With peak season on the way, markets are taking a short break. But with imports continuing to stack up it’s only a matter of time before the swell starts.
Imports are stacking up on both coasts and this is leading to tightening capacity in both the California and Georgia markets. “There’s still some pockets of loose capacity in the Midwest and Northeast in the Pacific Northwest, however, it’s probably not going to stay that way as more and more imports continue inbound.” Jimmy Paton of SwanLeap estimates.
One unexpected change in the capacity conversation is the role of air cargo for bringing imports to the United States. Air cargo prices have doubled since pre-pandemic levels.
“With shipping prices for container freight being so high due to such high demand and with times taking so much longer for container freight to get here, a lot of businesses are considering air cargo a viable option, and a competitor even, to container freight.” explains Paton. “Hopefully this change will alleviate some capacity tightness, but as air cargo becomes a more prevalent mode of importing goods then the price of container freight will go down as the demand decreases. It’ll eventually maybe balance out.”
In June there were reports of 24,000 new drivers in domestic freight markets. “This is not a seasonally-adjusted metric, however, so some of this is just seasonal additions.” Paton notes. “We’ve been in the middle of a driver shortage for a good while now and adding drivers to the market will certainly help to increase capacity.”
DHL Express is making a $350M investment in infrastructure in the United States to keep up with ecommerce demand — and this is ahead of what’s supposed to be the earliest peak season we’ve ever experienced. “You may recall that earlier in the year FedEx and USPS made a similar move with adding new capacity, new trucks, new sorting facilities and different things like that,” Paton recaps, “Hopefully this will alleviate some of the crunch in final mile delivery ahead of what’s supposed to be a legendary peak season.”
Both UPS and FedEx have updated their fuel surcharges with UPS’s ground surcharges coming in at a 8.25% increase and FedEx coming in at a 16.27% increase for similar service levels. “With new fuel surcharges and peak charges, this is the perfect time for high-volume parcel shippers and ecommerce shippers to consider reaching out to regional carriers to expand their Network and see if they can mitigate and insulate from some of those charges and increases in cost” suggests Paton.
In domestic freight, carriers still have the upper hand as capacity is still tight. We’re coming off of the July Fourth holiday weekend where rejection rates rose to 27%, which is the highest they’ve been since the peak holiday season of 2020. “This is an all time high for rejection rates in the United States,” explains Paton, “so this time the domestic freight shippers want to focus on making your freight as attractive as possible so that more people will be interested in taking your freight. You can do this by focusing on having quality loads and reducing dwell times.” Paton suggests. “Also, something that might help is increasing your lead time — maybe instead of a three-day average you might add a fourth day to your lead times — and then you’ll be more likely to secure capacity.”
In the spot market, it’s customary to see a dip in prices after the July 4th weekend. Last year this didn’t happen. “July 4th  was kind of on fire in terms of the spot market,” Paton recalls, “but we do expect to see some adjustment in the spot market and things tapering off a little bit as the next week or so progresses.” Spot markets have been at all-time highs midway through the year, so this is time for some correcting to happen in terms of pricing.
Truck orders made a slight comeback in the month of June with about an 11% increase over May. This is still about 13% less than the record levels that were seen back in November through February. Paton cautions, “in terms of these trucks hitting the market and delivering new capacity, orders are still backlogged until at least Q1 of 2022, with that date even being a little tentative as manufacturers are still dealing with supply chain disruptions.”
BIDEN’S EXECUTIVE ORDER
The Biden administration is trying to address some of the issues with rail and ocean freight with an executive order that’s going to be targeting pricing regulation, trying to increase competition in the space and hopefully level the playing field. “It’s still way too early to tell what any of this stuff is going to mean for domestic supply chains,” says Paton, “but we will be watching this closely and ready to give you updates every step of the way”.