Capacity Crunch
The Good
Is capacity coming back? Only the freight gods know –
however, with outbound volumes down a whopping 16%
just in the past few weeks there’s been a tiny sliver of hope.
Let’s hope it lasts.
The Bad
With one of the worst hurricanes in Labor Day history
drenching the eastside and record fires burning up most of the west,
it’s become abundantly clear that climate change is having a devastating
effect on US supply chains. Climate unpredictability is causing trucking
rates to shift ever higher with no relief in sight thru early 2022.
The economic slowdown due to the delta variant rampaging through
parts of the country is also cause for deep concern. However, some experts
believe the damage to the economy may be short-lived.
Once the virus finally gets through the unvaccinated, we could see a
rapid rebound as infection rates plummet
Truckload
Early 2022 TL rate predictions pointing higher. Again.
The consensus says a 3-5% hike is just a start
The outlook isn’t too rosy given the industry’s labor and
equipment challenges. But another increase following the
large rate hikes in 2021 is likely to establish a new high normal.
If the current trajectory holds, 2021 full-year per-mile rate metrics for
big carriers will be up in the mid-teen percentages.
Revenue per mile was up nearly 18% YOY during the second and third quarters.
Looking at driver shortages, truck & trailer availability, inventory levels,
the current demand and the multitude of structural constraints on the
capacity side, there’s no way around rate increases in 2022.
Experts say it’s too early to tell what kind of increases we’re looking at.
But the consensus is 3% to 5% as a starting point.
The rate situation continues to be very fluid but 3 to 5% is a reasonable guess
given where the transportation is at the moment. If the industrial economy
really gets going we could see even more upside.
As a side note, production increased 6.6% YOY in July and is now only 0.2% below
pre-pandemic levels, with five straight months of growth. Guidance for the back
half of 2021 calls for revenue per total mile to increase by over 16% YOY.
Let’s hope that’s a bit inflated.
Maritime booking surge could mean tight capacity this fall
Orders jump by over 40% in August
In just the past two weeks, maritime bookings have shot up 40% -
the strongest spike since early spring. It’s a reverse of the slight downward
trend since April and could mean this extended cycle of tightening
transportation capacity may have yet to peak.
The link between maritime booking and surface transportation can be a
tad cloudy but there’s only three ways for all those containers to go:
(1) Drayage to a warehouse, (2) Loaded on a train, or (3) shipped by truck.
And with the current IOVI at 222, there’s over twice as much order volume
with an estimated departure date of August 26th.
That’s a lot of freight moving in.
One thing is clear:
Maritime import volumes provide fuel for the transportation fire.
As shippers order more and more goods from overseas, it’s only
adding to the potential freight moving over land.
And the latest spike, at the very least, points to an extended cycle of
demand and yet another round of tightening capacity this fall.
Economy
Truck makers struggle to fill backlog as supply chain issues mount
There’s no denying what equipment manufacturers have known for weeks now: Shortages are disrupting product launches and blocking OEM’s from
keeping up with even typical orders.
Supply chains are feeling the pain of continuous labor shortages and
mounting component constraints. Fleets are desperate for new dry vans
to make up for the shortage of new trucks and drivers in the current tight
capacity environment. There’s a growing amount of freight to be moved
and the industry continues to struggle to deliver on time.
Tractor production is also running behind. Computer chips are used
liberally in tractors to collect data. The usual tractor employs between
15 and 35 semiconductor chips. Companies like Tesla that rely more heavily
on high-tech parts are hurting even more with last year’s Japanese factory
fires and compounded by the ongoing pandemic.
Most of the current orders will likely roll into next year.
But as those early months of 2022 start booking up, it creates more
headaches for the industry. Things probably won’t approach any degree
of normalcy for most of 2022.
In brief:
-Class 8, medium duty and trailer orders are basically as filled as they’re
going to be for the rest of the year. With inventories far below traditional levels.
-The semiconductor situation is not expected to be fixed this year although there are reports of some supply improvements. But build rates remain exactly as they are.
-The supply chain problems for truck makers can be a multi-headed serpent with
steel supply tight and manufacturers struggling to provide tires, foams and plastics.
For now, supply chain problems seem to be a greater driver of capacity constraints
than consumer demand.
Visibility is paramount in supply chain management
E-commerce surge draws attention to tracking and transparency
Visibility’s role in logistics is undeniably a hot topic, yet a significant portion
of the industry has been slow to actually adopt this technology.
Not too long ago, visibility options were viewed as a “nice-to-have” perk
and shelved in favor of more urgent needs. Recently however, visibility
solutions are seen as a necessity.
The pandemic and the resulting e-commerce surge drew more attention
to the need for tracking and transparency. Companies in the industry have come
to expect better visibility from their partners as a whole.
Just as importantly, end consumers are expecting real-time
visibility on their online orders. In turn, shippers have come to expect higher
degrees of transparency from both carriers and manufacturing partners in
response to consumer expectations.
