Freight Insights for February 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 February call:
DOMESTIC
Fuel
- Fuel prices are continuing to rise with projections estimating another .25 increase by the end of Q1, and some forecasts project a $5.00 average by July.
- 40.5 cent increase in average fuel costs have occurred over the past six weeks, with the average coming in at a $1.143 increase YOY.
- Oil production is being reviewed amongst several government entities and organizations as crude prices rocket toward $100 a barrel.
- Discussions on temporary fuel tax removal has been tabled until next month.
- Depending on what occurs with Russia and Ukraine, forecasters have modeled costs to rise up to $131.00 a barrel over the next few months.
- Associated item – there are seven liquefied natural gas export terminals within the U.S, and this past week all had units docked being loaded. A high percentage of the exported product is heading to Europe where international natural gas prices are over 6 times the U.S. benchmark.
- Storms sweeping the U.S. in past weeks have kept energy consumption heightened and the upcoming storms are having consumers pre-purchasing extra fuel to combat power outage risks.
- Prices are expected to rise through summer 2022 due to worldwide supply and demand concerns.
Capacity & Demand
- Driver and equipment shortages rank as the top concerns for transportation in 2022.
- Supply chain disruption and an imbalance of freight movements with port congestion are driving large gaps between the inbound and outbound rates for regions.
- Equipment costs have jumped over double YOY for trailers and are on a steady incline for tractors.
- Raising driver wages, offering bonus incentives, and flexible work schedules are not incentivizing fast enough to keep up with growing demand for drivers.
- Demand for goods and services is expected to rise sharply between now and the end of the quarter as the market recovers from a soft January.
- COVID cases have shown on the decline, so purchasing trends on services is expected to rise next month especially in the food sector.
- Nationwide EPA truck emissions regulations putting additional pressure on the aging fleet issue.
- FMCSA Apprenticeship Pilot program for drivers under 21 operating Interstate routes is on hold pending safety concerns and the unknown insurance impact.
- National tender rejection rates are starting to lower, showing pockets for capacity in larger shipper markets and big cities.
- Load-to-truck ratios for Van are up 119.8% YOY, Reefer is up 150.7% YOY.
- Spot Market volumes across the U.S. increased by 104.7% YOY.
- Contract freight rejection rates are beginning to decline.
- Spot freight rejection rates are expected to increase over the next month as freight volumes begin to rise.
Service/Cost
“Despite reductions in insurance coverage, rising deductibles and improved safety, almost all motor carriers experienced substantial increases in insurance costs from 2018 to 2020. Premiums increased across all fleet sizes and sectors, with small fleets paying more than three times as much as very large fleets on a per-mile basis.” ATRI
- Expect commodity cost increases through end of Q1 to range between +6-10%
- Expect transportation average costs to increase between +3-4% in the next month, with projections of 7% through end of Q1
“Economists and industry experts widely believe supply chain disruptions will continue to greatly impact the transportation industry for the first half of the year, and possibly into 2023. Stemming from the COVID-19 pandemic, the logistical bottleneck continues to reverberate around the world as carriers, shippers and third-party logistics providers attempt to deal with the impact on their operations.” Transport Topics News
INDUSTRY OUTLOOK
- TL – The spot rate to move 53’ containers door-to-door in the lane, including fuel, is $3.40/mile, up 8.5% in the past month. National tender rejection rates are trending lower, suggesting a temporary relief in capacity constraints. The biggest challenges in the upcoming two (2) years will be the average age of equipment and more highly emphasized equipment tracking requirements by both fleet owners and shippers.
- Dry Van – Carriers are holding high rates in place for spot requests, and customers are hesitant to lock in contract volume in hopes for the market to soon turn. Volumes have remained high but consistent with historical patterns for February. This sector should see a slight reduction in capacity constraints in the next two weeks, with tightening expected mid-March. Rates are not expected to shift until late spring, so expect price leveling until that time.
- Reefer – This equipment is still in high demand with load postings coming in well above recent historical highs. There are very few pockets of capacity, stemming more from local fleets versus long haul opportunities. Reefers are booking further in advance as production of goods ramps up and cold storage options are very scarce. The high demand is pushing the average rate per mile on this equipment upward.
- Flatbed – Construction did not slow as it has historically, and several large building contracts were pushed out due to COVID impact. Due to material shortages, rising prices, and employee reductions, we will see a booming construction season in 2022. Contract and permitting length are pushing completion of projects above budget, and helping to support flatbed haulers keeping RPM’s high. The expected softening of demand did not follow projections as repositioning of assets and hazard fees kept the engagement of the carriers during bad weather. Two areas impacting the availability of flatbed capacity are commodity volume and prices.
- Steel – Import volume is beginning to climb. “Imports of steel at the port recorded a 176% year-over-year increase to 440,883 tons. The year-over-year increased demand is part of the global steel industry’s rebound in construction and manufacturing,” reports FreightWaves. U.S. Steel saw an increase as well over the past 6 months and has been capitalizing on the reduction of Chinese steel coming into the country.
- Lumber – Lean inventories, with U.S. and Canadian wood taking industry hits last year due to fires, flood, and bug infestations hurt this market. Purchasing of materials early provided temporary relief, but with dwindling supply and demand rising dramatically, this group should expect radical shifts quarter-over-quarter. In addition to this supply hit, U.S. home sales jumped 12% in December and are forecasted in 2022 to be significantly higher than in previous 5 years. Early purchasing of materials ahead of projects no longer presents an advantage as stock has dwindled, and replenishment has not kept up with the upward driving demand. While there is a push to reduce fees in transport, the lack of drivers and equipment is forcing builders to seek other areas to shave costs.
- Intl Ocean: Ocean container dwell times have doubled in average week over week stats driven by capacity tightening at the ports and inbound container growth. Transload wait times are increasing as warehouse space has become a premium and is in short supply. Shippers are increasing lead times to ensure compliance with on time delivery windows. Fuel costs rising, delays in transit and offloading, and port congestion are all applying pressure on container rates and keeping shipment costs at a premium. These pressures are not expected to release soon, driving rate trends upward through the end of 2022 and into 2023.
DAT Key Dates 2022
- 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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