Letter from the CEO: Market Update March 26, 2020
By: Frank McGuigan, Chief Executive Officer, Transplace
Last week, we provided an update on what we are seeing, best practices that you can incorporate in your business in response to the COVID-19 crisis, and information on how Transplace can help you navigate one of the most unique challenges of our lifetime. We are pleased to continue to provide you with this latest insight, as well as updates as near real time as appropriate. Please feel free to give me, your account team, or sales representative feedback on the report and what you want to see more of or less of going forward.
North American Market
- Rail capacity and drayage capacity continue to be plentiful across the U.S. at this time. Where people have been asked to stay home, the railroads and dray carriers are exempt.
- 40’ containers:
- Equipment continues to be limited across the country due to a lack of imports. The situation is not expected to improve until at least the second half of April. That said, there were a few examples late last week of equipment providers easing restrictions on westbound volume. These restrictions will continue to be lifted as congestion is reduced at the ports.
- Southern California: There were mega ships that were set to arrive over the weekend that were intended to take empty containers out of the ports and bring them back to China. This will start to ease the congestion at the ports.
- 53’ containers:
- As westbound volume has increased, equipment has tightened in markets such as St. Louis, Kansas City and Memphis. The railroads have increased their empty repositions into these markets in order to support the increase in demand.
- Westbound rates have gone up, but they are still generally lower than the over the road rates. Intermodal continues to be a great option to move volume to and from the western region.
- For volume in the eastern half of the country, intermodal capacity is still plentiful and is a great option as the over the road market continues to be volatile.
U.S. Truckload Capacity
- CPG, food companies and other related industries are seeing surge volumes across their supply chain from inbound to plants, plants to DC’s / mixing centers, and DC’s to customers.
- Some retail supply chains are slowing, stopping as customers are staying home in many areas of the country. With the exception of grocery and general goods, most retail stores’ physical locations are shut down creating increasing storage issues.
- Industrial and chemical sectors are maintaining seasonally expected shipping volumes as of this time.
- Constraints are developing in multiple areas. Drop lots are full, loaded trailers are waiting for pickup, and carriers unable to schedule deliveries in a timely manner.
- Appointment scheduling has emerged as one of the greatest challenges in surge volume capacity and velocity. Trucks are sourced, loaded, dispatched and then cannot find a retail delivery appointment for days beyond the scheduled pickup date.
- Velocity dominates. The inflexibility and cost focus of just-in-time (JIT) programs are leading to more rapid shortages. Inventory and manufacturing flexibility are a key component to serving this market.
- Congestion is leading to temporary but severe storage requirements. Longer lead times and plant/retail closings are creating needs to find places to store equipment including everything from containers to rail cars and trailers.
- The downward trend in diesel fuel has decreased again from last week and the same timeframe last year allowing for overall cents per pound to stabilize and in some cases, be reduced. Fuel has decreased since the first of the year and we are expecting a further decline in pricing before stabilizing.
- Spot rates continue to rise across most verticals. See chart below.
- Tender acceptance is generally worsening from nearly 90% to low 80’s and below. There is a large difference in tender acceptance depending on the industry vertical. See charts below.
- Lead times have shortened and while capacity is being secured, the shortened lead times are causing a shift in the routing guide where the primary and secondary tender acceptance has dropped over 10 points. We expect this to continue for the foreseeable future.
- The overall bulk tank truck capacity remains fairly strong with only a few lanes being challenged.
- Flatbed capacity and rates have stayed consistent with contracted carriers within routing guides.
- Spot market freight has seen an increase up to $2.13 per mile but still below last year’s March rates.
- Short haul spot carriers have held rates in check while longer haul spot carriers(over 500 miles) have increased rates.
- The load to truck ratio has remained relatively flat with a slight decrease week over week.
- Areas most impacted currently are the east and west coasts with large cities and/or ports.
- Seeing concerns with tarping services not wanting to physically contact drivers, measures put in place at most shippers to ensure drivers are staying in their cabs during the process of loading/tarping.
- Attempts to avoid contact between drivers, shippers, and receivers remain prevalent.
- Health questionnaires, temperature screening, and other preventative measures are resulting in some excessive delays and buildup of freight at cross-docks.
- Most trucking companies are not forcing drivers to comply with any potential HIPAA violations set forth by shippers or receivers.
- The market is struggling to stay updated on “facts vs. rumors” in this fast moving and dynamic market.
- The critical emerging differentiator is “essential” vs “non-essential” industries. Essential industries remain open in otherwise “closed” areas and are seeing record volume. Non-essential industries may be shut down or no-longer receiving deliveries.
