Freight Insights for October 2021

Freight Insights for October 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 October 13 call:


DOMESTIC

Fuel

  • Fuel prices are expected to rise dramatically through the end of year with drops in U.S. temperatures, supply chain issues, and heightened demand.
  • Current FSC for the U.S. is 3.586, a 10.9 cent hike from last week.
  • Hazmat regulations and new requirements will drive furthered tightening in this segment. “Petroleum an liquid tankers have seen almost 42% reduction in qualified driver applicants since 2019” (NTTC).
  • Forecasted hike expected to be around $3.90 by end of year as the global energy crisis keeps prices high.
  • The offshore spill in the California pipeline is expected to put more eyes and heftier regulations on fuel transport.
  • Fuel Prices: national average diesel fuel price +1.191 Oct ’20 vs. Oct ’21. YOY comparison: +66.8%

Capacity

  • Multiple factors are converging to create the industry conditions we are working under currently.  Everything from weather, consumer spending, raw material availability, political agendas, safety, manufacturing, driver shortages, and overall supply/demand. Historical trends are not applicable and changes in equipment and pricing changes are happening daily.
  • U.S. rivers and waterways are the next area to be tapped by shippers as it is the most underutilized option currently available.
  • Rail, TL, and LTL freight have struggled to find capacity due to equipment and driver constraints. This trend is expected to continue into mid-2022.
  • Shipping Container imbalance and price hikes correlated to lack of warehouse space to unload and inability to produce more equipment timely.
  • New Hazardous Endorsement requirements are on trend to create additional concerns and hurdles for the industry.  By the end of 2021, drivers applying for or that have let their endorsement lapse must apply and train through approved schools to obtain the license option.
  • Driver shortages have been worsened by barriers of entry including increased regulations and additional insurance concerns.
  • Warehouse open capacity is reaching record lows, driving manufacturing and transport towards JIT production and shipping, and placing bottlenecks on company growth.

Demand

  • Black Friday consumer purchasing volume is a large concern for customers with shipping challenges and restrictions.
  • 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.  
  • Shortages in the industry are starting to be seen in heightened proportion to end consumers. Empty shelves, reduced selections, and local sourcing are getting a heavier push. Current forecasting on turkey’s, Christmas trees, and children’s toys all suggesting a hardship and lack of availability.
  • Carriers control the market on all types of equipment keeping spot rates elevated.
  • Hunting season and holidays are creating additional strain on available drivers.
  • Dry van rejection averages have started to rise again and while contract rates have leveled, spot rates have spiked.
  • Reefer rejection averages have rose dramatically with the change of the seasons, beginning of protect from freeze commodities, and frozen food commodity holiday demand (turkeys/chicken).
  • Tanker — the sector requires additional background checks and training, prior experience, and endorsement requirements all becoming their own barriers to entry into the industry. This part of the industry is expected to have the hardest hit on driver retention and growth over the next year.
  • Flatbed demand spikes are anticipated with the recent slow rise in lumber prices.  Trade by end of quarter is expected to jump up to 908.79 USD/1000 up from 755.0 we are at currently. 
  • Iron Ore prices have begun to level for new production due to reduced output.  Steel rebar prices on produced steel have hit record highs and will continue to rise as demand will push costs with supply being reduced. 
  • Warehousing constraints are driving a bottleneck between transportation capacity and manufacturing production goals.
  • September retail sales increased fueled by early holiday shopping, and uncertainty of upcoming availability. There was a 0.7% increase in September from the month before. Clothing and Accessories rose 0.6%, Restaurants and Bars rose 0.3%, Motor Vehicles and parts dealers were up 7.8% YOY.   

Source: DAT

Service/Cost

  • As new data surfaces, disruption and supply bottlenecks likely to last into late 2022.
  • Expect commodity cost increases through end of year to range between +5-11%
  • Expect transportation average costs to increase between +7-12%

INTERNATIONAL

Capacity

  • The Typhoon Kompasu in Southeast Asia caused shipping congestion. There are 109 ships at anchor and waiting to enter.  Congestion is likely to continue until mid-February for them and most surrounding ports.
  • Ports altering approach by expanding to 24/7 operations to increase throughput and stay ahead of container surge. (https://www.freightwaves.com/news/lalb-ports-to-test-expanded-night-weekend-hours)

Service/Cost

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

Source: https://www.statista.com/statistics/564668/worldwide-air-cargo-traffic/

  • Bidding wars on air freight provider capacity is expected to driver rates high for the end of 2021. Capacity deficits with ocean bookings and port congestion are leading companies to seek air freight options making the option even more enticing to secure holiday cargo space.
  • Airlines are diverting assets off of passenger transportation while capitalizing on the cargo opportunities.
  • The rent on a 747 freighter for a single flight from China to Chicago is now $1.5 million to $2 million, compared to about $500,000 two years ago. And for companies trying to get products out of Vietnam, charter rates are running between $2.5 million and $3 million” (https://www.freightwaves.com/news/iata-forecasts-2021-air-cargo-revenues-to-hit-record-175b).
  • Intl Ocean: 
    • 24/7 Port adjustments are creating stress on warehousing, transportation, and retailers.  The shift and adoption of the modified schedule is not mirrored in all parts of the supply chain creating inland bottlenecks even with the port relief.
    • Ocean liners do not expect a reduction in rates until early 2023. Current ship rental is hitting between $195,000 – $202,000/day with capacity for 4000-5000 TEUs. Euroseas
    • Longer term charter contract rates have risen, and terms are being extended between 3-5 years.
    • Biden and administration involvement in port relations
    • 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.

INDUSTRY OUTLOOK

  • Conditions will remain tight across all major transportation modes heading into an early holiday season.
  • Trailer orders ramp up in September with orders pushing out until mid-2022 due to raw material shortage. This is the 3rd highest count of orders in history, coming behind October 2014 then by December 2017.  The majority of the orders in que are for Dry Van units.
  • VMT tax suggested to replace IFTA model is anticipated to assess almost a 40% hike in fees to carriers.  Adoption of the new structure could start being implemented as early as mid-2022.
  • FMCSA guidelines for Drug and alcohol testing causing driver confusion and concern.  Random tests increase to 50%, and testing facilities that are unable to complete the tests due to lack of supplies are creating license removal from qualified drivers.
  • Transportation Employment has risen last month with the exception of rail; which is combating line access issues and rail car availability against growth potential.

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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