Massive volume increase at the ports is causing demand for over the road (OTR) capacity to spike and it’s only September.
The number of ships parked off the coast of California has approached the mid-60s. You’re probably sick and tired of hearing about backups at ports on the West Coast but it is more important than ever to pay attention to port volumes. As goods move inland they take up over the road and intermodal capacity. Swells in port volume lead to higher demand for capacity and cause rate increases. And with this current surge in port volume causing businesses to redirect shipments to other ports in the US, we’re back in a pattern of elastic capacity. For example, if there are backups at the Port of Houston, you can expect demand for over the road capacity to increase in lanes that originate in Houston. Likewise, if there are port backups out of Charleston, you can expect demand for over the road capacity to increase in those lanes as well.
The Ports of LA and Long Beach are testing extended weekend and nighttime hours to help minimize the impact of truck delays. This adjustment allows a higher volume of trucks to get loads from the ports and journey inland, which will likely reduce delays. However, as we noted a week ago, Maritime orders are up 40% (maritime orders being those goods that manufacturers or distributors import into the US from their suppliers) and such a substantial volume increase will demand even more capacity. Because of this influx, carriers are focusing their efforts on the West Coast. And to add to the congestion for over the road volume, there’s the issue of Intermodal Transportation. Using rail to transport your goods is not going to be as fast as over the road transportation, despite attractive costs and increased capacity. Since most businesses are trying to get goods on the shelves by late October or early November, over the road transportation is the preferred method. But if you’re not rushing to keep up with holiday seasonality, consider rail capacity.
Parcel carriers are stepping up their game to prepare for an unprecedented delivery season. Last week we mentioned that USPS is hiring 40,000 seasonal workers to keep up with consumer demand. This is a smaller number than they hired in 2020 (and 2020 was an election year). Maybe the additional help and new equipment they’ve implemented will increase efficiency, maybe they’re counting on less volume in general, or they’re not going to be able to meet this demand. USPS posted some pretty big losses this year in terms of revenue. This is also the second year in a row that USPS, which is subsidized, imposed peak surcharges. We don’t mean to throw shade at USPS, but we do think it’s time to pay attention to what Parcel carriers are doing. USPS isn’t the only carrier adding seasonal help to their roster. FedEx will try to fill 90,000 open positions ahead of peak season. UPS announced 100,000 open positions. And, not to be outdone by any of the big three (which is starting to look like the big four) Amazon is hiring 125,000 workers. The question that remains is, “Will this be enough?”. One thing that remains interesting is Amazon’s entry into the space
Demand for over the road capacity is higher now than it was even in 2020. 2020 set records at 15,000 loads per day, but right now we’re looking at closer to 16,000 loads per day. That’s a 6% increase over 2020, and 2021 has yet to reach full peak. This is a higher demand for over the road capacity than is seasonally normal. Typically there’s an uptick in August because of back to school and seasonal restocking, but current demand is unlike anything we’ve ever seen. Rejections are still pretty consistent at just under 22%. This is a good time to note that 20-25% of all loads have been rejected for more than a year now. This really points to a complete lack of capacity on the market, so much so that we’ve reached the point where demand is higher than the ability to fulfill the demand.
Spot rates have seen a little bit of a reprieve at $3.20 a mile (inclusive of fuel) instead of $3.60 a mile. Spot rates are reported on a 10-day delay, so some of this adjustment is runoff from Labor Day and the Hurricanes. This dip doesn’t signal any meaningful adjustment for the spot market. Demand is still incredibly high and it’s going to continue to drive up rates.