The following insights are taken from a weekly discussion between Sunset’s nine US/MX branches.
Trends and discussions range from seasonal manufacturing and agriculture trends that affect available capacity to general insight into outside factors affecting freight volumes.
Below is a summary of the June 8 call:
FREIGHT VOLUMES & CAPACITY
- Diesel FSC average at $3.274 this week. The jump rose by 1.9 cents, and was due to a rise in all 10 regions; which comes off of a slight leveling of the rates. The upward pattern is expected to stay on trend through the July 4th holiday. Industry experts are still expecting an average of $4 to be hit this year, but given additional government interventions that projection has been pushed out to Labor Day. Some of the factors driving this are fear of additional cyber-attacks, a struggle to find or train qualified fuel haulers due to labor issues, demand spikes expected with increased travel this summer, and the potential for a pipeline closure (Enbridge’s Line 5) due to needed repairs.
- Reefer – rejection rates went down slightly, are expected to hold for another week, at which time a spike is anticipated to occur sending rates into peak. Produce weather impact has shifted demand south of the border more heavily, so distribution of available assets are anticipated to assist with capacity crunches until the holiday surge. Average rates jumped .03/mile between May and current, which is up by .44/mile since the beginning of the year. Volume is pretty well balanced across the US with large produce city pockets seeing some capacity problems. Projections for the next month suggest a higher demand for spot rating, and a carrier heavy vs customer heavy pricing mindset.
- Dry Van – rejection rates went up slightly, are expected to hold for a week. Seasonality from 2019 figures are showing better for trend analysis comparisons. Average rates jumped .04/mile between May and current, which is up by .32/mile since the beginning of the year. Port congestion is still driving coastal demand higher, primarily Eastern U.S. outbound surging. This is expected to continue through to the fall as additional inbound need is present to get several industries back on their feet with inventory. There is a Southern U.S. state tightening happening at the moment, but should level in the next two weeks. Projections for the next month emphasize a spike thorough the holiday with a mild calming in rates towards the end of July.
- Flatbed – rejection rates are still at high levels given commodity demand on steel/lumber/construction/machinery needs. Flatbed trends are expected to stay at season highs through the fall, with no expected decline in RPM. Average rates jumped .03/mile between May and current, which is up by .58/mile since the beginning of the year. As the summer progresses, this segment will begin to experience more of a Just In Time (JIT) turn, increasing the volatility of rates.
- Ports and Rail – ports and rails are at full capacity. There have been some leveling at the heavy ports with utilization and maximization of other port alternatives, however, there are no signs of it slowing. Rail and port expansion efforts are not moving forward fast enough, even with government interaction, to keep up with need.
- Heavier shift to cost-plus utilization (truck cost in hand) vs spot to account for large variances in market and carrier rates. This trend is still present as the carriers are pushing to maintain the higher transit fees. Due to customer adjustment in products and production outward to combat some early onset prices this year, there is a spike in demand in manufacturing to keep up with needed production numbers, and an acceptance of the higher rates to get the freight distributed.
- Used vehicle sales are at an all time high, and are driving additional concerns regarding maintenance and DOT compliance to keep equipment on the roads. Private fleet and small fleets are seeing record growth and optimization, which is shifting customers heavily towards 3PL groups to manage the communications and optimization of supply chains. Driver wages within small to large carrier groups is on the rise to keep skilled labor and adequate workers to handle available volume. This is driving a higher expected flat cost for truck operation and is being passed along to customers. Lumber and steel shortages are making the way down the supply chain and starting to impact outside industries more broadly; an example is lumber used in pallets for manufacturing finished goods. Customers are looking to other alternatives and overstocking inventories to prepare. Labor is going to be a big factor in how fast the industry can recover, and current candidates in training for transportation are only accounting for close to 20% of the needed amount of expected increase in 2021.
- Holidays/Observances – getting into holiday season with pre-load of summer items preparing for the July 4th celebration. Items for outdoor activities and social events will see a surge in the next week to prepare for sales. Operation Safe Driver Week is a month away (7/11- 7/17).
- Weather – heavy rain expected this week in Midwest, with storms coming up from the South. Areas in the West are beginning to see the impact of dry season and are on high alert for heat and fire advisories.
- Several laws and regulation changes are being discussed that could impact the industry. Highway Bill is being reviewed today for implementation, which is aimed at assisting the transportation segment, but does have some potential risks. Along with the addition of money to support expansion and much needed repairs, there will be furthered regulation and risk of high shut down percentages of current carrier groups. The Speed Limiters Bill being supported by the National Highway TSA is proposing maximum speed limiter requirements on over the road vehicles. This would require additional funds to implement and increase transit times for load movement as an offset to reduce on road incident figures. Canadian ELD Mandate deadline was moved to the end of June, but will shut down units not in compliance at the border. Biden Minimum Corporate Tax is being discussed to fund the Infrastructure Bill, and could place an additional corporate income tax of 9% on businesses. Keeping an eye on all of these to make sure we are communicating important changes and watch outs.
Industry data is pulled and summarized weekly from key proprietors and industry experts using multiple publications and sources. Some examples of the publications used are Freightwaves, Transport Topics, American Shipper, American Cranes & Transport, FMCSA, DOT, SC&RA. The information is discussed with Sunset Managing Directors and validated prior to publication of summary data in this posting.