Date Posted:  Wednesday, May 02, 2012  11:41 AM

The Institute of Supply Management reported that the Purchasing Managers' Index (PMI) gained 1.4 point to 54.8 in April from 53.4 in March. This represents 33 consecutive months of growth. A PMI over 50 indicates growth while a PMI under 50 indicates contraction in the manufacturing sector of the economy. The index reached a low of 32.5 in December 2008 but then recovered more quickly than other areas of the economy. Manufacturing remains a bright spot in the economy. The vertical bars in the graph represent recessions.

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Categories: ISM manufacturing index
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