Letter from the CEO: Market Update April 23, 2020

Posted - April 23, 2020

Letter from the CEO: Market Update April 23, 2020

By: Frank McGuigan, CEO, Transplace

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 our 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

U.S. Intermodal

  • There has been a significant drop off in volume over the last few weeks. Volume has been down year-over-year by as much as 20%, with one of the railroads reporting it being down by as much as 26%.
  • 40’ Containers:
    • We had anticipated that 40’ equipment availability inland would improve in the second half of April and that has occurred. Most of the equipment providers are reporting an improvement in availability and they have lifted embargos on westbound traffic.
    • Customers that have historically used 40’ equipment that had to shift to 53’ equipment are shifting back to 40’.
    • After an initial wave of imports, there could be a drop off again as customers reduce imports due to lower consumer demand within the U.S. This could reduce availability again in the second half of May and into June.
  • 53’ Containers:
    • Equipment is available in all markets.
    • There continues to be a buildup of equipment on the West Coast. Intermodal providers are ready to handle any imports that come in.
  • There is plenty of dray capacity available across the country.
  • If your transit time requirements allow for intermodal, this is a great time to pursue spot rates as well as long-term pricing.

U.S. Truckload Capacity

  • Truckload continues to see lower spot rates.
  • Carriers are still running a high percentage of seated trucks. Driver base seems to be holding strong even though volumes and spot rates continue to drop.
  • Diesel fuel continues to drop following the price of oil and could start to impact current FSC agreements.
    • Some agreements have reciprocal pricing if the DOE falls below the starting peg, but some do not.
    • If fuel prices continue to drop and reach the shippers starting pegs, they could quickly look to adjust agreements with the carriers and restructure FSC’s.
  • Bulk tank truck capacity remains overall strong with only very limited lanes exhibiting any lack of capacity and longer lead times.
  • The American Chemistry Council is predicting around a 3% drop in bulk volumes for the balance of the year which will equate to higher first and secondary tender acceptance.
  • The DOE National Fuel Index is under $2.50, however it is still a long way from the overall fuel pegs within the fuel surcharge tables for most accounts.
  • LTL shipment count remains down across all LTL carriers.
  • Shippers should be evaluating their LTL carrier base and have suitable backup carriers in case of an unfortunate instance of a carrier going out of business were to occur. If volumes continue to be 10% to 30% down for a significant amount of time, the likelihood of this occurring is probable.


U.S. Carriers

  • Carriers have reported very low cases of COVID-19 within their driver fleet. This shows that even though drivers are away from home for long periods, the majority of that is alone in their truck. Other than fueling, getting food, or being at shipper docks, they are sheltering in place in their trucks.
  • Carriers are starting to see that more shipping facilities are requiring the use of Personal Protective Equipment (PPE). As we have shared with our carrier community, the below are the best practices that communicate our insight into what is happening with regards to driver safety and health as part of this additional effort.
    • Shipping facilities are requiring all individuals including drivers to wear a face covering such as a scarf, neck gaiter, bandana, or other type of mask, surgical mask or dust mask upon entering. It is also best practice to wear gloves outside the truck cab and carry hand sanitizer and/or a bottle of disinfecting wipes.
    • Access to facilities is being restricted and areas that were previously open to drivers may not be available.
    • Facilities continue to encourage all individuals to practice social distancing guidelines and keep a distance of 6 feet or more from others.
    • Many facilities are taking drivers temperatures upon arrival. If a driver’s temperature is elevated, they will be given further instruction which may include being restricted to their tractor trailer.
    • If a driver feels sick, is running a temperature, or has other flu like symptoms, please do not enter the shipper’s facility.
    • Facilities for drivers are being cleaned regularly to minimize risk.

Mexico and Cross-Border

  • U.S. Customs and Border Protection (CBP) announced a new website for COVID-19 updates. The website has information for the trade community issued by CBP as well as links to information for Partner Government Agencies.
  • The automotive industry continues with many manufacturers closed. We expect plant openings between May 4 and May 17. As soon as the manufacturers start ramping up, capacity for exports could be absorbed creating capacity issues for other industries.
  • This past week, some states announced a mandatory shut down of manufacturing plants in Mexico until April 30. Many others will open again by mid-May.
  • The exchange rate in Mexico continues to fluctuate but is still much higher than the last few years at a historic of 19 pesos per dollar. We expect the F/X fluctuation to maintain in the $23-24 pesos per dollar for the balance of the month of April. This indicator affects transport companies in Mexico that have income in pesos as all their parts and some of their payments could be based on U.S. dollars. Importers will also be affected with higher costs creating less equipment and capacity for export materials in Mexico.
  • Mexico’s GDP Banxico (Banco de Mexico) forecast came out at -3.5% for the balance of 2020 but other analysts expect worse results.
  • Economic and pandemic crisis impacts are creating unemployment, and are also starting to affect transportation and theft, which could start increasing during this period.
  • Last week, the Mexican government announced lockdown measures will be extended until May 30; however, in locations where there are no COVID-19 cases, people are expected to gradually return to activities on May 18, while implementing social distancing measures.
  • The Mexican government announced on April 21 that Mexico has officially entered Phase 3 of the pandemic, which is the most serious stage in the spread of the coronavirus.

