Capacity Crunch
The Good
With demand flattening across the board and more accepted tenders in the
system than at any time during the pandemic, capacity is finally getting a tiny breather.
But beware: The holiday shipping season fast approaches.
The Bad
Just as we were getting back to a small measure of predictability, Covid has once
again reared its ugly head and will undoubtedly cause many more months of supply chain shock. The Delta variant and a lack of vaccinated Americans is creating hot
spots all across the country, reversing much of the reopening & returning to
normal that was underway.
After a few weeks of flattening and even easing back a bit in some cases, TL rates
have now begun their inevitable tick upwards as we inch closer & closer to high season.
Truckload
Capacity demand won’t recede until late 2022
FMC Chairman Daniel Maffei sees the unprecedented challenges facing the flow
of trade as importers and exporters have expressed their concern to the Biden Administration. The inverted ratio for supply & demand is not expected to right
itself anytime soon and that means prices will continue to soar.
Even so, optimism has increased after the executive order on supply chain
competition as well as the 29 recommendations the commissioners made to congress. “These recommendations are low-hanging fruit and are relatively noncontroversial. Congress should be able to pass these recommendations. If you care about the
supply chain, these are the things that must be done.” Chairman Maffei urges.
US ports have imported more in the first half of this year than at any full year prior.
The supply chain is overheated, but Chairman Maffei believes we’ve done a good job handling the incredible surge. The problem is not enough rails, warehouses and transportation to keep up with imports.
And with this capacity crunch continuing well into the foreseeable future,
we have to stay vigilant and get a handle on this new normal.
Short haul freight is driving higher carrier compliance
Total tender volumes haven’t changed much since March – falling only 1.8% -
but the rate of rejection has gone from 28% to 21%. In other words, More loads
are being accepted at the agreed upon rates while demand remains flat.
Has capacity increased.
Not likely.
Contracted rate increases are a big part.
But a less obvious factor is the accelerated growth of short-haul freight this summer. Tenders for loads moving less than 250 miles have grown more than 11% since
March, while requests for loads going over 450 miles have shrunk nearly 10%.
If you break the national Outbound Tender Volume Index into haul length, there was
a big shift in the type of loads tendering over the past few months.
But why does this increase compliance rates?
Loads that move within a day’s travel don’t have a large impact on capacity as
loads moving roughly 500+ miles. Drivers are able to get back to the origin within
24-hours on loads less than 250 miles, keeping capacity in the same market.
Shorter hauls aren’t the main reason for elevated contract compliance.
But they’re definitely a big factor as demand remains beyond the available
trucking capacity in US markets.
Economy
Are US consumers going to throttle back on buying stuff?
The conventional wisdom was that as more Americans got vaccinated and the
economy continued to open, the explosion in consumer buying would moderate to
a dull roar. Yet that roar is as loud and as it ever was during the pandemic.
And there’s no sign it will quiet anytime soon.
Most analysts don’t expect demand to ease until late 2021 when stimulus spending
has run its course and rent and mortgage forebearance programs end.
Transportation networks, deluged with demand no one expected, have been forced
to take unprecedented measures. Freight rates, no matter the mode, continue to escalate with no end in sight. Another holiday shopping and shipping season is just
four months away.
For exhausted shippers and carriers, the reality is that even if the American consumer returns to normal purchasing patterns, retailer demand will remain strong, supply
chain taut and rates high. We could experience another 18 months to two years
of dislocations as rock-bottom inventories get replenished.
Outbound Tender Volume Index
SONAR: OTVI.USA (2021 – Blue; 2020 – Green; 2019 – Orange; 2018 – Purple) To learn more about FreightWaves SONAR, click here.
FreightWaves’ Outbound Tender Rejection Index (OTRI), which measures carriers’ willingness to accept loads tendered by shippers under contract terms, remains elevated, though down since April. This indicates a decent percentage of loads are
still not being accepted. In addition, the volume of electronic tenders as measured
by FreightWaves’ Outbound Tender Volume Index (OTVI) has been flat to up for the
past several weeks. More accepted tenders are now flowing through the system than
at any point last year. But there simply hasn’t been enough capacity added to keep up.
OUTBOUND TENDER REJECT INDEX US
In recent weeks, we’ve seen the first major divergence between rejection rates and spot rates. SONAR: VOTRI.USA (Blue); TSTOPVRPM.USA (Green) To learn more about FreightWaves SONAR, click here.
Under current conditions, any rate relief for shippers will surely be fleeting.
The typical pre-holiday lull–if one occurs–will be offset by what is expected to be a
very strong back-to-school season. And with depleted inventory levels, retailers will
need to replenish regardless of what consumers do.
