Freight Expense Drivers:
Inventory: inventories decreased by 92.88 billion dollars in Q1. Seasonal adjustment of the business inventories to sales ratio ended at 1.23 in March. This is unchanged from March of 2020, but a slight uptick from February 2021.
Capacity: tender rejections trending upward beginning in April. Truckload opportunities maintain ratio levels since state economies began opening in July of 2020. Class 8 truck sales are contracting since peaking in November 2020 at over 50,000 units sold. May’s unit orders were over 20,000 units.
Fuel Cost: fuel continues to rise hitting $3.21, its highest level since 2018. Since 2015, the highest national average fuel cost for diesel has been $3.31.
Commodities: commodity shortages are driving increased prices which, in turn, apply pressure on the supply chain resulting in tighter capacity. Examples include semiconductors, and large ticket items such as appliances, electronics and automobiles. To meet manufacturing demands, expediting becomes a norm which impacts truckload and less than truckload capacity as shippers look for ways to move inbound raw materials and components to their plants.
Where do we go from here?
Pressure will continue on freight rates with volatility within the market existing through this year. C-19 restrictions have been lifted in large part throughout the U.S. resulting in a further ramp-up in the economy. As we have seen with the global container shortage, imbalances in equipment and truck lanes will continue for the near term as shipping lanes attempt to gain some balance across regions. The carriers are challenged in keeping equipment balanced to keep efficiency in their network and routes.
Large shippers are going back to the market with annual RFPs to solidify rates in the new normal, versus maintaining the majority of their business on a spot market basis. As a result, we will see more consistency in rates as carriers balance contracted rates against rising expenses and lock in for the long haul. This will mean mid-size to large asset carriers will be buying work and looking to maintain that work through contracted rates, resulting in trucking capacity being taken out of the spot market. Rest assured, large shippers will be working hard to avoid rate fluctuations. What this leaves is fewer trucks available for small to mid-size shippers, creating an environment for higher costs due to the lack of available capacity. This is typically driven by bid placement on the open market where carriers will hold out accepting loads until the rate has reached its
Inflation is real. It is not quite evident in the Consumer Price Index but will be soon as manufacturers get a handle on expenses and begin raising prices in line with increased expenses. Freight expense is one of the many expenses shippers are seeing, defining the expense and developing a communication plan to the customers about freight expense is critical. The top 3 factors for communication with customers are:
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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Marine Traffic. (2021 June). www.marinetraffic.com Miller, Greg. (2021 April). No relief: Global container shortage likely to last until 2022
Ashe, Ari. (2021 May). US drayage drivers quitting as rail ramp congestion crimps pay https://www.joc.com/trucking-logistics/drayage/drayage-divers-quitting-rail-rampcongestion-crimps-pay_20210519.html
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Miller, Jen. (2021 May). Why lumber prices are spiking https://www.supplychaindive.com/news/lumber-demand-shortage-price-saw-mill-boardhousing-pandemic-labor/600876/
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Deign, Jason. (2021 June). So, What Exactly is Green Hydrogen? https://www.greentechmedia.com/articles/read/green-hydrogen-explained
Proship. (2021 June). Is Amazon Within Striking Distance of UPS, FedEx, and USPS to Become a National Parcel Carrier?