The JTR Download - September

Capacity Crunch

The Good

Is capacity coming back? Only the freight gods know –

however, with outbound volumes down a whopping 16%

just in the past few weeks there’s been a tiny sliver of hope.

Let’s hope it lasts.

The Bad

With one of the worst hurricanes in Labor Day history

drenching the eastside and record fires burning up most of the west,

it’s become abundantly clear that climate change is having a devastating

effect on US supply chains. Climate unpredictability is causing trucking

rates to shift ever higher with no relief in sight thru early 2022.

The economic slowdown due to the delta variant rampaging through

parts of the country is also cause for deep concern. However, some experts

believe the damage to the economy may be short-lived.

Once the virus finally gets through the unvaccinated, we could see a

rapid rebound as infection rates plummet

Truckload

Early 2022 TL rate predictions pointing higher. Again.

The consensus says a 3-5% hike is just a start

The outlook isn’t too rosy given the industry’s labor and

equipment challenges. But another increase following the

large rate hikes in 2021 is likely to establish a new high normal.

If the current trajectory holds, 2021 full-year per-mile rate metrics for

big carriers will be up in the mid-teen percentages.

Revenue per mile was up nearly 18% YOY during the second and third quarters.

Looking at driver shortages, truck & trailer availability, inventory levels,

the current demand and the multitude of structural constraints on the

capacity side, there’s no way around rate increases in 2022.

Experts say it’s too early to tell what kind of increases we’re looking at.

But the consensus is 3% to 5% as a starting point.

The rate situation continues to be very fluid but 3 to 5% is a reasonable guess

given where the transportation is at the moment. If the industrial economy

really gets going we could see even more upside.

As a side note, production increased 6.6% YOY in July and is now only 0.2% below

pre-pandemic levels, with five straight months of growth. Guidance for the back

half of 2021 calls for revenue per total mile to increase by over 16% YOY.

Let’s hope that’s a bit inflated.

Maritime booking surge could mean tight capacity this fall

Orders jump by over 40% in August

In just the past two weeks, maritime bookings have shot up 40% -

the strongest spike since early spring. It’s a reverse of the slight downward

trend since April and could mean this extended cycle of tightening

transportation capacity may have yet to peak.

The link between maritime booking and surface transportation can be a

tad cloudy but there’s only three ways for all those containers to go:

(1) Drayage to a warehouse, (2) Loaded on a train, or (3) shipped by truck.

And with the current IOVI at 222, there’s over twice as much order volume

with an estimated departure date of August 26th.

That’s a lot of freight moving in.

One thing is clear:

Maritime import volumes provide fuel for the transportation fire.

As shippers order more and more goods from overseas, it’s only

adding to the potential freight moving over land.

And the latest spike, at the very least, points to an extended cycle of

demand and yet another round of tightening capacity this fall.

Economy

Truck makers struggle to fill backlog as supply chain issues mount

There’s no denying what equipment manufacturers have known for weeks now: Shortages are disrupting product launches and blocking OEM’s from

keeping up with even typical orders.

Supply chains are feeling the pain of continuous labor shortages and

mounting component constraints. Fleets are desperate for new dry vans

to make up for the shortage of new trucks and drivers in the current tight

capacity environment. There’s a growing amount of freight to be moved

and the industry continues to struggle to deliver on time.

Tractor production is also running behind. Computer chips are used

liberally in tractors to collect data. The usual tractor employs between

15 and 35 semiconductor chips. Companies like Tesla that rely more heavily

on high-tech parts are hurting even more with last year’s Japanese factory

fires and compounded by the ongoing pandemic.

Most of the current orders will likely roll into next year.

But as those early months of 2022 start booking up, it creates more

headaches for the industry. Things probably won’t approach any degree

of normalcy for most of 2022.

In brief:

-Class 8, medium duty and trailer orders are basically as filled as they’re

going to be for the rest of the year. With inventories far below traditional levels.

-The semiconductor situation is not expected to be fixed this year although there are reports of some supply improvements. But build rates remain exactly as they are.

-The supply chain problems for truck makers can be a multi-headed serpent with

steel supply tight and manufacturers struggling to provide tires, foams and plastics.

For now, supply chain problems seem to be a greater driver of capacity constraints

than consumer demand.

Visibility is paramount in supply chain management

E-commerce surge draws attention to tracking and transparency

Visibility’s role in logistics is undeniably a hot topic, yet a significant portion

of the industry has been slow to actually adopt this technology.

Not too long ago, visibility options were viewed as a “nice-to-have” perk

and shelved in favor of more urgent needs. Recently however, visibility

solutions are seen as a necessity.

The pandemic and the resulting e-commerce surge drew more attention

to the need for tracking and transparency. Companies in the industry have come

to expect better visibility from their partners as a whole.

Just as importantly, end consumers are expecting real-time

visibility on their online orders. In turn, shippers have come to expect higher

degrees of transparency from both carriers and manufacturing partners in

response to consumer expectations.

Not only is it useful for providing customer updates, but it’s also useful in

spotting trouble early to help protect against recurring bad reviews.