Highways & ports get a $2 billion boost in new infrastructure deal
A bipartisan group of senators negotiating with President Joe Biden boosted
new funding for highway and port infrastructure each by $1 billion according to a
new fact sheet released by the White House. The “Bipartisan Infrastructure Deal” announced on Wednesday increases new funds for roads, bridges and major
projects from $109 to $110 billion, with port infrastructure investment increasing
from $16 billion to $17 billion.
The $550 billion in total new funding includes $40 billion for bridge repair, replacement and rehabilitation — “the single largest dedicated bridge investment since the construction of the interstate highway system,” according to the fact sheet.
It also includes $17.5 billion for major projects “too large or complex for
traditional funding programs.”
The deal invests $66 billion in rail to eliminate the Amtrak maintenance backlog, modernize the Northeast Corridor, and bring world-class rail service to areas outside the Northeast and mid-Atlantic. The bill also invests $7.5 billion to build out a national network of electric vehicle (EV) chargers to help accelerate the adoption of EVs.
It also provides funding for the deployment of EV chargers along highway corridors
to facilitate long-distance travel as well as convenient charging where people live, work, and shop. Biden proposes to pay for the deal through a combination of corporate user fees, tax enforcement on crypto currencies and redirection of unspent emergency relief funds, but those funding measures have yet to be agreed on. Shortly after the deal was announced, Senate lawmakers voted to begin considering the bill.
The Road Ahead
New trucks are helping to lower the cost of onboarding drivers
Heavy-duty fleet companies continue to face major challenges with the recruitment
and retention of drivers especially now as drivers are needed more than ever to transport goods, food, medicine and vaccines across the country.
New data shows that driver turnover for carriers shot up by double-digit
percentages during th third quarter of 2020. This continued even as the industry
started to return from the pandemic.
In addition, the tight market has made driver retention even more crucial in the
current economy. American Trucking Association research shows it’s latest driver availability index at a new low of 16.7, down from a previous low of 23.6.
The data reveals a turnover rate for large truckload carriers increased to 92% during
the third quarter and rate of 74% for smaller carriers. After the upheaval of Covid the industry started to recover in third quarter which led to increased turnover.
Plus, the driver pool has decreased this year for a host of reasons including fewer drivers coming into the industry as schools train less due to Covid restrictions.
While it’s easy to point the finger at the pandemic, driver recruitment and retention
has been a huge problem for many years.
For the 4th consecutive year, the driver shortage remains the trucking industry’s
leading concern, according to the American Transportation Research Institute.
Compensation is the obvious way to attract new drivers and retain existing ones.
But new ideas and strategies are also coming to light. Companies have discovered
that newer trucks improve their chances at retaining drivers.
Newer trucks come with advanced technology, updated safety features and fewer maintenance & repair problems. That means less downtime & breakdowns for
drivers as well as a greater chance of returning home to their families.
Obviously, these are huge motivating factors in keeping drivers.
But also, modern trucks are easier for new drivers as well. Much of the technology
is aimed at making the job safer and simpler, allowing more people to do the job well.
The average cost of onboarding a new driver can exceed $10,000.
So, the motivation is there for companies to replace their aging fleets with newer,
safer trucks sooner than later.
Some takeaways on the current state of trucking
1. Drivers are getting paid more money, spending more time at home, and achieving
a better work-life balance. This is a great thing for our professional Commercial Vehicle Operators (CVO). However, with less availability to drive the Freight Hauling Capacity
has shrunk even as the number of trucks has not.
2. Speaking of trucks & equipment, trailers have taken on a life of their own in a very hot used truck market. This phenomenon is also adding to a lower Freight Hauling Capacity even as some of these used trucks and trailers are finding their way in the spot market.
3. Smaller carriers have got a better strategy than the larger folks due to continuing
high spot rates and contract rates. With the increase in rates, smaller carriers can
work 25% less and still meet revenue goals.
4. The biggest takeaway is our workforce challenges. We need people at all levels
of the food chain. Labor shortages are increasing wage and acquisition costs.
And it’s killing the supply chain and adding to a new inflation cycle.
A few more thoughts: The industry is completely oversold and will stay that way for quite some time. Drivers are earning more and working less and we applaud that.
There are signs of inflation. The industry needs higher rates to cover higher costs
which started with the spot market. What’s happening in trucking is only the start –
as we’re the lead industry for the rest of the economy.
Simplicity by the truckload
Can’t find reliable capacity?
Transportation costs getting out-of-hand?
Want to save up to 20% on your annual freight spend?
You need a team of dedicated professionals who can expertly navigate
the latest technologies to find you the solutions you deserve.
You need JTR.
Get ship done - 855.754.0039 - Jtrlogistics.com
Source: FreightWaves.com Tuesday, August 3, 2021. https://www.freightwaves.com/truckload
