Letter from the CEO: Coronavirus Market Update
By: Frank McGuigan, Chief Executive Officer, Transplace
At Transplace, we strive to prioritize the needs of our customers, our community, and our team members. With global attention of the coronavirus (COVID-19) outbreak, each day brings more unknowns and challenges for everyone. Transplace is closely monitoring the outbreak and the impact the reaction is having on the transportation market. We are prioritizing the needs of our customers, employees, and suppliers as we collectively face one of the most unique challenges of our lifetime.
It goes without saying we are in this together. Toward that end, we would like to provide you with four types of updates: 1) what we are seeing in the transportation marketplace, 2) what our customers are experiencing, 3) some best practices we recommend with regard to bidding, and 4) the actions we are taking to protect our employees and community. We hope this message relays our insight into what is happening. Please remember, this situation is rapidly evolving, and information is changing hourly. We will continue to provide you updates in near real time when appropriate.
North America Market
- Overall rail capacity and drayage capacity are plentiful across the U.S. at this time.
- There are seven counties in Northern California where people have been asked to stay home: The railroads and dray carriers are exempt from this at this time. The ports remain open as well. The impact on customer closures is still to be determined.
- 40’ containers:
- Due to the lack of imports, this equipment is in limited supply across the country.
- There is also significant congestion at the equipment depots in Southern California resulting in delays in the ability to turn equipment in. The expectation is that two mega ships will arrive at the ports to pick up empties this week as the equipment is needed in China. This will help with the congestion.
- Delays in Northern California and Seattle are limited at this time.
- The supply of 40’ equipment across the U.S. is likely to remain very limited for at least the next 30 days.
- 53’ update:
- There is a drop in intermodal volume out of Southern California due to a lack of imports.
- Intermodal is experiencing an increase in westbound volume and volume within the western region due to a reduction in available over-the-road capacity. Intermodal continues to be a great option to move volume to and from the western region.
- Overall, intermodal capacity is plentiful and to this point the rates have not changed to a significant degree.
U.S. Truckload Capacity
- Consumer demand on shelf stable items and household necessities are driving volume in much of the market.
- Packaging and CPG supply chains appear to be oversold in many places and transportation demand is strong from those sectors.
- Retail supply chains are slowing as customers are staying home in many areas of the country which will affect the global supply chain to an extent.
- Industrial and chemical sectors are maintaining at seasonally expected shipping volumes as of this time.
- Many shippers are seeing surge capacity, especially in the CPG industry (water, cleaning supplies, paper products, shelf stable, and other food items).
- The volume of this surge – 15% to 90% by product line, plant or facility is challenging existing committed carrier capacity.
- Bulk tank truck capacity at its core remains the same over the last two quarters. The major lanes between Houston/LA (I-10 Corridor), Chicago/Ohio, NJ/Eastern PA, and Atlanta remains the same with ample capacity however lead times have shortened. Various specific lanes are starting to see a lack of capacity due to short lead times.
- Transplace issued a recent survey to our carrier base on how they were keeping drivers, employees and customers safe and healthy. Here are some of the measures they are taking:
- Providing hand sanitizer and/or a bottle of disinfecting wipes to office staff and drivers
- Anyone who has a fever or is not feeling well will be required to work from home
- Any employee with a sick family member will be encouraged to work from home
- Encouraging hand/general hygiene
- Performing routine office and truck cleaning
- Encouraging drivers to stay in their trucks whenever possible
- Asking employees to keep a distance of 6 feet or more from others
- Removing drivers from slip seat shifts and instead being assigned to their own trucks
- Carriers are seeing an overall slight reduction in drivers willing to take dispatches to troubled areas or with a length of haul that puts them more than one day from home.
- Pennsylvania has closed all 35 of its highway rest stops, impacting bathrooms, vending machines, and parking access for carriers.
- Some LTL carriers are embargoing parts of New York for the NBG Service Center due to the total number of cases of coronavirus in these zip codes: 10801, 10802, 10804, and 10805.
- Some LTL carriers have implemented a COVID-19 policy including no longer taking signatures at delivery, social distancing 6-10 feet, and not performing any inside deliveries until further notice
- Some LTL carriers are embargoing certain shipments to Philadelphia as the city of Philadelphia is only accepting goods for 11 “essential business” types that will remain open.
Mexico and Cross-border
- The exchange rate of the USD vs the MXN peso was extremely volatile the past few days, fluctuating from a historic yearly cost of 19 pesos for dollar to levels of 23 pesos for dollar and ending the week at 22 pesos for dollar.
- The reduction of imported goods from the U.S. into Mexico by truckload and the increase of CPG export products from Mexico to the U.S., as well as the yearly northbound peak season starting in mid-April, creates an imbalance of trucks in which the demand of trucks surpasses the availability of export trucks.
