For investors trying to gain a financial edge, monitoring the freight industry can be an excellent strategy. After all, when logistics processes hit delays or retail slows down, those shifts can impact the overall economy. An uptick in shipping and strong consumer engagement with the retail industry could be indications that the economy is positioned for growth.
As investors look to grow their portfolio and make smart financial moves, they need to check freight data. Keep reading to learn about five key freight indicators that investors should track.
1. Always Check the Price of Diesel
Diesel fuel powers trucking companies. So, if the price of diesel increases significantly, companies may need to postpone intended equipment purchases or trim their loads. In some instances, companies may add fuel surcharges, which helps deflect some of the costs onto customers.
For investors, tracking diesel prices can help give clues about the state of the economy. When prices are high, business can slow down, and trucking companies may turn down lower-paying gigs that they once would have accepted. When this happens, smaller organizations can see their business suffer, as well.
When prices are lower, however, trucking companies can take on more jobs and customers. They can afford to charge less, too, which helps smaller businesses access the logistics partners they need.
2. Evaluate LTL Tonnage Numbers
When there isn’t enough of a single shipment for a truck to carry, sometimes shipments from different customers will be pooled together. This is called less-than-truckload (LTL) shipping. And it’s a different approach to shipping since multiple shipments will be on the same truck.
Small companies may look to companies like STG Logistics LTL services, for instance, to access cost-effective shipping solutions. Businesses that use LTL transportation can find different transit options and fair rates.
When tonnage is higher in LTL systems, that can mean businesses are busy meeting high demands for orders. On the other hand, dwindling tonnage can point to slowing growth.
The simplest way to check shipping volume is through the Cass Freight Index. This monthly index looks at data from shippers across North America to track how many goods are in transit. It sources information from freight bills and considers all modes of transportation to arrive at accurate numbers for current freight demand.
3. Look for Increasing Spot Rates
Sometimes, a shipper makes one payment for a company to deliver one shipment. In this scenario, the shipper won’t be working with a contract where they have a guaranteed rate. Instead, they’ll be subject to whatever the spot rates are at that moment.
If there’s a lot of demand for trucks to deliver goods and not enough trucks to do it, rates may be higher. Businesses may be wary of shipping goods when rates are high, however. And even though high rates can translate to more money for transportation carriers, they might not get as much business.
Because spot rates are so changeable, they don’t always point to long-range trends. Investors can still look at spot rates to see early signs that demand for freight carriers may be cooling.
4. Consider Revenue Trends with Operating Ratios
Even if freight carriers are moving a lot of goods, that doesn’t necessarily mean they’re raking in profits. If they’re paying a lot for diesel, equipment repairs, or new personnel, they might not be making high profits.
Investors can look at a company’s operating ratio to get a fuller picture of its financial status. This ratio looks at revenue versus the costs to run the company. If the ratio is lower, that can indicate a company is doing more than breaking even.
Ideally, a trucking company wants an operating ratio below 85%. Ratios above 90% can show that a company is cutting it close financially. A ratio of 100% or higher means that a company is not turning a profit.
Investors will want to watch how operating ratios change. Maybe a company has consistent and full shipments. But if the ratio heads in an unfavorable direction for that company, that can mean fuel or insurance costs are a crippling problem. Making investments in retail or other shipment-dependent industries may be risky.
5. Compare Inventory and Sales
Investors can look at the inventory-to-sales ratio to see whether inventory is flying off the shelves or stagnating. If it’s stagnating, that can translate to a higher ratio. And, as a result, some businesses may need to wait longer between inventory orders.
If the ratio is lower, businesses may be selling a lot of inventory. As a result, they’ll be relying on freight carriers to help build up their supplies again. Investors can understand consumer behavior and retail success when they watch ratios rise or fall.
Watch and Weigh Several Measures
Investors can get a clearer picture of what the investment landscape looks like for retail or shipping by looking at freight indicators. It’s smartest to consider all measures as investors decide how to use their money in a changeable economy.
When investors look at factors like diesel costs, LTL tonnage, and spot rates, they can understand the risks as they consider investment opportunities.
