Freight Insights for September 2021

Freight Insights for September 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 September 21 call:


DOMESTIC

Fuel

  • Fuel prices are expected to rise through the end of October 2021.
  • Forecasted hike from $3.385 to around $3.50 expected.
  • Fuel Prices: national average diesel fuel price +.981 Sept ’20 vs. Sept ’21. YOY comparison: +40.8%

Capacity

  • Rail, TL, and LTL freight have struggled to find capacity due to equipment and driver constraints. This trend is expected to continue into 2022.
  • Shipping container imbalance and price hikes correlated to a lack of warehouse space to unload and the inability to produce more equipment timely.
  • Western U.S. freight market paying higher rates and pulling extra capacity out of Eastern sectors.
  • Shipping trends shift as long-haul averages decline, manufacturing disbursement places pressure on local distribution, and consumption of goods rise.

Demand

  • There is a higher consumption of goods as we enter the holiday season, coupled with additional spend from boomers in retirement and the influx of immigrants purchasing.
  • Carriers control the market on all three types of equipment keeping spot rates elevated.
  • Carriers are gravitating toward the Western half of the U.S., where rates remain higher polarizing the equipment capacity.
  • Fall commodity shifts, with items like Christmas trees, are expected to drive a change in equipment placements, but could prove challenging as rates and demand increases.
  • Dry van rejections have started to slow, but spot rates are not following trend.
  • Manufacturers react to challenges in transportation by pushing for contract rates, adjusting production and distribution towards short haul opportunities, and moving away from JIT.
  • Warehousing constraints are driving a bottleneck between transportation capacity and manufacturing production goals.
  • Flatbed demand spikes are anticipated with the drop in lumber prices to 607.2 USD/1000 board feet, falling from 1686.0 in May 2021, but keeping ahead of quarter-end projections of 811.71 USD/1000 board feet.
  • Iron Ore prices have dropped due to production restrictions internationally, opening the door for U.S. Steel manufacturers to step in and purchase low ahead of the production rebound of auto production.
  • August retail sales increased, fueled by back-to-school purchases and child tax credit availability. This was a 0.7% climb coming out of the 1.8% decline seen in July. Cars and auto parts saw some of the greatest slowing, with a decline of 4.5% and the shortage of computer chips expected to continue to hit that sector until early 2022. Clothing increased by 27%; Furniture was up by 9% for the month.

Source: DAT

Service/Cost

  • Disruption and supply bottlenecks could last into late 2022.
  • Expect commodity cost increases through end of year to range between +4-9%

INTERNATIONAL

Capacity

  • Three (3) weather fronts in Atlantic cause concern for shipping delays.
  • Del Rio port of entry in Texas closed in response to migrant influx. More port congestion and closures expected as this issue sees additional pressure ahead of the end of year break for Congress.
  • Spot rates for containerships to move manufactured products have surged for 20 straight weeks and now stand 731% above their seasonal average over the prior five years.” (Transport Topics, Sept. 16)
  • Ports altering approach by expanding to 24/7 operations to increase throughput and stay ahead of container surge. (FreightWaves, Sept. 17)
  • Disruptions at the ports caused by COVID impact range from lack of personnel, port closures causing ships to divert, to surges in containers waiting for unload as consumer purchasing goes up. The disruptions and shortages in this transportation sector have adversely combined, leading to increases in shipment costs for container ships and road/rail transport, a lack of warehousing, labor shortages, manufacturing, and production changes.

Demand

  • Retailers stocking up for holiday shopping. Ecommerce sales remain strong, and shippers continue to grapple with inventory restocking.

Service/Cost

  • Intl Road: Border crossing and freight volumes have continued to rise in 2021 vs. previous year. Challenges with migrant crossing and auto manufacturing challenges have shifted the direction of freight demand to a more balanced situation.
  • 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.
  • Intl Air Freight: volumes are up and on-trend to hit early 2018 values by EOY.

Source: https://data.bts.gov/stories/s/m9eb-yevh#water


INDUSTRY OUTLOOK

  • Conditions will remain tight across all major transportation modes heading into an early holiday season.
  • According to FTR Intel, preliminary trailer orders bounded back in August to 15,100 units, which is +79% from July, but still -47% YOY. Although production is still behind demand, the orders starting to return suggests a positive forecast for carrier growth into 2022. Carriers are betting on their growth with securing the ordering slots available once production catches back up.

Source: https://www.fleetowner.com/equipment/trucks-trailers/press-release/21175364/trailer-orders-bounce-back-in-august

  • Previous assumptions on TL spot rate’s downward trend for Fall 2021 are no longer supported. Carriers are driving the market and industry experts expect spot rates to continue to rise slightly into the end of October, then level off going into 2022.
  • 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.

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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