Letter from the CEO: Market Update April 2, 2020

Posted - April 2, 2020

By: Frank McGuigan, CEO, Transplace

We are pleased to provide another transportation market update for you this week. The major theme in our commentary today is a continuation of dramatic disruptions that continue to wreak havoc on most of the global supply chain. While a few indices are settling down, i.e., dry van spot rates on major lanes fell or were flat after rising sharply in the prior week, there remains tremendous uncertainty in the market and little visibility into what the future holds. We will continue to monitor the impact of stricter “safer at home” orders on shipments of non-essential goods, medical supplies, and consumer products.

On a personal note, I am humbled by the unwavering commitment of those in logistics that continue to deliver essential products to store shelves, hospitals, and other critical locations. These are tough times for many, and these events have taken a toll on our loved ones, businesses, and communities. Toward that end, I would like to ask you to join us in helping our partner, Feeding America, by supporting and providing meals to local food banks across the U.S. for those in need. Please consider donating here as the food banks respond to the COVID-19 pandemic by feeding the millions of Americans that need their support.

As always, if there is additional information or resources that we can provide to help you in your business, please reach out to me or your account team.

North American Market

U.S. Intermodal

  • Last week, the data for railroads indicated that year-over-year volume was down by as much as 19%. This was driven by a drop off in international volume, as well as the domestic volume for retailers that are closed, and for CPG customers that needed a faster transit time over the last few weeks.
  • 40’ containers
    • The congestion at the ports has eased and it is becoming easier to turn 40’ equipment in.
    • There are still a couple of smaller equipment providers that are experiencing delays.
    • We do not anticipate an improvement in the availability of 40’ equipment inland until at least the end of April.
  • 53’ containers
    • Westbound intermodal volume continues to be strong.
    • There is excess equipment in California and the equipment providers are considering empty repositioning back to the Midwest markets.
    • Equipment was tight in the Midwest markets a few weeks ago, but the equipment providers have responded with incremental empty repositions from the east and generally speaking there is enough equipment available in these metro areas at this time.
  • Intermodal service continues to be strong and while there is uncertainty in the over-the-road market, it is a great time to secure long-term intermodal rates and capacity.

U.S. Truckload Capacity

  • Volumes in CPG and food industries continue to remain higher than normal.
  • The bulk tank truck market has remained stable over the last couple of weeks with capacity being readily available with proper lead times.
  • Due to the current market conditions, some chemical shippers are seeing that increased demands and short lead times have caused the routing guides to show a reduction in primary tender acceptance.
  • Spot Market rates in general have not spiked for bulk and our customers are seeing some reductions in overall costs due to the reduction in diesel fuel pricing. We anticipate the market to remain this way for at least the next 30 days barring any unforeseen events.
  • Below, we are showing two charts based on data from our the Transplace logistics platform. Spot market is down this week across all regions.

U.S. Carriers

  • Carriers still report very high driver seat percentages – at or above pre-crisis levels. Drivers are in their trucks and doing a tremendous job carrying essential products into every part of the country.
  • Carriers with business heavily in non-essential retail or automotive are scrambling to find new business to replace the idled capacity.
  • Imbalance of volume in grocery lanes is causing spikes in spot rates, especially to more remote locations or hard to serve destinations.
  • Wait time for drivers remains higher than normal at grocery DC’s, due to surging volumes.
  • The American Trucking Association (ATA) is tracking the below issues across all states. More information can be found here.
    • Closures of state driver license agencies
    • CDL expiration date extensions
    • New CLP and CDL issuance / testing restrictions
    • Increased size and weight limits
    • Parking and rest stop availability
  • Several carriers implemented a return program to quickly return shipments to the shipper (at shippers’ cost) if the consignee is closed and carrier is unable to deliver. There is now a focus on educating shippers to not ship unless the consignee has confirmed they are open.
  • Several carriers that utilize off-shore administrative functions are feeling an impact with labor reductions resulting in delays in billing and invoicing.

Mexico and Cross-Border

  • The government has ordered the immediate suspension of non-essential activities effective March 30 to April 30 for public, private, and social sectors. Additionally, the government is ordering the public and private sectors to allow workers aged +60 and other vulnerable people to stay at home. The quarantined workers will continue to receive their full salaries and benefits, according to the decree.
  • U.S. and Mexico authorities confirm international trade related activities, such as customs brokerage and border clearances, are considered essential and to continue as usual.
  • Mexico Customs informed operation schedules will continue as usual, yet, because of the health contingency measures to access Customs areas, some delays may be experienced.
  • Automotive and other manufacturers companies have scheduled one, two-week, or even longer plant shutdowns.
  • Many shippers have decreased production to 25-30% of their normal volumes.
  • Some shippers are having trouble shipping as they are having high percentage of employees not showing up to work.
  • Capacity is much better inside Mexico, but it is still tight once the shipments cross to the U.S. side.
  • There are specific lanes to the West Coast where we are seeing northbound rates increase primarily from Laredo to southern and northern California.
  • Mexican Peso continues losing value against the U.S. dollar fluctuating in the past two weeks from historic two-year price of 19 pesos above 24 pesos for dollar.
  • Transplace Customs operations including U.S. border and Mexico are being performed as usual with steady volumes up to date.

