July 16, 2021
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FTL partners said that they re-priced their business in March and April and implemented a 6% FTL rate increase (on average) without any resistance. They are also now negotiating further increases in July and pushing for another 4% - 6% increase, but they are starting to get some pushback from customers. As a result, they are walking away from some business or negotiating for more modest increases with some quality customers. So all in, we expect FTL contract rates to increase 10%-12% year over year. These rate increases have supported driver wage increases of about 10%, which has helped keep their unseated tractor count at very low levels, roughly just a few percent. Driver turnover increased further in July relative to the past few months. On the LTL side, carriers see 8% pricing increases this year, with volumes growing well over their FTL volumes.
Uber’s acquisition of Transplace, what are the implications for the domestic ground industry? Uber Freight has overgrown to a revenue run-rate of $1.2B (but with inverted margins), and ramping investments in Uber Freight could be a perceived negative for other truck brokers, including CHRW, HUBG, and JBHT. Transplace likely is a customer of most truck brokers and could shift some of their business to Uber Freight, where it makes sense for the customer. But for the most part, wall street analysts that follow publicly traded transportation stocks don’t believe that Uber Freight’s control of a large managed transportation provider has significant implications.
The Port of Long Beach currently has ten container vessels at berth and seven container vessels at anchor destined for POLB’s marine terminals. The average at anchor is 4.9 days.
The Port of Los Angeles also projects a big second half of 2021. Forecasts show that ports aren't likely to get much of a break this year. The Port of Los Angeles forecast shows import volume in the first week of August is expected to be up more than 76% year over year. And the National Retail Federation forecast shows volume up year over year in August and September as well.
June retail sales saw solid annual gains, reports the Department of Commerce and the National Retail Federation. NRF officials observed how June sales were boosted by the annual Amazon Prime Day promotion, and promotions from other retailers, too. It added that record-high temperatures in some parts of the U.S., coupled with tropical storms in other parts, may have impacted sales and methodology used by the Commerce Department’s Census Bureau to adjust results for seasonal variations. On a year-to-date basis through June, the National Retail Federation reported retail sales grew 16.4% annually. For the entire calendar year, the NRF said that in its revised forecast, retail sales are expected to be up between 10.5%-to-13.5%, to between $4.44 trillion and $4.56 trillion. The economy and consumption are particularly sensitive to government policy, and the boost we saw from government support earlier in the year is continuing to show benefits. Reopening of both stores and the overall economy has progressed, and even higher prices seen in some retail categories reflecting the push-and-pull of supply chain challenges haven’t proven to be a deterrent to spending. As more people get vaccinated and get out, some of the growth will shift to services rather than retail but there’s enough momentum to support both.
Truckload spot market demand moderated slightly over the last 30 days but remains significantly above prior average as commentary indicates shippers continue to rely on spot market capacity (rather than contracts). Spot market demand during the last week of June is +102% versus one year ago. Spot market capacity has slightly improved since the February low but remains down 10% year over year.
Higher contract rates are pulling volume from the spot truck market. The FTL spot rates have increased to impressive levels over the last year and shippers are starting to see those leak into their contract rates. Shippers have had to deal with is a lot of the procurement costs escalated throughout the year, and then they went into this period of absolutely crazy spot price volatility late last year when they were doing their 2021 bids. The high rates, increase in the number of shipments and the downturn in supply in 2020 resulted in the expenditure figure for June growing at the "fastest pace ever" on a year over year basis, surging more than 56% year over year. The rates in contracts keep getting higher too. DAT has seen that the contract rates entering routing guides have increased 7% in the last two weeks compared to the previous two weeks.
Weekly Spot Market Pricing (DAT)
Diesel costs continue to rise, last week ticking up to $3.344 per gallon, up another $0.01 week over week, up 2% month over month, and still up 37% year over year. The DOE Diesel Index has now increased twelve consecutive weeks.
Drayage providers are seeing a strong demand right now, with volumes running at peak season levels currently after experiencing a bit of a slowdown at the start of 2Q. Pricing also remains very elevated like peak season in 2020. Meanwhile, there is still congestion getting into the West Coast ports, but the situation has improved as the year progressed. They've seen a significant constraint on rail capacity, so customers are trying to find any means necessary to move their freight, including doing more long-haul truckload movements of international containers. And with such a significant backup of volumes, shippers are looking for large amounts of yard space. Lastly, equipment shortages remain a significant constraint on volumes on both the chassis and container sides.