Not only is it useful for providing customer updates, but it’s also useful in
spotting trouble early to help protect against recurring bad reviews.
Poor reviews are often cause by issues that happen in transit.
Companies need to be able to see those problems – because bad reviews
affect sales and web presence. On the manufacturing side, a lack of visibility
into when parts and supplies will arrive compromises a shipper’s ability to
get orders out. This hurts business growth and leads to friction & frustration.
With better visibility, shippers can plan their workflows to accommodate
changes & delays before they become a problem.
The visibility tools available today are significantly more advanced than
those on the market as recently as 2018. But many companies have decided
not to adopt these solutions after a disappointing first impression.
That’s a mistake. The tracking of yesterday is not the tracking of today.
And it definitely won’t be the tracking of even a few months from now.
It’s moving that fast.
Technology systems have become smarter and much more intuitive.
Visibility solutions can provide companies a seamless experience
and a real leg up on the competition.
Technology
Tap into a digital network to expedite your RFP process
Don’t be restricted by old manual processes
The RFP process can be tedious in a normal year.
In a year like this one where capacity is tight, e-commerce is surging
and the pandemic still raging and unpredictable, an RFP can be
downright overwhelming. That’s why many companies take their
RFP process digital. When shippers rely on old-school tactics like
Excel spreadsheets and endless emails to work through their RFP’s,
it ends up being slow, redundant and expensive.
Utilizing a digital solution – like those provided by Emerge streamlines
the process and uses a lot less manual labor. Brokers and carriers get
a more transparent look into the process, with easy Q&A tools and
simple ways to communicate with everyone involved.
Nowadays the RFP process is speeding up considerably – because it needs to.
The demand to reduce costs is pushing shippers to find modern
ways to do business. The RFP is a perfect example of how technology
can make a huge difference. The old days of swapping Excel spreadsheets
and awarding bids through email are quickly coming to an end.
Just put all your essential information into the bid tool and it’s visible to all
your carriers, reducing the amount of follow-up. During volatile times,
shippers are looking to diversify their RFP’s to ensure better coverage.
Too many large companies rely on a relatively small network of carriers.
That drives up rates and increases the chances of being pushed to the spot market.
However, choosing the right carrier partners can be difficult.
The digital RFP at Emerge helps shippers with a thorough vetting process
and the availability of Emerge’s own network of high-quality options.
Ultimately, the incredible efficiency shippers find when using a digital
RFP solution allows them to build out their carrier networks more easily
while increasing the frequency of their RFP’s, giving them the power to
respond to market shifts much sooner.
Insights
A tale of two dollar stores
Dollar Tree contends with freight. Dollar General mostly shrugs off costs.
Shipping bottlenecks and freight costs are hitting retailers across the board.
While many players have responded with price increases for consumers,
when your proposition is a single price point — say $1 — the options for
mitigating costs are quite limited.
At Dollar Tree, management piled on more than $185 million in estimated freight
costs for the year to the company's profit estimates.
That’s up to $1.60 in freight costs per share in 2021, creating a major
drag on earnings for the year. Plus, the revised outlook comes as ocean
rates from China have risen 20% since May, which was growth on top of
all-time highs, according to Dollar Tree.
"We believe the Dollar Tree banner imports more containers per $100 million
in sales than other large retailers," CEO Mike Witynski said.
"And combined with our low $1 price point, there’s an outsized impact from
freight costs." When congestion in the global shipping system occurs, it reverberates and compounds just as with any other kind of transportation congestion.
"To give you a real-life example of the kinds of challenges we're seeing,
one of our dedicated charters was recently denied entry into China,
because a crew member tested positive for COVID, forcing the vessel to
return to Indonesia to change the entire crew before continuing,"
Witynski recounted. "Overall, the voyage was delayed by two months."
Executives at rival Dollar General called out freight as a headwind,
but they painted a less dire picture for the company.
In fact, the word "freight" came up just eight times on Dollar General's
Q2 conference call, compared to 41 times on Dollar Tree's call.
"Like with our Q2 results, we do expect some continued pressure on
gross margin in the second half, due primarily to inflation, which we
believe to be transitory but related to higher transportation costs,
higher than previously expected," Dollar General CFO John Garratt
said on a conference call Thursday, according to a Seeking Alpha transcript.
In its earnings release, Dollar General noted increased freight costs,
but its profit outlook held mostly steady while its sales expectations increased.
Dollar General is coming off a boom year. The pandemic gave a tremendous
lift to the retailer's stores, which became one-stop shops for consumers
trying to minimize their time in stores. And it also sold the household
essentials that consumers stockpiled in the early months of the pandemic.
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. #Getshipdone
Sources: FreightWaves.com Tuesday, September 7, 2021.https://www.freightwaves.com/truckload
Supply Chain Dive.com Tuesday, September 7, 2021. https://www.supplychaindive.com