- The northbound peak season effect is already taking place in some markets such as San Luis Potosí, Queretaro, Guanajuato, and in general in the Bajio area where it is becoming more difficult to find export equipment. Finding equipment and shipping through the Laredo, TX and McAllen, TX border crossing points could quickly get worse.
- In the short term, the market is going to demand Mexican portion peak season surcharges to bring empty equipment from other regions or the border into the Mexico shipping points.
- Spot market rates are increasing for freight going from Mexico to the California, Washington, and Oregon areas. Local truckers are not finding returns from these markets charging premiums on the northbound side to compensate their empty miles.
Canada and Cross-Border
- As of today, the U.S.-Canadian border will close for non-essential travel, including recreation, tourism and personal shopping. The closure will not impact people who live in one country and work in another.
- Canadian Prime Minister, Justin Trudeau, emphasized that it is critical to ensure the continued flow of good between the U.S. and Canada. Both countries remain committed that the border remain open to trade, as close to $2 billion in trade crosses daily.
- The Canadian market is currently not experiencing any capacity issues domestically or outbound cross-border to the U.S.
- In order to not impact the flow of trade across the border, truck drivers are being considered providers of essential services and drivers are being exempted from the 14-day self-isolation measures.
Exports – China to U.S. and Other Regions
- Cargo flows and ship calls are rebounding in China. Chinese industrial activity is increasing.
- According to Alphaliner, 30 to 60% of weekly outbound capacity has been withdrawn from the Asia-Europe and trans-Pacific trades over the past three weeks, as well as from the intra-Asia routes. The reopening of factories in China would see a gradual return of demand, but Alphaliner noted in a recent newsletter that cargo volume recovery was expected to take a few weeks, and until normal volume is reached, carriers would continue to selectively implement blank sailings, likely until the end of March.
- China driver, trucker shortages is still widespread.
- Port congestion continues in China with equipment shortages.
- Quarantines in Hubei Province, Wuhan city may soon be lifted.
- Transshipment ports such as Busan Korea (5th busiest box port) are struggling with congestion due to all the volumes of containers discharged at intermediary ports while carriers were diverting vessels and offloading refrigerated containers due to lack of plugs available at Chinese ports.
- Carmakers and electronic manufacturers in South Korea and Japan are reporting production line shutdowns.
- Los Angeles / Long Beach and Oakland have severe congestion due to lack of space for empty containers that are awaiting backhaul vessels to China / Asia.
- Terminal operations in LA/LGB are cancelling work shifts due to declines in through container volumes which impacts container congestion and gate hours.
- Dray providers are citing wait times of 3 to 6 hours in/out of terminals.
- Shippers are being penalized if drivers are unable to return empties within detention free time periods. Detention penalties range between $100 to $200 per container per day.
- East coast ports are seeing dramatic volume declines.
- Port Baltimore is reducing its workday by 75 mins.
- Savannah / Brunswick are predicting import cargo decrease by 40% in March and April from 2019 levels.
- Port of Virginia estimates cargo lost in February thru April at 44,000 ctrs ~11% decline.
- South Carolina ports estimate 15% decline in port volumes thru April and rebound in May and June.
- Equipment shortages at certain inland ramps are at a critical situation. Ohio container ramps are some of the worst impacted.
- Port of Houston is experiencing equipment shortages.
- Carriers have announced equipment repositioning surcharges as well as special equipment additional charges for open tops and flat racks.
- Export rates for U.S. to Asia have received General Rate Increases (GRIs) as well as exports U.S. to Europe due to impact of overall vessel capacity shortfall stemming from blanked sailings.
- Long lead time for U.S. to Asia export bookings especially in markets with low container inventory.
- IATA estimates revenue losses for airlines > $100 billion.
Ocean and Air
- The global air freight market for Asia, Europe and North America is impacted by the dramatic decline in commercial passenger flight volume creating capacity shortages and volatile spot market pricing without transit time commitments.
- Middle East (Saudi Arabia, Kuwait, Jordan & Qatar) are moving to freighter only market as well.
- Ocean carriers are cancelling Asia port congestion surcharges for reefer containers. Reefer plug utilization has improved in Shanghai and Ningbo, almost all reefers diverted to other ports are in the process to be loaded back to their final destinations.
- Port Tianjin Xingang (closest port to Beijing) still has port congestion surcharge in place.
- Asia eastbound pricing expected to be chaotic for next couple weeks due to growing demand for export equipment and volatile oil pricing.
- 18% increase in container spot rate Asia (TPEB) to USWC effective 3/13.
