As November begins, imports continue to pour into the United States, but capacity has loosened for the first time in nearly 15 months.

Capacity

There seems to be no end in sight for businesses trying to get more goods into the United States ahead of the Holiday shopping season. There were over 100 ships at anchor off the coast of California. This is a new all-time high and because of that, load to truck ratios for the West Coast continue to climb, clocking in at twenty loads for every truck. Due to the backlog the ports of Los Angeles and Long Beach have issued a new dwell time surcharge. Ocean carriers will be charged $100 per container, per day. That number increases by $100 per day incrementally, breaking down like this…

  • Day 1 = $100
  • Day 2 = $200
  • Day 3 = $300

Containers scheduled to move by truck have 9 days of dwell time before the surcharge is imposed. Intermodal containers have a 6 days of dwell time before the surcharge is imposed. Port officials hope this measure will cause the ports to run more efficiently on the over-the-road side. However the ports themselves still have a lot of efficiency issues so it remains unclear what is actually possible. The decision hasn’t been reviewed by the Federal Maritime Commission. The ports of Los Angeles and Long Beach are relying on the authority that they have from an 8 year old agreement with the FMC that allows them to do things like this in order to mitigate congestion. The only provision in that agreement is that the ports have to file these plans with the FMC so that they avoid the appearance of an antitrust situation.

Parcel

Despite a 15% increase in revenue Amazon posted lower than expected earnings for Q3. Their operating income fell by almost $1 billion. What’s interesting in all of this is that their shipping expenses increased 20%. During the earnings call, CEO Andy Jassy reported that Amazon is more interested in investing in things that will make a big impact in the future even if it means posting lower earnings.

Domestic Freight

Demand for over the road capacity has declined 2.5% since the beginning of October. Loads per day requests have found some stability around 15,500 loads per day. Of those 15,500 loads, only 19% are being rejected as rejection rates hit their lowest point since July of 2020. Since 20-25% of all loads have been rejected for about the last 18 months, a dip below 20% is a pretty big deal. However, the closer we get to December the tighter capacity will become which means more potential for a capacity crunch. As we approach the Holidays more and more drivers will take time off and take loads that are closer to home. With mounting port congestion plus a further limited supply of drivers, a capacity crunch seems inevitable at this point.

Spot Market

Spot rates are on a downward trend, falling about $0.2 per mile to $3.43 per mile on average. That’s 5% lower than the all-time high of September 5th which saw spot rates upwards of $3.60 a mile. Both spot and contract rates are up 20% year over year and they’re definitely going to go up in 2022. As we know when contract market rates go up so do spot market rates. Spot rates haven’t been behaving like they usually do because businesses are more interested in how quickly they’re able to get something somewhere. It’s possible that the urgency will continue into 2022 because, in addition to retail shortages, there are shortages in many other industries.

Consumer Spending

As we get closer to the Holiday shopping season consumer spending is up 20% over 2019 and 15% over 2020. The National Retail Federation expects holiday sales to increase between 8.5-10.5% over 2020 levels. That increase is contingent upon retailers’ ability to keep goods on the shelves. If they’re not able to deliver on stock or if there are shortages, that might change the number quite substantially. Depending on how consumers respond to potential shortages, December might be a more elevated month for over the road transportation. Typically December is a slower month for over the road transportation because the Holiday rush is over and there’s not as much need for capacity. But if consumers want goods after they’re out of stock, this might prompt businesses to continue to bring in goods for the rest of the year. An influx of demand from consumers would lead to more demand for over the road capacity in December, and while it’s a little too early to make that prediction, it’s important to consider all potential possibilities.