- Shippers in essential industries have developed notification letters that are sent to suppliers and to workers (truck drivers, distribution center workers, plant employees, supporting staff, etc.) to provide proof that any employees stopped by law enforcement or other regulatory staff can identify as “authorized” to be traveling and working.
- While layoffs in retail are becoming a common theme with the spread of the virus, some retailers are forecasting significant hiring needs to boost distribution throughput as a rebalancing is in full effect.
- LTL carriers are starting to have some backlog of undeliverable freight due to consignee closures. If LTL networks bog down, freight can become lost, storage charges occur, and critical goods may be delayed.
- Many LTL carriers are moving to a delivery receipt policy change such as “no signature required” to limit contact. The driver will sign for the customer receiving by inputting their first and last name.
Mexico and Cross-border
- More cases of COVID-19 are being confirmed daily. Schools and universities are closed until April 20 and more companies in Mexico are asking employees to work from home.
- Mexican Peso continues to fluctuate to its worst devaluation in the past five years, going from $19 pesos for 1 U.S. Dollar, closing today at $25.13 for 1 dollar.
- Original Equipment Manufacturers (OEMs) in Mexico will shut down operations. This will have a ripple effect on all Tier 1s and 2s who will be impacted:
- Ford released a statement saying that its plants in Mexico, Canada, and the United States will stop all production after shifts are finished on March 19 until March 30 to clean and disinfect the facilities.
- BMW will work as usual this week and will start a partial shutdown beginning March 28 until April 19.
- Honda will shut down from March 23 to March 31.
- Nissan will stop operations from March 25 to April 14.
- Audi announced it will close for two weeks from March 23 to April 13 .
- Toyota will also suspend production of vehicles and parts in all of its plants in Mexico on March 23 and 24 to clean and disinfect, resuming operations on March 25.
- Fiat Chrysler Mexico suspended operations in its plants on March 25 and did not announce when it would resume, but said it might at the end of the month.
- General Motors suspended its manufacturing operations in North America, but the plan did not include its factories in Mexico, which will continue operating normally until further notice.
- CPG, food and retail industries remain strong and are showing a peak, especially those related to home and personal care products.
- Shippers and carriers are implementing sanitary measures on drivers (face masks, COVID-19 questionnaires, body temperature checks, etc.)
- Business that leaned toward southbound flows from the U.S. into Mexico will feel the pain of the exchange rate variability. Volume drop is expected due to this effect. They will either try to accelerate purchases protecting the exchange rate (spot loads) or postpone purchases when the Mexican Peso gets back to more normal levels.
- Spot market increases continue for freight going from Mexico to the West Coast including California and Washington areas.
- Shippers might start bringing empty equipment from the border into Mexico to manage the non-covered northbound shipments.
- Some B1 trucking companies are struggling with drivers not wanting to go into the U.S. due to the coronavirus.
- U.S. – Mexico Customs border operations continue as usual; CBP nor Mexico Customs have informed of any restrictions for commercial operations.
- U.S. – Mexico Border distribution centers have been handling normal volume levels.
- Occasional clearance delays caused by intermittent Customs IT adjustments are non-related to the COVID-19 contingency.
Canada and Cross-border
- A number of Canadian provinces have either declared or expanded upon previously declared state of emergencies. Ontario and Quebec will shut all non-essential services effective Tuesday, March 24. There is much speculation as to what is considered essential. It is expected that only essential manufacturing and supply-chain providers as well as medical offices, supermarkets, pharmacies, LCBO outlets, and takeout restaurants will be allowed to remain open after the details are finalized Tuesday.
- Carrier capacity within Canada and running cross-border remains strong. Carriers are continuing to adhere to contracted rates and anecdotally, spot rates have only slightly up-ticked, primarily on the longer-haul lanes. Carriers are still calling the Transplace Oakville COE looking for loads and reminding operations that they have capacity.
- One issue that is becoming more of a pinch-point is warehouse capacity. Warehouses are beginning to employ the following strategies that work to contract the volume that they can handle a) reducing the number of available door slots for both inbound and outbound loading, b) eliminating over-time and c) scheduling their labor so that shifts do not overlap.
- The Canadian operation is also beginning to see some full truckload cross-border orders being cancelled into some of the larger U.S. distributors such as Target and C & S. We believe that this is caused by inbound off-load delays or a prioritization towards food staples.
Ocean and Air
- Ports, ocean carriers, and dray providers are considered essential supply chain providers.
- Ports in Seattle and Miami are closing certain terminal gates due to decreased import volumes from the prolonged closure of Chinese manufacturers which impacted TPEB import container volumes. Ports are open, just specific gate closures.
