As businesses restock to meet consumer demand, ocean container volume is setting new records. And the first signs of price increases confirm what we all fear to be true. It’s going to be another record year.
Peak ocean season is on the way! “Normally, there would be a little bit of a lull in the summer. However, that doesn’t really apply with there being so much demand for goods domestically, and people needing to restock and get those goods in.” shares Jimmy Paton of SwanLeap.
With peak season comes peak season prices. One freight forwarder reported a rate as high as $135,000.00 per day for a 15 day charter of a vessel that can handle five thousand 20 foot equivalent containers (TEU’s). “For us, that’s an indicator that those prices will eventually get rolled into the cost of goods. This ocean peak season is an indicator of price increases” says Paton.
Additionally, it’s interesting to note that domestic rail volume was up 28% YoY in May. “Keep in mind that in May 2020 there was a significant amount of rail volume that was pretty much back to a normal level, so a 28% increase is a pretty big deal in this case.” Jimmy Paton advises, “This indicates that people are pivoting their supply chains to different modes and using different strategies to get their goods inbound. And the reason for this peak ocean season is that sales are far outpacing restocking rates for goods, so summer is not going to let up in terms of capacity and in terms of things coming inland.”
Because goods are coming in so quickly and restocking needs to happen so quickly — instead of using rail to move those goods to a distribution center or a manufacturing center — businesses are relying on full truck loads and that’s going to see an increase in prices in the spot market. “Tight capacity always means an increase in rates, and if something happens on the earlier part of the supply chain it’s usually going to have an impact on the later part of the supply chain.” shares Paton
FedEx has announced new peak surcharges that go into effect on June 21, 2021. These surcharges apply to various service levels.
FedEx is falling behind in terms of performance with only 87% of FedEx loads being delivered on time in comparison to 95% of UPS loads being delivered on time. “If you’re a parcel shipper, now is a great time to leverage technology to consider “is there’s a regional carrier that can use this?” to mode shop hundredweight versus LTL and see if there’s a better way to get your goods there at the service requirements that you or your customers might have.” suggests Jimmy Paton.
Amazon has officially moved Prime Day; it’s happening June 21 and June 22 (Prime Days, if you will). “We’re not saying this is a causal relationship, but do recall that last year’s Prime [Day] happened in October and was really the beginning of the ensuing parcel panic that happened at the later part of the year where we saw companies renting vans to make sure goods were being delivered, increases in Saturday deliveries, and U Haul trucks pulling up to make deliveries.” says Paton. “We’re bracing for a very tight season across all modes in the United States and don’t really see it letting up until the end of the year, probably into 2022.”
The outbound tender volume index (OTVI), an index that measures electronically tendered loads on contracted rates, hit a high that it hasn’t seen since 2020’s holiday season. “Despite increased volume, tender rejections have stayed the same. They’re still at that 25%, which is a relatively healthy mark: 1 in 4 loads being rejected,” states Jimmy Paton. “It’s certainly not the 30% we’ve seen it hit in the past and reefer capacity also loosened slightly at 38%.”
Fuel prices are going up. Last month they hit a record that they haven’t seen since 2018. “We’re not really sure again where this is going to land,” cautions Paton. “There’s a demand increase and every time there’s a demand increase there’s usually a price increase.”
Despite a pullback and a loosening of capacity in freight markets, spot rates are hitting around $3.30 per mile which is higher than what April was seeing at $3.15 per mile. “This indicates that capacity is still tight because as contracted rates start to rise, spot rates also start to rise. Again, when there’s demand for something the prices go up,” Paton says. “In this environment, access to a marketplace and technology to be able to mode shop is essential; it’s the only way to stay ahead of everything that’s happening and the only way to stay efficient and compete in these volatile freight markets.”
In terms of the economy, consumer spending is 20% higher than it was in 2019. Keep in mind that May of 2020 saw a dip in everything, including consumer spending. “This level is pretty high; pretty significant,” says Paton. “And again, it’s an indicator that sales are outpacing restocking rates so there’s really not going to be any down time in shipping markets in terms of capacity for the rest of the year.”
Another indicator of how the economy is doing is truck orders. “When truck orders are high, it’s generally a sign that the economy is booming and that there’s more goods to move,” Jimmy Paton explains. “However, the month of May is a little different and the truck order numbers don’t paint the full picture. From April to May, there was a 32% dip in truck orders, However, no significant capacity hit the market and that’s evidence because rejection rates have stayed roughly the same that they’ve been over the first quarter of the year.
So why the dip in orders? “It’s because parts are still an issue and supply is still an issue for getting these trucks manufactured and getting them to hit the market so there can be new capacity that gets there,” Paton clarifies. There are more goods to move than there are trucks to move them and that’s going to continue to be the case through the rest of the year. “However,” Paton cautions “because getting the parts here and getting manufacturing going is still a serious supply chain challenge, we’re not seeing as many truck orders.”