We know two truths at this time. Available capacity in the market is tightening rapidly. Additionally, truckload RFPs conducted in May for the June launch are having challenges in meeting business requirements as it relates to tender acceptance. The question before most logistics teams is whether this is a short-term end-of-quarter trend or one that will push out into the 3rd quarter. If we look at our current course, we are following the trends of previous years with capacity tightening toward the end of the 2nd quarter. The variable: COVID-19 and its potential impact on the usual July downturn in manufacturing. With demand and constraints on the workforce, we may not see the typical 3rd quarter. Preparation is critical.
1) Confirm your asset carrier volume commitments
2) Secure a longer planning window for shipping, allowing your team to secure bookings with their contract base of carriers
3) Confirm your execution processes with a variety of approaches to secure market capacity including contractual, spot, load board
4) Engage your customer service team so they are aware of the market challenges and can implement a communication plan for your customers
5) Create a fallback plan when capacity constraints occur that is integrated into your customer and inter-departmental communication plans
Overall, May did not bring a new revelation as both the cost of fuel and overall truckload rates stayed true and continued their decrease from the previous month. The average price per
gallon for diesel fell $.07 cents to $2.39 per gallon. May’s cost per gallon steadied and ranged from $2.38 to $2.40 per gallon during the month. Unless something dramatic occurs in June, we believe that fuel costs have now settled. As seen below, the EIA’s national average cost per gallon has decreased by $.75 per gallon from one year ago and illustrates the cost per gallon for June 1st averaging $2.386 per gallon. The Rockfarm truckload index slowed its descent with the average cost per mile dropping to $1.93. Since January, fuel has dropped 20% from its monthly high of $3.03 per gallon in January. Truckload rates, on the other hand, have seen a decrease of only 7% in comparison. Truckload RFP activity has been mixed, with some shippers holding firms with contracted rates while others are keeping to their annual RFP schedule or exploring the market for the opportunity. Rate expectations continue to illustrate an increase as we wind down the 2nd quarter and then level out in the third quarter, similar to the trend line we saw in 2019. The current rate per mile midway through June has risen to $2.01 from May’s average of $1.93.
The good news is that states have begun the process to open up their economies by lifting some of the COVID-19 restrictions. Business is expected to continue to rebound as more and more people get back to work. The unemployment index has fallen from its high of 14.7% in April to 13.3% in May. Durable goods orders for non-defense capital goods increased 8.2% to $3.8 billion in April, as another sign we are seeing positive momentum. In Rockfarm’s Supply Chain Glass business intelligence platform, contract truckload activity increased 6% in May over April, while spot truckload activity increased 260%, nearing January’s truckload spot activity. In the LTL sector, ODFL is reporting May volume is 9.2% lower than last year, however much stronger than April’s shipment volumes which illustrated a 16.2% decrease from a year ago.
In the marketplace, there is still a great deal of uncertainty. It is not uncertainty over the positive direction of the economy but the shifting dynamic on where and how dollars will be spent in the future. One example of this is the airline industry. According to IATA, there are 17,000 aircraft sitting idle at airports. American Airlines has parked 400 of its 950 aircraft across the U.S. in various stages of storage such as actively parked, short-term, and long- term storage. The question surrounding a number of markets, industries and businesses are whether COVID-19’s impact and the potential impact of a future pandemic has disrupted an industry enough to forever change it. At this time we are seeing positive momentum in the economy and throughout our supply
chains. The looming question surrounds the “new normal” and how it will the economic landscape will be shaped going forward. (May 2020)
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Brad’s journey into logistics began as a Marine Officer and transitioned from the LTL docks to the non-asset side within the logistics service provider arena. As a co-founder of Rockfarm, Brad drives our business development efforts and delivery of our promise. An Arizona native, Brad enjoys spending time outdoors in his home state with his wife and family.
“Our approach to the market allowed us an opportunity to push forward in 2008 and enable our mission, “lower the cost to serve” to stand as a cornerstone to our company today.”
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