- Coronavirus business closures in the U.S. and EU appear to be impacting import container volumes. SeaIntelligence Consulting is estimating a 10% decline in global container shipments which would equate to 17m TEU carried by world’s container shipping fleet.
- Economists at Gold Sachs are forecasting a 24% decline in U.S. GDP in Q2 2020.
- U.S. passenger airlines such as American and United are using passenger planes to move cargo only between U.S. and EU as air freight rates have more than doubled on those lanes.
- India is experiencing truck driver shortages. Drivers have not been reporting to work due to COVID-19 fears and various government restrictions on people movement. Truck deployments have dropped to < 40% of normal levels. Nhava Sheva is stating that port terminal operations are operating normally.
- Baltimore’s Seagirt Marine Terminal will close for delivery and receipt of inbound and outbound containers on March 30th and 31st and shortened operating hours thereafter. Ports America based their decision on operations hours due to significant drop in vessel and container traffic from COVID19 impact.
- India’s Prime Minister, Shri Narendra Modi, called for a complete lockdown of the entire nation for the next 21 days beginning at midnight tonight. India ports will remain open.
- The European Commission released guidelines for EU member states to ensure free border crossings for trucks, so that there are no unnecessary delays for trucks carrying ‘essential goods.’
- There are extreme delays at many EU borders. Up to 40 miles (64.4 km) of queues have been reported on the Lithuanian-Polish border, while similar traffic jams have disrupted travel over Germany and Poland and Hungarian-Austrian travel. A map of the delays can be found HERE.
- On March 18, the EU drivers’ hours rules were relaxed on the movement of certain items, in an attempt to keep supermarket shelves stocked.
- Extensive blank sailings have left virtually no empty containers available at European ports, according to the latest data, and extreme measures implemented to slow the spread of the coronavirus disease 2019 (COVID-19) could delay the recovery of container demand.
- Shippers in essential industries (CPG, food, water, packaging, medical supplies, etc.) expect the current surge to continue for weeks, if not months, as depleted store shelves have to be replenished. We recommend shippers move from “short-range, get it out” reactionary plans to more of a structured approach in handling the volume surge by:
- Improve forecasting of expected surge volumes by business segment, product, lane.
- Identify and solve constraints in the supply chain such as shipping plant direct to retailers on targeted products to avoid bottlenecks in DC’s and mixing center DC’s.
- Encourage carriers and partners to leverage government easing of Hours of Services (HOS) and truckload weight limits to improve capacity and shipping velocity.
- Develop rapid processes of carrier sourcing to meet surge capacity and move from expensive spot freight to committed capacity (i.e. increase volume for core carriers, implement pop-up dedicated fleets, add carriers to supplement core carrier capacity, etc.)
- Look at mode selection differently. No longer is mode selection about cost optimization. Knowing specific capabilities by mode, has led to better velocity specific options which may or may not include cost objectives.
- Adapt network optimality. CPG companies are bypassing intermediate points to support high demand. We anticipate many cases where traditional supply chain design should be overridden in lieu of short-term objectives.
- Contract rates still show signs of holding firm – which can change quickly. Hence, it is important to continue to work with core carriers within the routing guides to maintain current needs and develop more responsive capacity requirements.
- We have begun to see shippers in our network beginning production on essential personal protection items (hand sanitizer, masks/medical gear, etc.). Transportation networks will continue to adjust to new demand requirements challenging carrier’s ability to minimize empty miles.
- We are seeing shipper’s customer service teams proactively ensuring that consignees are able to receive freight prior to shipping to prevent storage and return charges.
- There are also reports of SKU minimization and upping the minimum order quantities on essential consumer goods.
- Because yards are full, shippers should be open to and even ask carriers that have terminals close by to pick up containers off the yard. We recommend looking at this even despite service charges in most cases. We recommend sharing forecast projections with your Transplace account Team
- U.S. teams are now working from home and are fully operational without any service interruption.
- Most Transplace Mexico and Canada teams are working from home, fully operational also without any service interruption.
- Here are some additional measures our operations teams are taking to ensure efficient communication:
- Notifying accounts of updates in near real-time
- Implementing daily check-in calls
- Reaching out to consignees on shipments in Shipment Planning and Shipment Execution to confirm they are open
- Identifying escalation contact lists for each account
- Our employees remain committed to you and your success. Please see in our prior update what we are doing to protect our personnel.
- 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.
- Transplace TMS tools including Control Tower, service risk prediction model, and machine learning for real-time, end-to-end visibility can mitigate risks and proactively manage your supply chain.
We value your partnership, and we truly want to support your team by providing resourceful solutions, referrals, or recommendations to keep your business successful. We will continue to provide updates as needed and encourage you to reach out to us with any questions or concerns you may have.