- JOC’s Truckload Capacity Index (TCI)(TCI) continued its decline for the 4th straight quarter as large carriers eliminated capacity. The large carriers reduced capacity upwards of 4% by reducing their independent contractors and foregoing hiring new drivers.
- DAT Solutions has acquired Freight Market Intelligence Consortium (FMIC) from Chainalytics. The acquisition highlights the market is ready for deeper analytics within freight forecasting and benchmarks.
- U.S. agriculture exports are gaining ground to get back on track as exports in the 1st quarter of 2020 exceeded the 1st quarter of 2019 by 12.5% for all AG exports and 77.4% to China alone.
- BP has announced it will cut 10,000 jobs from its global workforce as the oil and gas industry continues to struggle.
- According to FTR, Class 8 truck orders showed improvement in May compared with April. June is also showing promise with preliminary orders increasing over May with 6,600 orders. May orders were down 37% annually.
- Both leading parcel carriers, UPS and FedEx have rolled out COVID-19 Peak Surcharges. The “temporary” surcharges include a package surcharge, oversize surcharge and a residential surcharge. The charges range from $.30 to $.40 cents per package.
- According to International Air Transport Association (IATA)(2020), global debt for the airline industry could rise to $550 billion by year end, an increase of $120 billion. In the U.S., the CARES Act represented a quarter of the 2019 annual revenue for the U.S. airlines.
Finding Our Footing
We know two truths at this time. Available capacity in the market is tightening rapidly. Additionally, truckload RFP’s conducted in May for 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 to the usual July downturn in manufacturing. With demand and constraints on the workforce, we may not see the typical 3rd quarter. Preparation is critical.
The top 5 actions:
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 aware of the market challenges and can implement a communication plan to your customers
5) Create a fallback plan when capacity constraints occur that are 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 $.75 per gallon from one year ago and illustrates 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 firm with contracted rates while others are keeping to their annual RFP schedule or exploring the market for opportunity. Rate expectations continue to illustrate an increase as we wind down the 2nd quarter and then leveling 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.
What is the Data Telling Us?
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 market place, there is still a great deal of uncertainty. It is not uncertainty over the positive direction of the economy but in 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 their 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 is 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)