Capacity Crunch
THE GOOD
With COVID relief on its way, Wall Street has changed its tune on the economy –
now set for stellar economic growth in 2021 according to Bank of America. The 2021
growth estimate is now up to 6.5% from 6% as banks are convinced the economy is
ready for an incredible rebound after the pandemic.
THE BAD
Spot rates have soared nearly 25% just since February 1. After the winter storm disruptions volumes have stabilized. The Outbound Tender Volume Index is up roughly 16% YOY when adjusted for the high level of rejections. Yearly comps will soon be tough given the 30% surge last March because of panic buying and hoarding of household staples.
We’re entering a seasonal second gear that freight markets usually find toward the
end of Q1. Not only does warm weather bring elevated consumer demand, retailers also have quarterlies to report. And dragging inventories don’t get applause from Wall Street.
Trending
BUSINESS
The Outbound Tender Reject Index was at a very stable high of 27.6% That index has been up near 30% four times over the past year but never quite hit the mark. I think we’re near
the natural ceiling for tender rejections, as evidenced by the surging spot rates.
Capacity remains pretty scarce across most of the country, especially the Midwest regions. Carriers have realigned more capacity to the West Coast markets as rejection rates have fallen considerably in CA while tender volumes have shot up.
I expect no real changes to capacity through mid-year. We could see some downward pressure on rejections as routing guides are recalibrated and contract rates market toward spot. But ultimately, capacity will remain difficult to source.
RETAIL
Turning to consumer spending (as measured by Bank of America debit & credit spending data) the total increased by 3.5% YOY. The picture gets even more optimistic when focusing on retail spending while excluding auto numbers – a much more rosey 8.6% YOY. Since the blizzard, card spending accelerated significantly but was still down from previous weeks high of 9.7%. As stimulus checks hit American pocketbooks, we’ll see continued demand for consumer goods adding to positive trends. This will surely put upward pressure on freight rates & add to capacity issues. As the vaccine rollout accelerates, we could also begin seeing rebounds in the travel & entertainment sectors.
The Road Ahead
The freight industry is evolving rapidly. Rising consumer expectations have had a ripple effect throughout the supply chain, driving a need for greater efficiency. Technology in warehouses, onboard trucks and on our smart phones is automating critical processes, improving visibility into shipment lifecycle, and enabling faster decisions. Sustainability has become part of every shipper’s bottom line. And business success is now predicated
on the ability to respond in real-time to increasing market volatility.
Truckload
February storm aftermath has caused a reefer capacity crunch ahead of schedule.
The winter plunge that hit the Central US a couple weeks ago sent shockwaves through trucking networks that are still being felt across the country. Dry van capacity has recovered somewhat, while reefer capacity has become even more scarce as national rejection rates hit an all-time high – topping 50% last week. Surprisingly, this crunch is mainly in areas the winter storms didn’t directly affect like Southern CA.
Though prone to wild price swings just about any time, temperature-controlled capacity doesn’t typically see this kind of increase until April-June when harvests start moving.
This recent tightness seems to come from a supply-side contraction more than a seasonal increase from the harvests. The Reefer Tender Reject Index for LA shows a dramatic increase beginning February 15, surging over 20 points to 51%.
This is all due to the unfortunate weather events which has particularly hit Texas hard, leaving many areas crippled.
Reefer Outbound Tender Reject Index, US
What’s Next
FUEL PRICES ARE ON THE RISE
The Department of Energy/EIA average diesel price rose for the 18th consecutive week – another record. While on Monday, the commodity diesel markets rode up and down due to the latest wild oil market swings. The average diesel price was $3.143 a gallon last week, an increase of over 7 cents. No matter what data you look at, diesel is definitely going up.
Simplicity by the truckload
No matter what challenges you’re facing, count on JTR. Dedicated logistics people
who expertly navigate the latest technologies to find you the very best solutions.
So, give us 20 minutes. And we’ll save you a ton of money, guaranteed.
Source: FreightWaves.com Wednesday, March 10, 2021. https://www.freightwaves.com/truckload
Comments