March 1 2023

Freight for Thought: Tesla semi-trucks hit the road

The following insights are provided by Sunset’s Strategic Account Management team.

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 February insights:

DOMESTIC

Capacity

  • Tesla semi-trucks have hit the roads this month for Pepsi-Co’s Frito-Lay division – just 5 years after first announced.  The Tesla Semi has a range of approx. 500 miles on one charge, depending on the contents of the truck. 
  • DAT Spot Load/Truck Posts in February are up 1.2%/5.2% from January and -68.5%/+33.8% compared to the same time frame in 2022. This clearly shows us how many more carriers are going to the DAT load board to find loads this year compared to last, confirming open capacity. 
  • The current load-to-truck ratio on 2/26/23 is 2.31 – declining about .16 from last week to hit the lowest number ratio this month – actively demonstrating diminishing demand.
  • Looking from January to February, the biggest differentiator was winter weather – capacity was tightened in certain areas like CA, WA, OR, MI, and MN due to storms.

Demand

  • US for-hire truck tonnage is slipping month to month but remains to come in higher than expected.  Tonnage was down .4% in January from December, but the ATA (American Trucking Association) expected a much larger drop, amounting to a seasonally adjusted gain of .7%.
  • The US economy may avoid a recession this year as some key elements such as consumer spending and new auto loans prove more resilient than expected. Trade will be slow this year, but the US market will be supported by supply chain “decongestion,” also helping to reduce supply-driven inflation, in time for trade to pick-up.
  • US Transportation and Warehousing lost fewer jobs than expected in January.  The Bureau of Labor Statistics (BLS) predicted a loss of 311,500 jobs, but the real loss was 288,600.  Because of this, the BLS is showing a gain of 22,900 jobs for the month, based on the adjusted data for seasonal expectations.
  • Early signs of a spring rebound in less-than-truckload (LTL) freight demand are visible and should be confirmed as the first quarter closes.  Old Dominion Freight Lines (ODFL) has noted that in December, their tonnage was down 12.3% y/y but down just 7.8% y/y in January – indicating that demand is still slowed, however, accelerating within their LTL business sector.
  • The US Gross Domestic Product Q4 2022 results have been released and show Real GDP rose at an annual rate of 2.7% but has slowed from Q3 2022’s 3.2%.  The changes from Q3 to Q4 reflect a downturn in exports and consumer spending, nonresidential fixed investment, and state and local government spending. These movements were partly offset by an upturn in private inventory investment, a smaller decrease in residential fixed investment, and an acceleration in federal government spending. Imports decreased less in the fourth quarter than in the third quarter.
  • The overstock problem continues into 2023, as retailers are stating plans to reduce inventories in Q4 often were thwarted by lower sales. This was driven by last year’s revenue timing, early retailer purchases, and softened Q4 sales.  Given the higher level of opening retail inventory, we expect a negative impact on retail orders in the first part of 2023.

Service/Cost

  • UPS will invest $830M upgrading their IT this year, including about $246M for its Smart Package initiative. This involves rolling out smart packaging at the company’s remaining 940 US facilities by the end of 2023. That technology links packages, trucks, and facilities in a digital network, using RFID tags on packages. 
  • Truckload linehaul rates were down 0.9% in January from the prior month. YoY, those rates were down 5.6%. The linehaul rate index includes contract and spot rates across the country. 
  • CEO of Union Pacific Railroad, Lance Fritz, announced he has stepped down amid pressure from an activist investor. The board has announced they do not yet have a replacement but plan to name a successor “in 2023”.
  • The average cost of Diesel is $4.294 as of 2/27/2023 – down $.82 from the week prior but still $.19 higher than last year.

Short Term Expectations
Sunset expects demand to reduce or stay flat in the coming weeks and capacity to remain generally available.  Challenges will arise on certain regional levels due to winter weather. 

INTERNATIONAL

Capacity

  • US Class I railroads are moving to address quality-of-life issues raised by unions during the tense negotiations in 2022, including pilot programs to reduce on-call jobs and significantly reducing furloughs of front-line employees during economic downturns.  Economists say that many intermodal service issues in ‘21 and ‘22 were due to excessive layoffs/furloughs at the beginning of COVID and the inability to rehire for those positions when demand picked back up.
  • Alabama is doing a lot of work on their intermodal capacity this year.  Maersk subsidiary APM Terminals plans to double the track capacity at the Port of Mobile’s railyard to allow for faster rail transitions. The completion of the APM track expansion project will coincide with the expected opening of the Montgomery inland port.  The state of Alabama and Norfolk Southern are also working on a separate $231M project that will upgrade 280 miles of tracks and allow NS to double-stack containers.  
  • West Coast longshore workers and their marine terminal employers on Thursday (2/23) said negotiations on a new contract are continuing and both sides remain hopeful to reach a deal soon. West Coast ports have continued to operate during the negotiations, which began last May in San Francisco. Yet, the Port of Oakland saw occasional shutdowns and interruptions that have been attributed to slowed negotiation progress. A new agreement would cover 22,000 workers at 29 ports along the West Coast.

Demand

  • Large intermodal providers such as Hub Group, J.B. Hunt Transport Services, and Schneider National are aggressively cutting rates, jockeying for market share amid continued plummeting demand.
  • The demonstrated softening of freight demand will keep downward pressure on trans-Pacific spot rates that have tumbled more than 80% since last February and should result in continued improvements in vessel schedule reliability for shippers.
  • The NRF (National Retail Federation) increased the expected drop in containerized imports from 23% to 25.5%  for January.  The projected import number of 1.57 million TEU would be the lowest for the US since May 2020 and is expected to be announced the first week of March.
  • With demand continuing to fall, Ocean carriers are building out transport and warehouse capabilities. Some have also expanded into non-freight sectors. MSC purchased private hospital operator Mediclinic and CMA CGM bought the Marseille newspaper, La Provence. 
  • Southeast and Gulf ports are expecting a container uplift from electric vehicle plant manufacturing and operations due to combined investments of $44B.  They are expecting this to begin late 2023 as robotics and machinery to build the first Hyundai plant in Savannah, GA is shipped and expect to account for 30,000-40,000 additional inbound containers per year.

Service/Cost

  • The average spot container rate has dropped back to its pre-pandemic level of approx. $1200 per FEU. Industry sources expect spot rates to both coasts to remain tight during winter cargo lull that will last into March. 
  • The Georgia Ports Authority (GPA) has ceased evening truck hours at the Port of Savannah and discontinued the use of several inland pop-up storage yards.  This comes as volume moving through the gateway has slowed significantly in recent months.
  • On May 1, Union Pacific Railroad will end a controversial chassis policy which led to huge storage fees tacked on to inaccessible ocean container shipments.  They state they are responding to “market changes” to make container retrieval more efficient. 
  • Rate hikes resurface from Mediterranean Shipping Co. who will implement a general rate increase (GRI) of $500/container for all India to the US, San Juan, & Puerto Rico lanes starting March 23.  This is the first sub-charge to prop up freight rates in this way as supply attempts to rebalance with demand – but this trend is expected to spread throughout the market in the coming months.

Short Term Expectations
Sunset expects ocean capacity to remain available and import demand to continue to slow into 2023.

Industry data is pulled and summarized weekly from key proprietors and industry experts using multiple publications and sources. Sources include, but not limited to: FreightWaves, 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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