Freight Insights for August 2021

Freight Insights for August 2021


The following insights are taken from a monthly 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 August 10 call:


DOMESTIC

Capacity

  • Rail, TL, and LTL are stifled due to equipment and driver capacity constraint. Driver pay increases continue.
    • The driver market has become worse as the year has played out,” says Derek Leathers, CEO of Werner Enterprises. “Driver wage increases are accelerating as well, with driver pay at Werner up 11% year-over-year at the end of the second quarter. We still have some targeted, strategic driver pay raises that are going into effect, both in dedicated and in one-way (over-the-road-truckload).”
  • Fuel Prices: national average diesel fuel price +1.6% July ’21 vs. June ’21. YOY comparison: +38%

Demand

  • Consumer demand continues to stretch supply chains and retailers shift from the back-to-school season to the peak shipping season for holiday merchandise.
  • July retail sales dropped 1% but still +13% YOY. Only 3rd month since January to see a decline. Saw decline in auto sales, online sales, and clothing/accessories. Increase in miscellaneous retailer category (florist, pet shops, etc), as well as gas, restaurants, and bars.

Service/Cost

  • Disruption and supply bottlenecks could last into late 2022.
  • Expect cost increase September through December of around +2-5%

INTERNATIONAL

Capacity

  • Concerns Delta variant could fuel port disruptions: A major terminal at Ningbo-Zhoushan, the world’s third-busiest port, was closed 8/11 after a worker tested positive for the Delta variant. Halted all inbound and outbound container services at it’s Meishan terminal. The port remains partially shut down (as of 8/16). 46 ocean container vessels are waiting outside the port to be unloaded (~500,000 TEUS in backlog).
  • Covid infections in Ho Chi Minh City, Vietnam impose lockdown until 9/15 (two months).
  • Shanghai-based carriers China Cargo Airlines and China Eastern Airlines have grounded all “passenger belly freighters” – i.e., passenger craft carrying cargo only – until the end of August, and congestion has worsened at the airport.

Demand

  • Retailers stocking up for holiday shopping. Ecommerce sales remain strong, and shippers continue to grapple with inventory restocking. Container dwell times and ships at anchor approaching record levels: 36 vessels at anchor outside ports of LA/LB, hit record from Feb. Average 7 days at anchor, +5 from days last month.
  • Air volume grew +8% in the first 6 months of 2021 compared with the same period in pre-pandemic in 2019.

Service/Cost

  • Intl Air Freight: as demand remains strong and passenger capacity add-backs remain muted (down 2% M/M and down 11% Y/Y, respectively), we expect rates to be up 100-200%+ versus pre-COVID levels. Anticipate demand to outstrip capacity through 2021.
  • Intl Ocean: Price increases since mid-2020 are being driven by strong demand and subsequent capacity scarcity. Meaningful capacity growth will likely be a 2023 event, so rates likely remain significantly above pre-COVID rates over the next 18 months. Congestion in Southern California will get worse over the next three months when import volumes are likely to set new records.

INDUSTRY OUTLOOK

  • Conditions will remain tight across all major transportation modes heading into an early holiday season.
  • It makes sense when rates are high, that carriers are eager to grow their fleets. However, the most recent August ATA data shows that this rule doesn’t prevail in the current freight market. In 2021, fleet sizes are down 6% for large carriers and 4.9% for small carriers with LTL carriers down 0.9%.
  • Expectations are that TL Spot Rates have hit their peak and a drop is coming with rates trending downwards slowly. Contracted TL Rates are expected to continue to climb due to a sustained inflationary spot market.
  • Amid all the hustle of the COVID pandemic, the ground may be shifting for our industry where old operating models will no longer apply post-COVID.
  • Consumer spending is on pace to increase by 9% in 2021, which would be the highest increase since 1946 on the heels of WWII.

Industry data is pulled and summarized weekly from key proprietors and industry experts using multiple publications and sources. Sources include, but not limited to: Cass Transportation Index, DAT, Journal of Commerce (JOC), PYMNTS, NRF, Cleveland Research. The information is discussed with Sunset Managing Directors and validated prior to publication of summary data in this posting.


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