Spot rates are moving atypical for the current market. With low rejection rates, there should not be high demand for spot rates. However this market continues to amaze.
We’re coming off of a hurricane, Labor Day, and the end of the month of August. With all three of these factors converging at the same time, the supply chain is in for some upheaval. But how? First, at the end of the month businesses and shippers alike are trying to meet different goals. This leads to tight capacity and heightened prices. Second, when dealing with hurricane recovery, businesses will have to compete with FEMA for capacity as they spearhead the relief effort. And depending on where a hurricane makes landfall there can be port shutdowns or flooding, leading to further disruption. Warehouse space continues to be extremely limited thanks to restocking with only about 2-4% of warehouse capacity available. Despite port congestion, large retailers like Target and Walmart have said that they’re in good shape for the holiday season.
Pitney Bowes announced peak surcharges of $1.50 on all domestic packages beginning Oct. 3. They’ve also announced a weight-based surcharge for any expedited packages. This surcharge is applied on top of the $1.50 peak surcharge.
- Packages weighing 0-10 lbs incur a $1.25 per piece surcharge.
- Packages weighing 11-20 lbs incur a $3.85 per piece surcharge.
- Packages weighing 21-70 lbs incur a $6.25 per piece surcharge.
Amazon has expanded its next-day air delivery program, giving them the ability to deliver to 70% of the US population within one day.
The Outbound Tender Volume Index, which tracks electronically tendered loads across the United States, is averaging 16,000 loads per day which is pretty close to the record set on June 7th. This means that there’s a high demand for freight, even at the beginning of September. Despite such a high demand for over the road capacity, rejections are sitting lower than they normally sit when there’s this much of a demand for freight. Averaging 22% of all loads being rejected, capacity is still tight and is bound to get tighter as peak season nears.
Pressure from every part of the supply chain, including congestion on the West Coast, congestion on the East Coast, congestion at rail yards, and packed warehouses is creating a high demand for spot market freight. With rail companies protecting their contract capacity shippers have to turn to the spot market to get goods inland. Ordinarily spot rates start to climb when rejections are high because if there’s no contract rate than you have to turn to the spot market to be able to secure capacity. But rejection rates are relatively low right – at least, lower than they have been when spot rates start to climb. What we likely have is a new normal for spot rates which is very elevated. And, with this new baseline being so high, spot rates are bound to climb during peak season. This is also going to set a new threshold for 2022, meaning rates will continue to climb as markets continue to adjust.