The JTR Download - June

Capacity Crunch

The Good

Healthy consumer spending, inventories that still need tons of replenishment and

an industrial economy that’s seriously heating up are just some of the catalysts

for a super-hot 2021 for transportation.

And it could just be the beginning.

The Bad

More of the same – seems to be the (bad) news in TL right now.

Demand keeps soaring, capacity is getting scarce and prices on most lanes

haven’t even found their peak yet. The real bad news? It could get worse.

Truckload

“We’re not through this demand condition. When you look at the supply side,

which is incredibly difficult, we think there’s several more quarters of this to go,”

said Mark Rourke, CEO & president of Schneider National, a truckload carrier

based in Green Bay, Wisconsin.

Even removing elevated demand from the equation, capacity is incredibly

constrained at the moment.

With a significant number of drivers sidelined due to failed drug tests and increased

carrier compliance, as well as driver schools that have operated at restricted capacity –

let’s just say it’s a tough truckload market.

Add in labor shortages from competing industries like construction and warehousing,

plus hundreds of thousands of new e-commerce couriers have created an even

smaller pool of available CDL candidates.

All this against a backdrop of consumers out there buying & buying, with retail stores showing record sales growth, and you’ve got the perfect conditions for carriers

rejecting roughly one in four loads under contract – a level that continues to rise.

Outbound Tender Reject Index

Big delays in adding trucks to America’s fleets

Ongoing issues with semiconductor parts and raw materials shortages continue

to crimp production at truck manufacturers.

Deliveries of new trucks are already months behind and supply chain issues continue

to mount. There are loads of components in backlog and supply chain issues that are slowing the ability to buy new trucks or get new equipment. Not to mention the piles of

raw parts sitting in containers yet to be cleared at the Port of Los Angeles. So we’re

probably quite a ways off from actually moving those parts and helping capacity issues.

Freight continues to flow in. Capacity does not

Another surge of loaded in-bound containers is on the way as our robust freight

cycle hums along unabated. Expectations on future freight flows continue to grow

with each passing week with no sign of fall-off on the horizon.

Imports

Inbound container forecast raised again

The National Retail Federation raised its outlook for retail container imports to

the U.S. yet again. They expect a 34% increase for the first six months up to 12.7 million.

That’s a 7% jump from the last forecast made just months ago.

Twenty-foot equivalent units hit a new record high last month, marking the

strongest gain since records were tracked 20 years ago.

Inbound Ocean TEUs Volume Index

As everyone knows and the data shows, inbound bookings have been elevated for

a year now, especially in the past few weeks. Plus, ocean bookings to the U.S.

show inbound traffic coming in at a record pace.

Keeping an eye on late summer-early fall

Even with Covid, full-year inbound domestic container shipments rose 1.9% in 2020

to 22 million TEUs. And the prospect for YOY growth looks favorable thru 2021.

However, September-October will be an interesting marker for the current cycle.

Especially with comps stiffening significantly and enhanced unemployment

benefits ending September 6.

However, economists predict the full reopening of the economy will boost

employment and spending to a level that will overcome any bumpiness ahead.

Most see consumer spending levels strong enough for both goods and services.

And with retailer inventories at an all-time low – freight demand will surely remain strong.

LTL

Done deal – TFI completes UPS Freight acquisition

The Canadian trucking giant TFI International has completed its $800 million acquisition

of UPS Freight creating one of North America’s largest less-than-truckload carriers.

This merger allows UPS to jettison its largely unprofitable LTL and dedicated truckload operation while giving TFI its most ambitious project to date. While they didn’t offer up

much new information about the future of the 6,300-truck, 14,500-employee operation,

the new name is TForce Freight.

75% of TFI’s business revenue now comes from the U.S., where it already has a substantial truckload operation and a growing logistics concern. CEO Alain Bedard has told analysts

the company plans to aggressively bring down costs & make the operation “lean & mean.”

Intermodal

No quick fix for intermodal service

With container additions delayed due to lack of ocean capacity, no one expects

intermodal to get back on track anytime soon. The volume strength experienced in

first quarter has continued through the second quarter, and then some.

Total Outbound Domestic Rail Container Volume

Port congestion, slower rails and containers stuck at customer facilities were just some

of the complaints. And minor improvements in rail service is getting wiped out by much longer than normal unloads due to labor shortages at many warehouses.

Darren Field, EVP President of Intermodal said, “Velocity will improve when our customer base unloads faster.” He added, “This isn’t something that’s going to get fixed in June or July. We have to look for incremental improvements over the long haul.”

Currently, the physical delivery of new containers is being hampered by extreme

tightness in ocean vessel capacity. The issue isn’t with building & manufacturing.

The boxes just can’t get to the U.S. with challenges getting worse by the day.

Plus, the current intermodal environment is producing double-digit rate increases

and plenty of fees for excessively detained equipment at customer facilities.

Insights

FedEx piles on more peak surcharges starting in June

With elevated volume over the past year, FedEx has added a series of surcharges

meant to manage capacity. But it comes at a cost for the companies doing business

with FedEx. Trevor Outman, co-CEO of Shipware noted, “the surcharges will have

a significant impact to FedEx shippers – this is not a small increase.”

Seller’s market for transport services could last thru 2023

According to Deutsch Bank analyst Amit Mehrotra, the powerful surge in demand

and pricing now coursing through transport modes will last through the rest of 2021,

continue through all of 2022 and possibly extend well into 2023.

Deutsche Bank's Amit Mehrotra goes long for 2021, 2022 and 2023

(Photo: John Galayda/Marine Money)

Mehrotra, who’s been bullish on transport stocks since 2018, turned up the volume

saying macroeconomic tailwinds cited last year continue to surprise on the upside.

A recovery in U.S. industrial production, the release of pent-up consumer & housing

demand, replenishment of depleted inventories and the billions of dollars in federal

spending from a potential infrastructure bill will keep shipping activity and freight

rates seriously elevated well after the pandemic.

Things are getting interesting.

Simplicity by the truckload

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855.754.0039 - Jtrlogistics.com

Source: FreightWaves.com Monday, May 31, 2021. https://www.freightwaves.com/truckload

SupplyChainDive.com Monday, May 24, 2021. https://www.supplychaindive.com/topic/ FedEx announces peak surcharges/Seller’s market for transport services may last thru 2023.

Charts: FreightWaves SONAR