Poor reviews are often cause by issues that happen in transit.

Companies need to be able to see those problems – because bad reviews

affect sales and web presence. On the manufacturing side, a lack of visibility

into when parts and supplies will arrive compromises a shipper’s ability to

get orders out. This hurts business growth and leads to friction & frustration.

With better visibility, shippers can plan their workflows to accommodate

changes & delays before they become a problem.

The visibility tools available today are significantly more advanced than

those on the market as recently as 2018. But many companies have decided

not to adopt these solutions after a disappointing first impression.

That’s a mistake. The tracking of yesterday is not the tracking of today.

And it definitely won’t be the tracking of even a few months from now.

It’s moving that fast.

Technology systems have become smarter and much more intuitive.

Visibility solutions can provide companies a seamless experience

and a real leg up on the competition.

Technology

Tap into a digital network to expedite your RFP process

Don’t be restricted by old manual processes

The RFP process can be tedious in a normal year.

In a year like this one where capacity is tight, e-commerce is surging

and the pandemic still raging and unpredictable, an RFP can be

downright overwhelming. That’s why many companies take their

RFP process digital. When shippers rely on old-school tactics like

Excel spreadsheets and endless emails to work through their RFP’s,

it ends up being slow, redundant and expensive.

Utilizing a digital solution – like those provided by Emerge streamlines

the process and uses a lot less manual labor. Brokers and carriers get

a more transparent look into the process, with easy Q&A tools and

simple ways to communicate with everyone involved.

Nowadays the RFP process is speeding up considerably – because it needs to.

The demand to reduce costs is pushing shippers to find modern

ways to do business. The RFP is a perfect example of how technology

can make a huge difference. The old days of swapping Excel spreadsheets

and awarding bids through email are quickly coming to an end.

Just put all your essential information into the bid tool and it’s visible to all

your carriers, reducing the amount of follow-up. During volatile times,

shippers are looking to diversify their RFP’s to ensure better coverage.

Too many large companies rely on a relatively small network of carriers.

That drives up rates and increases the chances of being pushed to the spot market.

However, choosing the right carrier partners can be difficult.

The digital RFP at Emerge helps shippers with a thorough vetting process

and the availability of Emerge’s own network of high-quality options.

Ultimately, the incredible efficiency shippers find when using a digital

RFP solution allows them to build out their carrier networks more easily

while increasing the frequency of their RFP’s, giving them the power to

respond to market shifts much sooner.

Insights

A tale of two dollar stores

Dollar Tree contends with freight. Dollar General mostly shrugs off costs.

Shipping bottlenecks and freight costs are hitting retailers across the board.

While many players have responded with price increases for consumers,

when your proposition is a single price point — say $1 — the options for

mitigating costs are quite limited.

At Dollar Tree, management piled on more than $185 million in estimated freight

costs for the year to the company's profit estimates.

That’s up to $1.60 in freight costs per share in 2021, creating a major

drag on earnings for the year. Plus, the revised outlook comes as ocean

rates from China have risen 20% since May, which was growth on top of

all-time highs, according to Dollar Tree.

"We believe the Dollar Tree banner imports more containers per $100 million

in sales than other large retailers," CEO Mike Witynski said.

"And combined with our low $1 price point, there’s an outsized impact from

freight costs." When congestion in the global shipping system occurs, it reverberates and compounds just as with any other kind of transportation congestion.

"To give you a real-life example of the kinds of challenges we're seeing,

one of our dedicated charters was recently denied entry into China,

because a crew member tested positive for COVID, forcing the vessel to

return to Indonesia to change the entire crew before continuing,"

Witynski recounted. "Overall, the voyage was delayed by two months."

Executives at rival Dollar General called out freight as a headwind,

but they painted a less dire picture for the company.

In fact, the word "freight" came up just eight times on Dollar General's

Q2 conference call, compared to 41 times on Dollar Tree's call.

"Like with our Q2 results, we do expect some continued pressure on

gross margin in the second half, due primarily to inflation, which we

believe to be transitory but related to higher transportation costs,

higher than previously expected," Dollar General CFO John Garratt

said on a conference call Thursday, according to a Seeking Alpha transcript.

In its earnings release, Dollar General noted increased freight costs,

but its profit outlook held mostly steady while its sales expectations increased.

Dollar General is coming off a boom year. The pandemic gave a tremendous

lift to the retailer's stores, which became one-stop shops for consumers

trying to minimize their time in stores. And it also sold the household

essentials that consumers stockpiled in the early months of the pandemic.

Simplicity by the truckload

Can’t find reliable capacity? Transportation costs getting out-of-hand?

Want to save up to 20% on your annual freight spend?

You need a team of dedicated professionals who can expertly navigate

the latest technologies to find you the solutions you deserve.

You need JTR. #Getshipdone

Sources: FreightWaves.com Tuesday, September 7, 2021.https://www.freightwaves.com/truckload

Supply Chain Dive.com Tuesday, September 7, 2021. https://www.supplychaindive.com