May 3, 2021 Update
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DAT DRY VAN
The latest numbers from DAT continue to paint a challenging picture for shippers. Spot rates (excluding broker markups) averaged $2.60 / mile for dry van, while contract rates are averaging 2.65/mile. These represent YoY increases of 59% and 31% respectively.
While using 2020 as the basis for any comparison should be viewed cautiously, today’s rates are significantly higher than the rates we saw during the “Shipper Armageddon” period of spring/summer, 2018.
The short/medium term outlook does not indicate any relief in sight as the demand for freight capacity is expected to remain high. The consumer portion of the economy remains hot as retailers rebuild inventories, stimulus checks are cashed and consumer confidence, now at a 13-month high, are working in concert to drive high demand for freight services.
Additionally, the industrial sector is showing signs of life, as global economies come back on-line.
Given the highly favorable environment for carriers, the obvious move is for asset-based carriers to increase capacity, but that remains difficult.
COVID concerns certainly led to a significant number of drivers retiring or moving to other vocations, but the Federal Drug and Alcohol Clearing House, which went on-line in January 2020 has removed approximately 60,000 drivers from the available pool with about 40,000 of those drivers removed for marijuana use. State laws legalizing medical and recreational use of marijuana are in conflict with federal laws, and the threat of losing one’s job due to a positive test may suppress applicants from coming into the industry.
Carriers are fighting for qualified drivers by offering significant increases to driver compensation programs.
For our larger shipper clients, the most concerning aspect of the situation we are seeing is the impact on contract rates. A significant number of truck drivers have been removed, voluntarily or involuntarily, from the pool, and while we are seeing a record number of new carriers being established, they are primarily very small operators. This is leading to double-digit increases in contract rates and tender decline rates have exceeded 25% for the past couple of months.
The national average for diesel #2 for the week of April 26, as reported by the EIA, was $3.12 / gallon. This is down about .07 cents since the highs set a few weeks ago, but it is still up .70 cents since November. A breakdown by region shows California “leading the way” with a price of $3.99 / gallon. On the other end of the spectrum, the average in the Gulf Coast region is $2.92 / gallon.
WEST TEXAS CRUDE
WTI is now at $63.50 / barrel, and we are re-approaching the highs of March, when WTI crude exceeded $66 / barrel. As the world gets back to business this spring/summer, “expert” opinion is for oil to hit and exceed $70 / barrel, which will keep national diesel prices in the $3.00 – $3.50 / gallon range. However, oil prices are notoriously difficult to predict given its susceptibility to a range of unpredictable economic and geo-political factors.
OCEAN CONTAINER RATES (Asia to US)
Asia to US container spot rates remain at or near all times highs. According to Freightos, FEU spot rates on the Asia to West Coast trade lanes on April 30th were at $4800 per load, while the east coast cost now exceeds $6200. However, the steamship lines are also tacking on premium fees and other charges that are adding $2000 to $3000 on top of the spot rate.
Even for those shippers willing and able to pay these rates, other challenges arise. The surge of container volumes has increased the number of rolled loads. Port congestion is increasing both the variability and average time required to import products. The Ever Given fiasco added fuel to the fire by blocking a key artery in the global container circulatory system, thereby exacerbating the container shortage. As congestion gets worse at certain key ports, full containers are being dumped at wrong (but less congested) ports so that empties can be brought back to Asia for re-loading at the exorbitant rates we are seeing today.
This is even impacting the ability of US exporters to ship products, as the extra time required to load & offload a full Asian-bound container is less financially attractive to the steamship lines than simply shipping back empty containers so they can be reused more quickly on the more profitable trade lanes. While horrible for North American importers and exporters alike, the steamship lines are reaping the benefits through both higher volumes and revenue / container.
In the short-term, this will be highly profitable, but one must wonder how these behaviors will be viewed both by the BCO community, as well as by governmental regulatory authorities.
Finally, while this chart focuses on the spot market, we are also seeing significant increases in contract rates. Xeneta, a provider of ocean contract information, has estimated that contract rate increases are up 23% since December, 2020. However, there is a significant and growing delta between the largest container importers (e.g. Walmart, Target, Home Depot, Lowes, Amazon) and smaller BCOs, which will serve to further enhance the already sizable pricing power seen by the mega-retailers.
sources referenced in this post: Freightos, US Energy Information Administration, DAT, Freightwaves, Xeneta, and WTI
Mike Mulqueen is a leading expert in logistics solutions with over 30 years managing, designing and implementing freight transport technology. His functional expertise is in Multi-modal Transportation Management, Supply Chain Visibility, and Transportation Modeling. Mike earned his master’s degree in engineering and logistics from MIT and BS in business and marketing from University of Maryland.
Founded in 2003, JBF Consulting is a supply chain execution strategy and systems integrator to logistics-intensive companies of every size and any industry. Our background and deep experience in the field of packaged logistics technology implementation positions us as industry leaders whose craftsmanship exceeds our client expectations. We expedite the transformation of supply chains through logistics & technology strategy, packaged & bespoke software implementation, and analytics & optimization.