Letter from the CEO: Market Update April 16, 2020
By: Frank McGuigan, CEO, Transplace
Let me begin by saying that we are thinking of those who are directly impacted by this pandemic and remain committed to supporting our customers, employees, carriers, and partners. We are in this together and I have been proud to see how we have been able to support those around us.
We continue see the COVID-19 crisis impacting business processes, consumer habits, and the worldwide economy resulting in continued disruption on most of the global supply chain. Below, you will find the most recent market update that communicates our insight into what is happening. We will continue to provide you updates in near real time when appropriate.
North American Market
- There is plenty of capacity available across the intermodal network.
- 40’ containers:
- The situation inland is improving by the day, but we are uncertain how long this will last.
- There continues to be uncertainty regarding imports as companies cancel overseas orders.
- Businesses that had shifted from 40’ equipment to 53’ equipment are shifting back.
- 53’ containers:
- There is plenty of availability across the intermodal network.
- There continues to be a buildup of equipment on the West Coast.
- Intermodal volumes have showed substantial weakness over the last 10 days, down as much as 20%-25%.
- Service results have been very good. One of the measurements of service is intermodal train speed. The results over the last three months are well above both the 2018 and 2019 results, as well as the average over the last 10 years.
U.S. Truckload Capacity
- Closure of non-essential industries quickly created surplus capacity and a rapid decline in spot rates.
- Bulk capacity remains strong for most lanes with core carrier acceptance rates at a high level. Bulk lead times have extended over the last week which is a positive in securing capacity and tendering to the core carriers. A continuation of strategic lane price solicitation is recommended versus conducting full-scale RFP’s.
- LTL shipment count is down around 10-20%.
- Drivers are showing up for work at pre-crisis levels or even higher than pre-crisis levels.
- Seated count is in line with normal average before COVID-19 impact.
- Some carriers are seeing an uptick in job applications as other industries are laying off employees.
- A very small percentage of drivers are taking time off due to COVID-19 concerns.
- Hiring out of “hot spots” has stopped or slowed significantly in NY, NJ, and CT.
- Many LTL carriers have issued furloughs with more likely to follow.
- LTL carriers are focused on collections and are nervous about slow payment.
- Guaranteed delivery times have been often eliminated and/or there are no penalties in force across numerous LTL carriers.
- There are spot issues with deliveries with locations requiring temperatures and signing information.
- Drivers are often signing on behalf of consignees to limit exposure and interaction.
Mexico and Cross-Border
- Many OEMs (Original Equipment Manufacturer) are extending their shut down production from April 30 to May 10 and May 17.
- CPG customers are still shipping but some of them have been affected in the northwest by regional state closures.
- Carriers are offering temporary capacity due to OEMs and automotive shipper closures.
- Rates from Laredo to California are starting to reduce but capacity is still tight and many U.S. carriers are charging up to $1,000 California surcharges until mid-May.
- The Mexican government has announced that Mexico will be facing phase 3 of the coronavirus outbreak in approximately two weeks, which is suggested when Mexico will see the highest peak of COVID-19. Restrictions to non-essential business will probably extend beyond the initial April 30 period, however, no official announcement has been made yet.
- The IMSS (Mexican Social Security Institute) has announced a 20% bonus to medical personnel assisting in the COVID-19 crisis.
- Nuevo Laredo and Laredo authorities are restricting travel between both ports and building capacity prohibiting individuals from traveling between the hours of 10:00pm to 6:00am daily and are limiting the number of individuals per location to 10 people.
- Both U.S. and Mexico Customs authorities confirm border operations between U.S. and Mexico continue on normal schedules. Port information including hours can be found HERE.
- Mexico Customs confirms all airports, land ports, and seaports continue operating on normal schedules.
- Most border cities have enforced the use of face protection for all types of locations and outdoor activities.
- The exchange rate continues to fluctuate at a historic high of $24 pesos per U.S. dollar affecting the import of some goods into Mexico.
Canada and Cross-Border
- For the most part the Canadian industry has settled into more of a ‘steady state’.
- Drivers are available with contracted carriers; thus, tender acceptance has improved.
- Cross-border traffic continues to flow smoothly. The initial agreement in restricting the cross-border flow of non-essential goods is set to expire on April 19. There are talks that are underway to likely extend this date.
- Currently shippers are experiencing situations where loads are being refused due to warehouses being ‘full’ or where loads have been re-routed en route for this same reason.
- Many food producing customers experienced a record March in terms of volume shipped and have settled back into a slightly softer YOY April. Their projections appear to show a bit of an uptick for May based on orders received to date.
- We have heard that some carriers, especially those with stronger foundations in retail trade and automotive, have reduced some of the P&D drivers as well as back office staff.
Ocean and Air
- India country lockdown due to the COVID-19 virus has been extended until May 4. Many other countries have extended lockdowns as well.
- Ocean carrier financials are being closely monitored as the risk of a major ocean carrier bankruptcy grows with worsening global economic outlook. Altman Z-scores measure the likelihood of insolvency for a container line. 11 global carriers are currently categorized as high risk using this index.
- As carriers continue to blank/cancel sailings, advance booking lead times are more critical than ever to secure space on available vessels. There has been a total of 458 cancelled sailings since Chinese New Year – 89 due to the Wuhan shutdown in China and 369 due to demand fallout in the U.S. and EU.
- Congestion at port terminals globally continues with loaded import containers due to ongoing closures of non-essential receiving locations.
- Some ocean carriers have extended container detention free time in certain countries to lessen storage charges and relieve port terminal congestion.
- International air freight market continues to be highly volatile with rates and available capacity. Some airlines are requesting air forwarders to pre-pay for blocked space due to financial concerns.
- Mediterranean Shipping Company (MSC) suffered a network outage that affected their website starting Thursday, April 9. Operations were not impacted, and their online tools are now operational. MSC has declined to provide details on what caused the outage, although speculation has centered on a cyberattack or malware.
- Chinese exports dropped 6.6% in March 2020 compared to previous year.
- Delays at many EU borders have gotten better. A map of the delays can be found HERE.
- There is a container congestion crisis at import destinations as shipments arranged before widespread social lockdowns have continued toward their destinations.
- Customs authorities in China have required all non-essential goods, which have been loaded on vessels for export after March 27, to be unloaded.
- Assess the risk of bankruptcy on providers and know which providers have too much business invested in your network.
- Evaluate opportunities to leverage spot market opportunities.
- Optimize fleet performance (size fleet, optimal lane assignment, backhauls.)
- The market did not go off like a light switch and there will be a series of lights going on and off across the supply chain as it returns.
- We are continuously evaluating market risk, capacity, and opportunity across the network and by origin, mode, and/or lane type.
- Our transportation professionals 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 to increase your capacity options, reduce your costs, and reduce your carbon footprint.
- Transplace TMS tools including Control Tower, service risk prediction model, and machine learning for real-time, end-to-end visibility can mitigate risks and improve the effectiveness and efficiency of your supply chain.
Finally, in our last update, I asked for your support in helping our partner, Feeding America, who supports and provides meals to local food banks across the U.S. to feed millions of Americans that are in need. I am thrilled to report that because of your compassion and generosity, together, we have raised thousands of dollars for this wonderful organization. I sincerely thank you for your contribution!
If you haven’t already, please consider donating here to Feeding America as the food banks respond to the COVID-19 pandemic.
We remain committed to you and value your partnership. We will continue to provide you updates as necessary and encourage you to reach out to us with any questions or concerns you may have.