LTL trucking enters summer with strong tailwinds. LTL freight is benefiting from many factors, including strong e-commerce sales, tightness in the FTL sector, which pushes some freight to LTL and accelerating factory output. There is plenty of freight for LTL fleets to move. There are things happening on both the demand and supply sides that are very favorable for the LTL industry, which will allow pricing to go much higher.
Truck capacity constraints worsen on the US-Mexico border. US businesses shipping goods to and from Mexico are being forced to innovate and consider new ways to move goods as the COVID-19 pandemic disrupts transportation networks on both sides of the border. However, shippers find that alternative transportation options are limited, as capacity constraints that were tight even before the pandemic worsen as the disruption persists. Until the US and Mexico get back to full production, we’re going to see a very strained atmosphere in the trucking industry both north and south of the border. This is going to push shippers to do things they haven’t done before. Northbound trade rising Cross-border shipments are rising. The number of trucks entering the US through Laredo rose 12.6 percent year over year to 229,568 in March, the last month for which US Bureau of Transportation Statistics data is available. On a sequential basis, US-bound truck border crossings (the US does not collect data on Mexican-bound trucks) in Laredo rose 24.4 percent in March from February.
Freight capacity pinch will continue into the 3rd and 4th quarters. Likewise, LTL and FTL traffic will see a continued capacity crunch and rate increases. Conditions are unlike anything the market has experienced. Many major carriers are not accepting new business. Fuel surcharge averages are trending upward to 22%, per all major industry tracking services.
The Port of Long Beach currently has 9 container vessels at berth and 8 container vessels at anchor destined for POLB’s marine terminals. The average at anchor is 4.4 days. Tight capacity on shipping lines brings record rates, delays. Daily rates from China to the U.S. West Coast are up 66% since January and more than 400% since the beginning of 2020, according to the Freightos Baltic Index. Spot rates from Asia to Northern Europe are up 92% and 480%, respectively, over the same periods. The rates have gone ballistic, and it doesn’t look like it will change until next year.
DAT shows some spot rate lanes break records and driver issues still dominate. On the 372-mile run from Los Angeles to Phoenix, spot rates continue to climb reaching $4.44/mile this week. That’s a $0.12/mile increase since last week and up to $1.42/mile since February. Spot rates reached $4.25/mile this week on the high-volume e-commerce lane from LA to Stockton’s warehouse market. That’s an increase of $1.16/mile since February this year. On the East Coast in Atlanta, spot rates for loads to Orlando are $3.89/mile this week, which is the highest we’ve ever recorded on the 440-mile lane. Rates are now up to $1.08/mile since February also. Seasonality returned to the market last week with dry van spot rates increasing by $0.03/mile to $2.38/mile. Dry van spot rates are still $0.78/mile higher than this time last year and $0.39/mile higher than in 2018.
Spot TL rates are no longer at a major premium to contract rates. The closing of the premium reflects the rise in contract rates and the record spot market rates. As a result, this lack of premium will likely limit further meaningful increases in contract rates that have been reset higher over the past 6-9 months. This indicates 2021 FTL bids will likely be +/- 3% versus current levels.
Weekly Spot Market Pricing (DAT)
Diesel costs continue to rise, last week ticking up to $3.331 per gallon, up another $0.03 week over week, up 2% month over month, up 23%year to date, and now up 37% year over year. The DOE Diesel Index has now increased ten consecutive weeks. Also, U.S. oil prices hit a six-year high amid OPEC standoffs. U.S. oil prices rose to six-year highs as an OPEC deadlock raised the prospect of a summer in which crude production fails to keep up with rebounding demand from the crush of drivers hitting the roads. Futures for West Texas Intermediate, the main grade of U.S. crude, jumped 2.4% from Friday’s close to $76.95 a barrel, their highest level since the energy-price crash of late 2014. Brent crude, the benchmark in global energy markets, rose 0.8% to $77.77 a barrel having rallied when the OPEC meeting was called off on Monday.
