Capacity Crunch
The Good
The economy is definitely good news. The country as a whole is recovering well
and seems to be moving into rebound stage.
Expect record growth through 2021 and beyond.
The Bad
TL and LTL transportation costs are rising ever higher as carrier compliance levels
drop even lower – below 75%. Add in mounting service problems and you have
a recipe for some unhappy shippers.
Truckload
The trend so far this year is definitely looking up for truckload carriers posting
sizable growth. Although the late winter storms worried some and brought
estimates down a few pegs. But now, first quarter looks to be nothing more than
a minor speed bump on the way to a mighty big year.
So even as the adverse weather had some negative impact, it’s clearly not course
altering impact. Especially looking at the broader macro economy that continues to
gain steam providing real catalyst for a memorable year.
Volumes elevated & capacity in short supply
TL volumes keep accelerating with levels on par with the highest peak of the 2020 season. And there’s been little retreat since. In fact, YOY comparisons of the Outbound Tender Volume shows the gap widening through April.
Outbound Tender Volume Index
The downside for most fleets is they can’t find the drivers to cash in on all
the heightened demand. So, capacity remains mighty tight as the industry’s driver
pool has been reduced by more than 200,000 due to early retirements, restricted
capacity at driver schools and other Covid-related factors.
As a result, tender rejections are now above 25%.
This high-demand, tight-capacity environment has allowed carriers to take rates
significantly higher as they become more selective about which shippers to work with.
Outbound Tender Reject Index
Like we said last month, capacity volatility is ruling the roost.
We believe markets will stabilize in the coming weeks as contract rates continue to
solidify and routing guides take shape. The big hope is that spot rates will feel some
real downward pressure.
Economy
Get ready for eye-popping figures when the government releases its economic growth
data this coming Thursday. But the big jump – fueled by resurgent consumer spending
after a year in Covid lockdown – will still be starting from a pretty deep hole.
Economists believe the US economy grew at an annualized rate of 6.1% in the
first three months – faster then the 4.3% recorded at the end of 2020.
But far slower than the enormous 33.4% jump we experienced in the second
quarter of 2020 when the economy started to reopen.
Before the pandemic the Gross Domestic Product grew on average 2.5% per
quarter annualized. During the pandemic, the economy literally ground to a halt
with GDP contracting at a record pace.
Now that we’re in rebound stage, growth rates look exceptional.
But we’re still making up lots of lost ground. It’s going to take time to grow back
to pre-pandemic strength. PNC Chief Economist Gus Faucher expects GDP
to grow past its pre-pandemic peak by the middle of this year.
And he sees stronger-than-usual growth rates continuing well into 2022.
Some economic news to pay attention to:
-Reopening businesses are now playing catch-up to an increasing demand
that’s practically exploding
-Americans are more confident than ever with the Consumer Confidence Index at
121.7 – its highest level since before the pandemic
-Millions of people who lost their jobs during the height of Covid have found work again
-Workers who kept their jobs have saved record amounts of cash – look for healthy consumer spending as the economy reopens
Retail
After record holiday spending, retailers are still working to rebuild inventories.
With an all-time low set in January, the inventory-to-sales ratio has nowhere to go but up.
Although things are improving, we’re nowhere near pre-pandemic inventory levels.
Retail sales are up over 14% YOY as vaccinations increase and a new round of
federal stimulus hits consumer accounts.
One particular stand-out was food service sales jumping 27.7% YOY.
Freight flows are expected to remain very high with the National Retail Federation forecasting a 26.9% increase YOY. Companies across all industries have been dealing
with real supply chain bottlenecks for months now, resulting in lower inventories when companies would normally be gearing up for spring collections.
Add in the huge crisis at our nation’s ports and we could see serious delays
in getting particular products.
The Road Ahead
Rate surge continues as driver concerns mount
Spot rates continue to outpace last year’s levels as carriers work through a busy bid season. At the start of 2021, most carriers expected price increases in the high single digits to possibly low double digits. Now, we see low double-digit rate increases as a best-case scenario. Just last week, spot rates are more than 80% higher than last year. Ouch.
Truckstop.com 7-Day Van Rate per Mile
“The industry is facing the most challenging driver market I’ve seen in my 37-year
career at J.B. Hunt,” said company COO Nick Hobbs.
Carriers have been raising driver pay for months now but are still unable to find the
drivers needed to seriously grow fleet counts and take advantage of robust demand.
A good chunk of the rate increase that shippers are experiencing is likely to show up
in driver pay as the race to source and retain drivers intensifies.
“The driver situation is probably more difficult than anything I’ve faced in my entire career,” added U.S. Xpress President & CEO, Eric Fuller.
“And if we get an infrastructure bill, it’s only going to get worse.”
Insights
Supply Chain Dive
340 supply chain professionals identified their top priorities in this interesting IHS
Market survey. Spend analytics was cited as the number one priority for over 70%
of supply chain leaders with category management and supply risk management
rounding out the top of the list.
A majority of respondents admitted that their companies needed more resources, highlighting the disparity between what they wanted and actual capabilities.
The survey comes on the heels of a Gartner report that found data & analytics
would become a core business function in 2021 as companies work to expand
their supply chain capabilities.
Supply Chain Leaders Priority List
Simplicity by the truckload
We’re exclusive agents for the Digital Freight Marketplace at Emerge.
Let JTR build you a dedicated network of carriers you can rely on.
We’re talking reliable capacity and lower costs, guaranteed.
Get ship done
855.754.0039 - Jtrlogistics.com
Comments