March 2022: Supply Chain Digest

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INDUSTRY NEWS

• Preliminary February numbers on Class 8 truck orders came in even with January’s volume. Overall, orders are down 50% from last year. ACT Research has the 2022 forecast sitting at 294,600 trucks versus 221,000 trucks produced in 2021 according to Ward Intelligence.
• XPO Logistics announced it is spinning off its North American and European businesses. The move is expected to result in better performance and stronger growth for investors.
• Truckload consolidation continues with the latest acquisition of John Christner Trucking by US refrigerated food trucking company, Hirschbach. The acquisition pushes Hirschbach to over $1 billion in sales.
• The EPA is proposing new standards for heavy-duty truck and engine manufacturers to reduce emissions starting with the 2027 model year. The proposed standards are targeting a reduction of 60% less NOx. The proposal would add an additional $4,000 in estimated cost to each truck.
• The February business inventories report from the U.S. Census Bureau states that December inventory levels increased by 2.1% over November. The increased adjustment in inventory follows the trend as U.S. manufacturers continue to build inventory levels to pre-Covid levels.
• Nikola, the Class 8 truck manufacturer powered by battery-electric and fuel cell-electric powertrains is looking to raise $1.5 billion in additional funding to scale its production. Beginning in Q2, Nikola is planning on building 200 to 300 battery-electric trucks in 2022.
• In one of the many dominoes to fall, FedEx has suspended all services in Russia and Belarus as fighting intensifies following the invasion of Ukraine. UPS has suspended all import shipment services as other non-supply chain services such as Netflix, McDonald’s and Apple have joined in condemning the Russian invasion of Ukraine.
• In the latest twist to our world, the Administration is introducing legislation that breaks the limited antitrust immunity of ocean carriers. The legislation is expected to address the foreign-owned carrier alliances with regard to rate setting. Support for the measures includes ATA, the National Association of Chemical Distributors and the Intermodal Motor Carriers Council.

ROCKFARM One View

Let’s start with the obvious, rising fuel costs. February’s average cost for diesel closed in at an average of $4.03 per gallon of diesel. A month end run-up in February broke a new threshold at
$4.10 per gallon. World events over the past two weeks has diesel pushing over $5.00 per gallon with the West Coast exceeding $5.75 a gallon. The EIA average for the week ending March 14 stands at $5.25. Is the end in sight? Not likely.

Historically we have dealt with $4.00+ per gallon during the summer of 2008, and for an extended period from 2011 thru 2015. The question is now how much higher, and for how long of a period of time?

The Rockfarm truckload index reflects the ever-increasing cost of fuel as the cost per mile eclipsed $4 per mile. Fuel will continue to be a burden as the impact on the average cost per mile continues to grow. In the LTL sector, fuel is easily adjusted and incorporated into the actual carrier charges. A truckload is a different paradigm. Fuel surcharge (FSC) applied to truckload tends to follow two paths, contractual or spot. Much like LTL, contractual FSC is applied to the contracted mileage rate and is incorporated into the overall cost per mile.

In the spot market, carriers are bidding on each lane. Those bids are typically all-in rates that include the total cost of freight from pick up to the destination. Due to the lack of a contractual FSC, the carriers will hedge an all-in rate. At this moment, the steep rise in fuel costs is hard to keep on top of, resulting in fuel becoming a bigger bite of the overall driver’s expense.

If we begin to see tightness in the market as consumer spending slows, pressure points will be applied to smaller carriers to keep their trucks moving while attempting to capture enough revenue to maintain profitability. This will result in carriers getting upside down and pushing some into default. Similar to the “great resignation” during the COVID shutdown, owner-operators may find extending a summer vacation is a better option than grappling with capacity and fuel issues. The two indicators to keep our pulse on are the number of load opportunities extended to the market and the percentage of carrier tender rejections. The first illustrates the number of loads available to haul. The second indicates the available capacity to accept the loads available.

Work With the Experts

For more information on securing the best supply chain solutions for your business please reach out to our Supply
Chain Coach team.

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FOR MORE INFORMATION, PLEASE REACH OUT TO INFO@ROCKFARM.COM.

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By Brad Stewart

Co-Founder, CCO

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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References

Gilroy, Roger. (2022 March). Class 8 Orders Remain Flat in February
https://www.ttnews.com/articles/class-8-orders-remain-flat-february

Ashe, Ari. (2022 March). XPO Logistics splitting North American businesses

https://www.joc.com/trucking-logistics/ltl-trucking-logistics/xpo-logistics-splitting-north-american-businesses_20220308.html

Cassidy, William B. (2022 February). US refrigerated trucker Hirschbach goes coast to coast with JCT acquisition

https://www.joc.com/trucking-logistics/truckload-freight/us-refrigerated-trucker-hirschbach-goes-coast_20220217.html.

Cole, Matt. (2022 March). EPA proposes new emissions standards for heavy-duty trucks

https:// www.overdriveonline.com/regulations/article/15289346/epa-intros-new-emissions-standards-for- heavyduty-trucks-engines.

Adler, Alan. (2022 March). Nikola wants to add 200M common shares that could raise $1.5B
https://www.freightwaves.com/news/nikola-wants-to-add-200m-common-shares-that-could- raise-15b.

DML News App. (2022 March). REPORT: Here are the countries that import the most Russian oil
https://dennismichaellynch.com/report-here-are-the-countries-that-import-the-most-russian-oil/

Sukheja, Bhavya. (2022 March). Ban of operations in Russia is ‘attempt to do something without bearing
fruit’: Singhvi
https://www.republicworld.com/world-news/russia-ukraine-crisis/ban-of-operations-in-russia-is- attempt-to-do-something-without-bearing-fruit-singhvi-articleshow.html

Transport Topics. (2022 March). Biden Calls for Changes to Shipping Act to Improve Competition
https://www.ttnews.com/articles/biden-calls-changes-shipping-act-improve-competition