- 9% increase in container spot rate Asia (TPEB) to USEC effective 3/13.
- Bunker fuel rates are falling.
- VLSFO (Very Low-Sulfur Fuel Oil) $315 per metric ton 3/12 comparted to $740 per metric ton in January 2020 = 57% decrease.
- PIERS reporting 10.1% decline in U.S. imports from Asia in February 2020 vs February 2019, led by 22% drop in imports from China in February.
- Some analysts are forecasting that China will plateau at 85 to 90% production levels due to weakening demand in U.S. and EU with closure of schools, sporting events, concerts etc. Shifting from supply driven problems to a demand problem in U.S.
- This may lead to weak peak season surge if demand weakness continues.
- Tender acceptance is generally worsening from nearly 90% to low 80’s and below. Highest degradation primarily within CPG sector in keeping up with surge in consumer demand.
- Expectation is further degradation in First Tender Acceptance as the general balance in capacity will be unfamiliar territory for providers as markets adjust.
- Transplace continues to run many bids during this time. We think it is still a good time to bid because it is better to lock in capacity / rates even with a slightly lower hold rate than in the past. We are currently seeing the below in bids, but this could change over the next few weeks.
- High % of carriers bidding
- Very competitive rates still
- Better to reset than let rates go stale
- There is still a window to get acceptable rates to contract
- Our recommendation is to hold our current course but continue to monitor this dynamic market as we get closer to launching RFP’s in a couple of weeks.
Best Practices for Navigating this Challenging Time
- Communicate and collaborate. Continue to be in touch with your partners during this time and collaborate so you can stay informed with what is happening with each other’s business.
- Go to core carriers and dedicated fleet partners and request surge capacity for forecasted volume on their awarded lanes at contract rates.
- Cast a wider net to source capacity for a “better safe than sorry” approach due to unknown surge volumes. Committed volumes can be spread across existing lanes if surge volume does not fully materialize.
- Once capacity is sourced and goes live, measure carrier performance to commitment daily and contact carriers with feedback – both meeting and falling short on commitments. Also, provide weekly data and reports to operations and procurement teams.
- A rapidly executed “mini-bid” produces better results than one on one carrier requests / negotiations. Pricing for surge capacity is much lower through a sourcing process vs individual carrier negotiation.
- Call carriers to get a live person vs. email to find the best network fits.
- Utilize multiple pricing models to get the best rates (costs per truck per day / week, costs per load, costs per mile).
- Consider pop-up fleets for weeks vs months although most carriers are looking for a minimum of a month or more commitment.
- Focused fleets of 250 miles or less seem to be optimal but fleets can also handle customer critical lanes beyond that range.
- Watch where you ship as certain destinations / customers can tie trucks up for a day or multiple days and may not get unloaded.
- Avoid signaling an excessive need or sense of “panic”. Source with a process and sense of urgency but signal exploring multiple options and scenarios.
How Transplace Can Help
- Transplace has been able to offer shippers capacity from our wide net of multiple carrier bases – Transplace dedicated fleets, core asset carriers, and brokerage carriers.
- In addition to offering capacity, our transportation experts are able to help with on-time service and network optimization, and continue to offer procurement, consulting, and engineering expertise.
- We recommend leveraging Transplace Network Services to find dynamic continuous moves, TransMATCH cross-client collaboration, dedicated fleet and LTL Pool opportunities.
- We recommend using Transplace TMS tools including Control Tower, service risk prediction model, and machine learning for real-time, end-to-end visibility to mitigate risks and proactively manage your supply chain.
We have established internal protocols around travel restrictions, self-quarantining, social distancing, as well as other safety precautions. We have also been actively stress-testing and implementing our pandemic response plans and remote capabilities. In addition to our internal plans and procedures that have been put into place, we are dedicated to participating in the requirements of our customers at their facilities and for their movement of freight to maintain a safe operating environment.
- Transplace has enacted work from home for all non-essential personnel and greater than 75% of our Transportation Management team is now servicing our clients in a remote environment.
- Telecommunications and customer connectivity remain uninterrupted.
We believe we are in the midst of one of the most uncertain times as it relates to predicting the balance between supply and demand. We cannot predict how long the market conditions may last and what direction they will change. We will continue to provide updates as the situation warrants. We want you to know that we are here for you. If you need us for anything, please reach out to us.
- Current Transplace Customers: Reach out to your Transplace account manager or complete the form here.
- Current Transplace Carrier Partners: Reach out to your Transplace representative or complete the form here.
- Shippers: Complete the form here or call (866)-413-9266 and select option 3 to request a quote.
We value your partnership and we truly want to support your team by providing resourceful solutions, referrals, or recommendations to keep your business successful.