Canada and Cross-Border

  • U.S. Customs and Border Protection (CBP) announced a new website for COVID-19 updates. The website has information for the trade community issued by CBP as well as links to information for Partner Government Agencies.
  • Carrier capacity at this time remains strong, although at times ‘bumpy’ as the incidence of declined tenders (some at the last minute) has increased. There certainly has been increased communication as carriers are continuing to reach out looking for loads.
  • The Canadian spot market is lower, but not to the extent in the U.S.
  • If U.S. opens and Canada doesn’t open, northbound traffic goes up and will be unbalanced to southbound traffic.
    • Northbound flow of manufactured goods will begin to move, thus impacting the north-south dynamics in rates as well as in ‘absorbing’ some of the excess capacity which runs cross-border.
    • With restaurants, banquet halls, etc. not open in Canada, and likely not to open until early June at the earliest, this driver of demand will continue to soften much of the impact which northbound produce will have.
    • With the extent that the cross-border supply chains of the automotive sector are so inter-twined, it will be very interesting to see if one side of the border can open that much sooner, and if so, what pressure this drives on having the Canadian auto part manufacturers do a ‘softer open’ in advance of the rest of Canada. Recognize also that a number of Canadian auto sector manufacturers converted to producing much needed medical equipment such as ventilators and PPE over the past month or so.

Ocean and Air

  • Carriers continue to blank/cancel sailings.
  • Container lines are extremely concerned about potential disruption to vessel operations due to congestion and bottleneck at India ports as import containers are not moving for unloading.
  • Transpacific Eastbound ocean freight spot market remains relatively stable to both U.S. West Coast and U.S. East Coast ports.
  • Non-essential commodity trade between U.S. and EU is slowly returning.
  • U.S. Customs and Border Protection will allow U.S. importers of certain goods to defer payments of duties, taxes, and fees for the next 90 days, starting April 20. This option will only be available for importers with a significant hardship and will apply to payments for goods imported in March and April 2020. Deferment will not apply to imports subject to anti-dumping and/or countervailing duties (ADD/CVD) or tariff (Sections 201, 232 and 301) trade remedies.
  • Port of Virginia is temporarily closing container operations at Portsmouth Marine Terminal (PMT) starting May 4 due to reduced import volumes. Vessel services and containers will shift to Virginia International Gateway (VIG) and Norfolk International Terminals (NIT). Port of Virginia’s cargo volumes are down ~ 9% YoY.
  • Inactive container ship capacity chart 2000 – 2020 from Alphaliner:

Europe

  • Intra-European road freight is still flowing. Waiting times at border crossings are getting close to normal again. 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.
  • IHS Markit economists are forecasting a severe eurozone recession, there is little chance of a rapid recovery in volume that could underpin any rate recovery on the Asia-Europe trades.
  • Overall, there is sufficient transport capacity, but there is variation per industry segment. Spot rates in general have increased due to imbalances in networks.
  • Retail seems to be over the volume peak and slowly getting back to usual volumes for the season.
  • Some first indications that automotive factories may be opening their plants again shortly, but there is still a lot of uncertainty around that.

Best Practices

  • Assess the risk of bankruptcy on providers and know which providers have been over invested in your network, particularly highly strategic regional carriers that may have a high amount of freight within your network.
  • Stick with normal bid schedules. No need to postpone. Most shippers bid on annual cycles and we consider that regular re-alignment of your network with your carriers' networks is best practice.
  • When spot market is extremely aggressive and presents opportunities, you can modify your bid strategy to hold back some freight for spot market – do not award 100% of the volume on all lanes or publish as many rates, etc.
  • Continue to do mini-bids and or send freight to spot when a new lane comes up, a carrier’s performance warrants a change, etc.
  • Increase focus and reduce update cycles in providing relevant data as it applies to transportation capacity forecasting.
  • Evaluate opportunities to leverage spot market opportunities.
  • Closely monitor and implement guard rails with action for when carriers fall out of process. Take FAM privileges away for non-performance and protect incumbents who are performing.
  • Optimize fleet performance (size fleet, optimal lane assignment, backhauls.)
  • Determine and communicate expectations with carriers on fuel policies as diesel prices may flirt below peg fuel prices.

Transplace Update

  • 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.

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.