January 19 2022

Freight Insights for January 2022


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 January call:

DOMESTIC

Fuel

  • Fuel prices on the rise for the third consecutive week after an 8-week calm.
  • Government and OPEC entities released needed supply late last year to assist with leveling high prices.  That was a temporary fix to an ongoing issue and that intervention is no longer holding rates at bay. 
  • YOY rates are 98.7 cents higher in 2022.
  • Cooler than expected temperatures across most of the U.S. are keeping energy consumption heightened.
  • Prices are expected to rise through Spring 2022 due to worldwide supply and demand concerns.
  • Decline in fuel rates are projected for long term forecasting as battery driven vehicles begin to become more prevalent.
  • Recharging stations within EV network are a big concern as the infrastructure begins to get tested and development is not keeping with demand.

Capacity

  • Driver and equipment shortages take top ranks for transportation concerns starting into 2022.
  • Equipment costs are almost double YOY and truck manufacturers are cancelling early orders driving even higher equipment shortages.
  • Electric truck production is taking manufacturing focus, reducing line time for Class 8 Diesel orders and further impacting the shortage issue.
  • Sharp rise in carrier acquisitions spark concern over small fleet resilience with the industry, as there are additional regulations and changes expected this year and a forecasted rise in operation costs.  Merging of businesses is allowing for more asset utilization, redundancy integration, purchasing power driving cost reductions, and flexibility within carrier groups.
  • Barriers to entry for new carriers and hurdles to growth for existing carriers are continuing to rise and are stifling the ability of transportation to flow with market needs.
  • Raising of driver wages is showing to have an impact on carrier growth, but is not solving the shortage problem currently or expected to with forecast needs in the upcoming year
  • Carriers are looking to other methods to solve industry shortage issues.  A few focus areas are increasing tonnage per load, incentive programs, culture and diversity programs, reduction of empty mile, and a shift back towards contract and dedicated volume.

Demand

  • Holiday festivities for Chinese New Year starting 2/1 is expected to put further pressure on the port congestion and strain on goods enroute that have not made it past the customs and port bottlenecks.
  • Driven by strong retail activity, truck tonnage is up YOY 1.4% in December, but is showing an inability to keep up with rise in purchasing demand.
  • Schneider pulling operations out of Canada, which will leave a large need for assistance.
  • FMCSA Apprenticeship Pilot program, for drivers under 21 operating Interstate routes, is drawing backlash from insurance companies and is becoming a concern as applicants begin to increase.
  • Vaccines for cross-border trucking started to be enforced this week for Canada, with Mexico following closely behind.  This change in mandate has reduced available equipment in correlation with those unwilling to comply with regulation requirements.
  • Spot Market volumes across the U.S. increased by 80% YOY.
  • Spot truck postings are up 20.8% since last week.
  • Spot rates are trending upward, and expected to continue through the end of Q1.
  • Contract freight rejection rates are beginning to decline.

Service/Cost

  • As new data surfaces, disruption and supply bottlenecks likely to last into late 2022.
  • Expect commodity cost increases through end of Q1 to range between +3-8%.
  • Expect transportation average costs to increase between +2-4% in the next month, with projections of 5-9% through end of Q1.

INDUSTRY OUTLOOK

  • TL: Wait times have been on the rise over the past two months, but over the last two weeks took a sharp increase.  Lack of equipment to flex for drop options and a reduced warehouse workforce are expected to keep these times heightened for the next quarter. Delays are causing missed pickups and impacting the take home pay for drivers.  Carrier reactions to this driving force are to bake in higher fees on the front end to cover for unknown warehouse impacts to revenue.
  • Dry Van: Volumes are high coming out of the holiday season as some retailers restock for the Spring cycle while others are still recouping from delayed deliveries. Carriers are dictating the price, and with the inflation change impacting material costs broadly, there is not an expected decline in demanded rate per mile forecasted for the next several months.
  • Reefer: Freeze protect was a large driving force in equipment demand last week with cold temperatures sweeping the U.S.  Reefer rejection rates are up, and expected to maintain. Tender volumes are steadily increasing and are up YOY.
  • Flatbed: Severe weather and COVID impact is driving a longer than normal construction season. Demand for goods is high, and capacity is short.  Flatbed rates are coming in at a historical high, and is putting pressure on projects to pay higher spot prices to ensure timely deliveries. The trend of cost hikes is forecasted to last for the next month, when construction will have to halt in certain regions due to the weather. This should cause a temporary loosening in the equipment group. 
  • Automation: Supporters are cautious with recent automated testing drawing concern due to programming glitch, leaving companies open to legal concerns and prosecution for accident and damages. The lack of charging stations and options for longer haul flexibility is reducing the growth in this sector.
  • Intl Air Freight: Fed Ex and other LTL provider air shipments are delayed due to pilot shortage and the Omicron variant impact.
  • Intl Ocean: High and rising ocean shipping rates are causing a trickle down impact into COGS. Customers are pushing back trying to drive down costs, but most is being passed onto final consumer. Port of Los Angeles has temporarily deferred empty container fee and trying to assist with fee leveling as pressure from government groups keep tabs on the issue.
  • LTL: Continue to see cost and service challenges. XPO added terminals in WI and AR to assist with shift in volume.  Businesses are looking more heavily into autonomous growth as short mile drone delivery testing gets positive marks.

DOT key dates:

  • 5/17 – 5/19: International Road Check
  • 7/10 – 7/16: Operation Safe Driver Week
  • 8/21 – 8/27: Brake Safety Week
  • 9/11 – 9/17: Driver Appreciation Week

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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