JBF Freight Transportation Bulletin August 2019

Subscribe to Bulletin Updates

Commentary By Mike Mulqueen, JBF Consulting

In This Issue:

Overview
Trucking Regulation
Tariff Talk
Carrier Armageddon
Freight Economic Conditions and Metrics
DAT Spot and Contract Rate Information
National Diesel Prices
Ocean Container Freight
Featured Article: Top TMS Hacks: How to Achieve Maximum ROI
Industry Events

Overview

Supply chain and logistics people love predictability, especially when the numbers are in our favor. 
Freight transport and the energy markets are highly volatile, and today’s calm will inevitably be displaced by new challenges in the coming months and years.  That said, enjoy today’s environment while you can! 
As we head into August, conditions remain very good for shippers.  Dry van spot and contract rates were down slightly month over month and diesel continues its 2 year long period where hibernation from volatility. 
On the oceanfront, container lines increased the number of blank (aka canceled) sailings in order to artificially decrease capacity.  This served its purpose and we now have the predicted 10 – 15% month over month increases in FEUs on the East Asia to US trade lanes as we head into peak season.
While things are stable today, we continue to look for potential shocks to the system that will upend the relatively tranquil environment we are enjoying this summer. 
These include “self-imposed” challenges, including tariffs and regulations (e.g. IMO 2020, FMCSA HoS, Liability Insurance), as well as normal market dynamics driven by supply and demand. 
As we’ve stated in past bulletins, good times are the BEST times to evaluate your network, technology, processes, competencies and freight strategies.  If you stand pat until the next downturn, you’ve waited too long. 
Re-envisioning your logistics capabilities is a process that takes some time and effort, but that is the only way of ensuring that your logistics capabilities are nimble enough to deal with volatility while also being in lock-step with the long-term corporate and supply chain strategy of your organization. 
Given the audience that reads this Bulletin, I may be preaching to the choir, so on with the Bulletin.

back to table of contents

Trucking Regulation

We were expecting the FMCSA to unveil, and make available for public debate, recommended changes to the Hours of Service rules.  These changes were expected to be announced on July 31st, but have been delayed.  The changes seek to reduce some of the more onerous and inflexible aspects of the current HoS rules, that have been in place since 2012. 
Unfortunately, the proposed changes have been indefinitely delayed.

“A proposal to alter federal hours of service regulations for truck operators remains snared in the bureaucratic rulemaking process, and it’s unclear when the rule will be unveiled and, thus, open to public debate.”

–Overdrive.com
For those unfamiliar with the questions under consideration, they are:
—> Should the agency expand the current 100 air-mile “shorthaul” exemption from 12 hours on duty to 14 hours on duty, to be consistent with the workday rules for longhaul truck drivers?
—> Is there adequate flexibility in the adverse driving exception that currently expands driving time by up to two hours?
—> If the 30-minute rest break after eight hours of driving did not exist, would drivers obtain adequate rest breaks throughout a daily driving period to relieve fatigue?
—> Do you have information that would support reinstating the option for splitting up the required 10-hour off-duty rest break for drivers operating trucks with sleeper-berth compartments?
Relevant Article: Roundup: Hours of service revamp MIA, highway bill framework arrives
Additionally, new legislation (H.R. 3781) was introduced in July that would increase the minimum liability insurance for trucking companies from $750,000 to just over $4.9 million dollars.  The legislators backing this bill state that it is being done to increase safety, but they do not provide an argument as to why increasing insurance minimums will have any impact on safety at all.  In fact, the Owner-Operator Independent Driver Association (OOIDA) make a compelling argument that this legislation would have disproportionately harm owner-operators (vs company drivers), who tend to be more experienced drivers.     
Relevant Article: Independent truckers warn against crash liability proposal

back to table of contents

Tariff Talk

Last month, we discussed the ratcheting down of tensions and tariff talk with both Mexico and China.  However, on July 31st, the Trump administration announced a 10% tariff, effective September 1st, 2019, on the remaining $300 billion of Chinese imports that were not already under the 25% tariff implemented last fall.  While the initial tariff focused on industrial goods, this tariff will impact all the remaining China imports, including consumer-oriented goods (e.g. apparel, footwear, toys, consumer electronics). 
The new tariff, announced by President Trump via Twitter, was in response to US disappointment with China during the recently completed trade talks.
As the US and China continue negotiations, those supply chains that have significant supplier bases in China are caught in the middle.  As I noted above, logistics professionals abhor unpredictability and a single tweet can have “Yuge” implications. 
As I write this, global equity markets were rattled as China responded to the US tariffs by threatening to stop importing US agricultural products and devaluing the Yuan to levels not seen since 2008. 
Relevant Article: China Retaliation Is ‘11’ on Scale of 1 to 10, Wall Street Warns

back to table of contents

Carrier Armageddon

Last year, as demand far outstripped capacity, carriers were raking in profits and were being begged by their shipper customers to increase capacity.  What a difference a year makes.  As demand has softened and GDP growth has slowed (US GDP was 2.1% in Q2, 2019), the spot market has tanked, and carriers are struggling mightily to stay profitable. 
To highlight this, I selected 16 of the largest publicly traded trucking companies in the US and compared their current share price with that of last year at this time.  The results show an industry in trouble. 
—> The average trucking company I looked at was down over 17% year over year, while S&P 500 is up about 4% over the same period. 
—> Some of the biggest losers were some of the biggest names in transport:
FDX down 33%
XPO down 36%
YRC down 67%
Source:
Essentially, carriers are now feeling an epic hangover from the good times of 2018.  The exuberance felt by truckers last year led, for some, to dubious decision making driven by the assumption of $2.50 / mile rates.  That has turned out to be a very bad and costly assumption. 
Trucking, especially the US TL segment, is highly fragmented and consists of huge numbers of micro-carriers and owner-operators.  These carriers are even more reliant on the spot market than the mega-carriers and are therefore even more likely to feel the impact of today’s downturn compared to the large publicly traded companies. 
Therefore, while I am not worried about the mega-carriers going bankrupt, I would be worried that significant capacity will be removed from the market over the upcoming months and we will be unprepared for the next demand surge. 
The more things change, the more they stay the same.

back to table of contents

Freight Economic Conditions and Metrics

FTR announced their May reading last week and it showed a big jump in favor of shippers from 1.9 to 5.6, moving us from a neutral environment to one that is beginning to significantly favor shippers. 