Canada and Cross-Border

  • The essential goods flow has started to stabilize.
  • Carrier capacity remains strong, however there are certain / selected areas that are starting to reveal gaps.
  • Early monitoring indicates that it is these gap areas (primarily longer lengths of haul) that are starting to be subject to increases in carrier rates.
  • Many receiving facilities are experiencing a high volume of inbound freight. This coupled with reduced labor in many facilities is leading to a host of ‘trickle-down’ issues:
    • Increased off-load times and the tying-up of drivers and equipment
    • Many shippers are moving orders direct and by-passing intermediate warehouses
    • Last minute cancellation of orders, some even enroute, thus requiring other options
    • Off-load times have impacted the transit timing of multi-stop loads
  • There are a number of COVID-19 related trends that are impacting carrier capacity:
    • An emerging trend over the past week is that drivers are becoming reluctant to move loads that requires travel more than 24 hours away from their homes.
    • With the growing incidence of cases within the U.S., an increasing number of Canadian based drivers are no longer willing to cross the border to move loads destined to the U.S. This is especially the case the longer the length of haul, as drivers are concerned with securing a return load north and of falling ill so far from home.
    • More Canadian manufacturing facilities are beginning to close or scale back production. The result is that fewer loads are moving south, thus reducing the capacity to move northbound loads out of the U.S.

Ocean and Air

  • Widespread carrier blanking’s /cancelling’s of vessel sailings due to lowered container volumes continues for April and Q2 in all trade lanes (Transpacific Eastbound to U.S., Transatlantic trade, and Asia to Europe.) Starting April 6, The Alliance (Hapag-Lloyd, HMM, Ocean Network Express, and Yang Ming) will cancel seven sailings on the Asia-North Europe trade, five on Asia-Mediterranean, 11 on Asia-US West Coast, five on Asia-US East Coast, and four on the trans-Atlantic routes.
  • Empty equipment availability for exports has improved at both U.S. inland ramps, as well as port locations. We are not seeing any current equipment shortages.
  • In the U.S., a backlog of import containers are unable to deliver to non-essential businesses closing their delivery warehouses or distribution centers.
  • Some ports such as Savannah’s Georgia Ports Authority (GPA) have proactively opened new space where containers can be stored: +11k TEU additional capacity.
  • Virginia Port Authority recently expanded its marine terminals and feels in good shape to handle increased container storage.
  • Other ports such as New York, New Jersey, and Los Angeles / Long Beach have limited physical space options inside the port terminals.
  • Multiple countries are under “stay in place” nationwide mandates including India, South Africa Philippines, and multiple countries in Europe. All ports are open and receiving vessels, however, concern of congestion with containers being discharged and receiving facilities and truckers unavailable for delivery of import products.
    • Manila Terminal operations are heavily impacted by inbound containers not able to move to receiving locations.
    • Refrigerated container plugs are mostly occupied so further refrigerated import containers will be diverted to other ports for interim shortage.
    • India continues to see widespread trucker shortages.
    • Transnet Port Terminals in South Africa and other carriers globally are invoking provisions of Force Majeure clauses in their standard terms and conditions.

Europe

  • There continue to be extreme delays at many EU borders. A map of the delays can be found here.
  • Consumer demand in Europe has significantly dropped.
  • March figures have yet to reflect the full impact of the COVID-19 pandemic index: In Europe, the import benchmark declined by 1%, but the export index climbed 0.5%, and both are up year on year, 5.8% and 6.7% respectively.
  • There is a container congestion crisis at import destinations as shipments arranged before widespread social lockdowns have continued towards 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.

What We’re Seeing

  • We anticipate there will be a number of residual forces that will have an influence on supply chains:
    • Many of the network ‘work arounds’ that have been driven in response to COVID-19, such as increasing the amount of direct deliveries and by-passing warehouses, as well as reconsidering one’s MOQ policies to drive less labor requirements will continue. These network cost considerations will lead many companies to re-evaluate best practices.
    • Brick-and-mortar retail is seeing online shopping being used by millions who had never previously shopped online. Many of these shoppers will not return to physical stores. The growth in last-mile ‘small package’ deliveries will soar. This demand will open-up new opportunities and may force existing LTL fleets to more closely consider how they handle residential deliveries.
    • Companies supply chains may have to more quickly adapt to re-configured networks. What is the optimal tradeoff: regional DC’s versus a greater number of ‘district’ hubs? Companies transportation management systems will have to adapt to a different ‘last mile’ environment.
    • Working from home has proven to be more effective than many thought it could. ‘Remote working’ may become the more prevalent which could lead to a steep drop in commuting, thus reduced traffic congestion in the metropolitan areas and less demand for fuel, in addition to a lowering in the demand for office space.

Transplace Update

  • 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 footprints.
  • 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.

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.