Freight Insights for November 2021

Freight Insights for November 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 November call:


DOMESTIC

Fuel

  • Fuel prices are expected to continue to rise dramatically through the end of year with early drops in U.S. temperatures versus recent history. 
  • Demand has been rising faster than supply. Supply issues expected to continue to drive higher prices exacerbated by industry driver shortages.
  • Current FSC for the U.S. is $3.730, which is $1.347 more YOY.
  • Fuel alternatives are being pushed to support gap (biodiesel/electric), but not easily implemented.
  • Hazmat regulations and new drug testing 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 $3.96 by end of year as the global energy crisis continues to put pressure on the already taxed market.

Capacity

  • COVID requirements on companies with over 100 employees effective 1/4/2022 is putting a spotlight on concerns with exception testing and tracking, along with financial responsibilities. New vaccine policies under federal mandates are creating a projection of 1/3 of the drivers in the industry to quit or shut down until the policy is changed.
  • Legislation with Build Back Better and the Transportation Infrastructure Bill are creating concern and hesitation on carrier growth forecasting. The content of the documents could steer the industry away from traditional approaches and equipment, so carriers are holding to await more information. A drop in tractor orders is being realized due to the industries hesitation.
  • Driver bonus programs and incentives have created a paradigm where drivers are demanding additional pay or moving between open rolls across companies. Their movement is in line with U.S. Labor Departments worker statistics which show 4.4 million Americans quit their jobs in September. The impact of this change is fueling rate increases and support Legislation for the under 21 initiative for interstate driving options.
  • The 3G Sunset and conversion will create a loss of equipment visibility and non-compliance with ELD regulations which is a substantial concern. FMCSA warnings are not creating the reaction desired and carriers are not expected to react in enough time to manage a smooth transition. Cellular shutdowns will begin as early as 2/22/2022 and will continue through the year. By the end of 2022, no 3G device will be able to connect. Driver and equipment downtime and the financial burden of equipment upgrades is not something all companies are ready or able to bear with all the other industry factors happening right now. To make matters worse, chips required for the upgrades are facing supply chain shortage delays. 
  • Hunting season has been a topic with driver vacations and availability, creating localized pockets of scarcity and higher rejection rates.
  • Government involvement in private sector business to support taking an active role in supply chain recovery is blurring the lines of ownership and responsibility. Leveraged mandates and requirements to meet supply chain needs are anticipated to put unforeseen hardships onto carriers, and could drive increased closures.
  • Warehouse open capacity is at a historical low, driving two areas for focus; automation and modification to current operations. Shifting resources and budget, along with streamlining or eliminating services offered at a site will be key to growth.

Demand

  • Transportation Infrastructure Bill has built-in support and funding for the ports, which may move the supply chain challenges further inland. Container storage funding, expansion of port hours and coverage, and rail expansions are expected to have success clearing port congestion, but will put additional pressure on road transportation to keep up with the freight shifting.
  • Out of Stock goods highlight rippling impact of supply and demand concerns going into the holiday season.
  • Consumer purchasing has spiked ahead of Black Friday due to shipping and transit concerns. Companies have reacted to the shift with stores hosting Early Black Friday options and incentivizing early purchasing. This early reaction is driving extra concern and burden on international product availability.
  • Impact is expected to be felt the hardest this holiday season on turkeys, pumpkin, artificial Christmas trees, children’s toys, and chip reliant electronics.

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 +8-10%
  • Expect transportation average costs to increase between +8-14%

INTERNATIONAL

Capacity

  • SoCal port commissions endorse carrier fines for container backlogs. Current demand and pressure on the ports will be increased as fines create desire for faster port turn around and additional carrier flexibility.

Service/Cost

  • Intl Air Freight:
    • Volumes are up and on trend to surpass 2018 values by EOY.
    • Domestic air and group fuel surcharge levels to rise in next week by 1%
    • Concerns over USPS ability to navigate shipping increases amid large percentage loss in staff.
  • Intl Ocean: 
    • Record volumes expected in the next two weeks, ahead of the holiday.
    • 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.

INDUSTRY OUTLOOK

  • Conditions will remain tight across all major transportation modes heading into an early holiday season.
  • Intermodal — increasing transloading from port surge is increasing cargo volume and total volume loads per railcar. Daily volume in the past week is up 10.8% versus September averages.
  • Dry Van — rejection rates have declined, but spot rates remain high.

  • Reefer — rejection rates have started to decline, but remain at record highs. Shippers are still struggling to secure capacity, so OTR carriers are following the flow of high rates when dictating regions to focus extra capacity.

  • Flatbed — ahead of an anticipated $200 rise against /1000 board prices by EOY, demand still remains heavy on flatbed going into the winter season as customers with the warehouse capacity to store extra materials are preload purchasing ahead of a price hike.

  • 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.
  • OSHA-ETS vs. The Federal Contractor Vaccine Mandate — the two are very similar which has caused some confusion, but they are two different mandates.  

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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