Carriers noted that their shipment counts increased sequentially in June, although volumes for both underperformed normal seasonality given capacity constraints following such strong May trends. They believe their networks are full right now, and they’re trying to preserve service levels, so they’re both limiting new and existing volumes. One of them noted that home goods demand seems to be moderating as the economy continues to re-open. Volumes increased double-digit year over year in Q2, although year over year growth rates continues to decelerate against tougher comparisons. Meanwhile, pricing trends continue to accelerate, with these carriers seeing 8%-10% yield growth in Q2, accelerated from 5%-7% in Q1. So, despite record cost inflation, margins for carriers improved nicely sequentially in Q2 with improving pricing and freight mix. On the FTL side, a mid-sized TL carrier told us they continue to see a very tight FTL capacity, with tender rejections holding steady at around 25% in the second quarter. The driver market remains very challenging as this carrier’s turnover has increased from 30% in Q1 to 37.5% in Q2 despite implementing two drivers pay increases this year totaling 12%. Since the driver pay increases aren't having a significant impact on driver recruiting and retention, carriers are going after more regional routes which offer a better lifestyle for drivers. Some of the carriers have trucks parked waiting for repair parts, and they can't find any rental trucks in the market in the meantime. From a pricing standpoint, carriers are now largely through bid season and have experienced double-digit contract rate increases. But in the last 60 days, the pace of price increases has mostly flattened out at very elevated levels. Some of them are finding it difficult to make long-term pricing agreements because the market has been so volatile. As a result, carriers currently have about 50% of their volume contracted under longer-term rate agreements, with the other 50% more loosely contracted and subject to change given appropriate notice.
FedEx’s service issues in the strong LTL market are apparent ahead of canceling non-profitable tariffs. Less-than-truckload carriers have quietly been using a high-demand, tight capacity environment to remove less profitable freight from their networks for months now. Most of the actions have included rate bumps and stricter enforcement of accessorial and detention fees in efforts to free themselves from shippers that have sub-optimal freight and facility operations. FedEx has even been rumored to be flying drivers around the country to position them in the areas of its network with the greatest need in the week leading up to the announcement.
More autonomous trucking companies are going public. In the last 2 months, two autonomous truck technology companies, Embark Trucks and Plus, have announced deals to go public. Recent press reports also indicate that Aurora is nearing a deal to go public, and TSP (TuSimple) completed its IPO in April. So, there’s a lot more capital going after autonomous trucking, in addition to Waymo Via and Torc Robotics.
The latest monthly report by the Drug and Alcohol Clearinghouse, administered by the Federal Motor Carrier Safety Administration since January 2020, revealed that 60,299 CDL holders have a drug or alcohol violation recorded in the clearinghouse as of June 1st, up from 57,510 as of May 1st and up from 18,860 recorded in the clearinghouse as of May 1, 2020. Drivers with at least one substance abuse violation are barred from operating a commercial truck until they complete a return-to-duty process, which includes providing a negative follow-up test result. The percentage of drivers who are completing the RTD process has steadily increased over the past year, however, from 5.2% as of May 1, 2020, to 22.1% as of May 1, 2021.
According to the last data from the IHS Markit PIERS database, loaded container import volumes were up 22% in the Port of Los Angeles and 14% in the Port of Long Beach. These were the number 1 and number 3 ports respectively for import volumes in May and where the majority of Asian imports are concentrated at the moment. Oakland also saw an increase of 41%. On the east coast, New York volumes were up 9% this year and 45% since May of last year. Nationally, container import volumes were up 16% and 65% since last May, following record volumes in March and April, normally two of the quietest months on the shipping calendar.
The Port of Long Beach currently has 11 container vessels at berth and 6 container vessels at anchor destined for POLB’s marine terminals. The average at anchor is 2.5 days.
The average sales price for a used Class 8 vehicle sold in May set the all-time record, jumping ahead of April’s claim to that title, amid the trend of strong demand for trucks once again outpacing the available supply, ACT Research reported. The average price was $58,652 compared with $41,027 a year earlier, a price ACT revised from its initial estimate of $36,954 in the 2020 period after it subsequently added participants to its database.
May intermodal volumes continue to steadily rise, reports IANA. Total May shipments were 1,616,620, up 22.4% annually. Domestic containers at 663,282, increased 17.9%, with trailers at 102,914, up 18.6%. All domestic equipment at 766,196, rose 18%, and international, or ISO, containers at 850,424, were up 26.6% In the report, IANA described the outlook for intermodal growth over the balance of 2021 to be “robust,” driven by weak comparisons and an improving economic outlook. Looking at the different equipment segments it forecasted the following:
Dry-van TL spot rates rose slightly over the past 30 days and are 53% above year-ago levels (decade-highs and decade-lows, respectively). Strong demand trends (including above-average use of spot market capacity) likely continue into the next 6+ months, likely offsetting initial signs of cyclical capacity expansion (Class 8 truck orders). Rising fuel prices will also likely add to spot market prices, as prices remain elevated after the Colonial pipeline fuel supply disruption. As a result, any moderation in rate vs current levels appears to be likely pushed into 4Q.
Weekly Spot Market Pricing (DAT)
Diesel costs continue to rise, last week ticking up to $3.300 per gallon, up another $0.01 week over week, up 1% month over month, and still a 36% increase year over year. The DOE Diesel Index has now increased 9 consecutive weeks.