“Market conditions are the most favorable for shippers in years and are expected to continue in the current range for the remainder of 2019, according to Todd Tranausky, vice president of rail and intermodal at FTR.”

Todd Tranausky
Relevant Article: https://thetrucker.com/ftr-shippers-conditions-index-up-almost-4-points-in-may/
Source: FTR
About FTR’s Shipper Condition Index
FTR’s Shipper Condition Index (SCI) tracks freight demand, freight rates, capacity, and fuel.  They use these metrics to calculate an index value.  A reading of 0 is neutral, meaning that the market is balanced between shippers and carriers.  A negative value indicates a carrier market and a positive value indicates a shipper’s market. 

back to table of contents

DAT Spot and Contract Rate Information

Spot rates ticked down .04 / mile month over month and are down .42 since last year.
For some perspective, the average length of haul is typically about 500 miles, albeit with a great deal of variability.  For a 500-mile load for those carriers that service the spot market, this would equate to a loss of $210 / load versus 2018.  This is highly impactful in a low margin, highly competitive market. 
Additionally, we are seeing a slow deterioration in carrier contract rates, now down a full .19 / mile versus this time last year.
Source:  DAT Trendlines

back to table of contents

National Diesel Prices

Diesel prices, as reported by the Department of Energy for the week of August 5th, were at $3.03 / gallon. 
While we were bemoaning the variability and volatility of other factors that make up freight costs, diesel prices remain remarkably flat each week. 
Since mid-February, the weekly diesel prices have fluctuated very little, with a minimum of $3.01 and a maximum just 5% higher at just under $3.17 / gallon. 
Source: US Department of Energy

back to table of contents

Ocean Container Freight

As we expected, ocean container freight rates on East Asia to US ports rose significantly in July.  West coast rates now sit at just over $1500 / FEU while east coast rates touched $3000. 
Freightos, the provider we use for the spot rate information, has indicated that we will likely see a $200-$300 increase on the US to east coast trade lanes with (likely) a smaller increase for west coast freight in August, which is within the normal bounds of ocean container peak season increases. 
Last fall, we saw a very large increase in container rates for US imports as shippers looked to beat the initial tariff that primarily impacted industrial goods.  However, the short notice for this tariff will likely not enable forward buys and hence, the impact on container volumes in August will likely be small.
Relevant Article: Recent blank sailings on Transpacific help lift spot rates
Source: Freightos.com

back to table of contents

Feature Article: Top TMS Hacks: How to Achieve Maximum ROI

By Brad Forester
Fleet territory planning or “Re-Routing” is a tactical modeling process used by shippers with pickup, delivery or service truck fleets.
For this Top TMS Hack I’m going to highlight what I think is the single most important factor in helping my clients achieve maximum ROI from their transportation systems.
We call it stewardship.
And if you’re the Director or VP of Transportation, it’s essential for you to address in your organization.
Like your TMS, a vegetable garden is a system and just like your TMS, a garden can suffer from design flaws, integration issues, poor user behaviors, and the like.
These can be very difficult and costly for you to fix, but they are fixable. Read the full article here

back to table of contents

Transportation Industry Events

Aug 25-27McLeod Software: UC2019Denver, CO
Sep 9–12Material Handling & Logistics ConferencePark City, UT
Sep 15LogiPharma USA 2019Philadelphia, PA
Sep 15-18CSCMP EDGEAnaheim, CA
Sep 16-18ASCM (APICS) 2019Las Vegas, NV
Sep 16-17LogiChem US 2019Princeton, NJ
Sep 19-21FUEL 2019Chicago, IL
Sep 24-2621st Annual EMEA Supply Chain & Logistics SummitAntwerp, Belgium
Oct 8-10BreakBulk AmericaHouston, TX
Nov 14-15The Future of Supply Chain & Supplier RelationshipsNew York, NY
Dec 9–10ICLTE 2019New York, NY

Source: https://talkinglogistics.com/2018/12/12/supply-chain-logistics-conferences-2019/


back to table of contents

Subscribe to Bulletin Updates

JBF Consulting specializes in helping large shippers select, implement and manage their Transportation & Fleet Management systems so they can get more out of their investment. To contact JBF Consulting call 203-807-5231 or email: JBFInfo@jbf-consulting.com

Copyright © 2019 JBF Consulting, All rights reserved.


Our mailing address is:
JBF Consulting
800 Village Walk # 151
Guilford, CT 06437-2762 USA
http://jbf-consulting.com


Disclaimer:  This newsletter is being provided to the reader as a general overview of current market conditions and contains information compiled by JBF Consulting from a variety of sources. 

This newsletter is provided solely for general informational purposes and is not intended to be, nor should it be construed by the reader as, specific advice or a solution tailored to a particular company or client. 

Before acting on any information, you should consider the appropriateness of the information provided to your company’s circumstances and it is recommended that you seek independent advice if you have questions specific to your own objectives.

JBF Consulting makes no representation or warranty as to the accuracy or completeness of the information contained herein and shall have no liability for any representations (expressed or implied) regarding information contained in, or omitted from, this newsletter.