The numbers are in and rising. Get ready for supply chain challenges in Q1 as imports surge and ocean rates hit an all-time high. Similar to July and August 2020, import volumes are elevating, raising concerns of congestion at ports and
major U.S. hubs as first-quarter orders begin flowing. The Rockfarm indicators are illustrating mixed results across individual indexes, however, the overall average has started to climb after flattening through the holidays. In combination with increased rates is the rising cost of fuel.
This time last year began our supply chain challenges with the impending Chinese New Year and C-19 hitting hard on inventory levels. Most purchasing managers are well aware of the impact last year’s pandemic had on inventory. Though inventory levels increased dramatically during the start of the pandemic, the subsequent economic recovery left bare shelves as consumers began shopping and manufacturing ramped up. As a result, purchasing managers are now pushing orders through ahead of the Chinese New Year. The U.S. Census Bureau reports that business inventories through the end of November illustrate a decline brought on by the lifting of restrictions and holiday buying. Inventory levels through November are their lowest since 2014.
The Rockfarm market indexes do not reflect a softening in rates, but rather a mix above and below the trend lines. Rockfarm’s national outlier and regional index exhibit an upswing in rates while both ports and hub indexes show a decrease in cost per mile through the first week in January. The concern is the surge in imports tightening port congestion which will work its way into the regional freight markets that are already showing an upswing in rate per mile. Consequently, 2021 is already showing a bumpy ride ahead.
As we begin the New Year, the unfortunate news is the increases we are seeing as we leave 2020 behind and move into 2021. Fuel expenses closed higher to end the year at $2.58 per gallon for diesel. Though we ended the year much lower than we began, the increase of $.15 a gallon from November to December only adds to the line-haul rate increases we are still seeing into 2021.
The International Energy Agency (IEA) is forecasting demand will be lower than expected and has reduced its projections by 170,000 barrels per day for 2021. This is good news as we determine if the increase in December was a blip or if we have to begin considering fuel as another rising expense in 2021.
The Rockfarm truckload index rate stayed level in December but still remains the highest rate over the past five years. A big concern is if January’s jump in cost per mile to $2.70 a mile will be sustained as we head deeper into Q1. The Rockfarm indexes as seen in the graph are still reflecting mixed results. If we have a repeat of the July and August import volume, we can expect all indicators to reflect an upward trend toward higher truckload rates through the first half of this year.
As we look at the TMS technology market, we see the adoption of TMS systems has grown rapidly over the past 10 years. The cost of entry has been significantly reduced and the onboarding process has been considerably streamlined to allow for a reduced impact on our organization as it supports the TMS implementation project. Still, there is a mountain to climb to get the green light to move forward with TMS technology. For smaller to midsize shippers, the shipping, or logistics manager, typically spearheads the search and final selection of TMS providers. The challenge lies in developing your ROI in order to bring the initiative forward for executive buy-in. This is where developing a cohesive strategy within your organization can significantly increase your chances of securing the funding and resources necessary to push the organization forward. To start, a high-level overview of the organization becomes the first step to identifying the touchpoints within the order lifecycle that can be impacted by TMS technology. Key departments include:
The teams become critical playmakers in your journey to build your case, and more importantly, ROI to secure the green light to move forward. Do not make the mistake of assuming ROI for each team. Better yet, let each team generate its own ROI statement which, in turn, provides a roadmap to the TMS capabilities you are seeking. For example, accounting may desire a real-time freight accrual, in which case, your TMS must have a match pay workflow. Distribution may desire the pick ticket to contain both the carrier routing in addition to the dock door and appointment time for load out or staging. As a result, your TMS must be able to integrate with your ERP or WMS, or both.
Lastly, all things come to one key item: cost. Regardless of the visibility, the automation or better supply chain practices, your value must contain quantifiable ROI. Even so, there are a number of ways to get there and companies choose many paths depending on their size, resources and complexity in approach. For further discovery on a potential path forward please read our Coach’s Corner.
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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