The impact of record retail imports is showing up in some unlikely places. Ports are backing up as expected, but rail yards and warehouses are also seeing elevated numbers.
Congestion is building, not just at ports but at rail yards and warehouses across the United States, as an effort to restock goods by October is in full-swing. According to the executive director of the port of Los Angeles about 90% of all inbound ships in August were sent straight to the parking lot. But what’s causing these issues? Container shortages are partly to blame. But the other part of this equation is the pricing of rail freight. For rail, contracted rates are highly prioritized making spot rates for rail tremendously expensive. That means if your strategy was to move the goods from the ports inland over rail, that strategy is really falling through due to high prices. In addition to that, import volumes are so high that auxiliary ports are starting to fill up. The port of Houston had its best month ever in August with a year to date volume 15% higher than its entire 2020 volume. Couple that with import backups on the East Coast and you’re left with a capacity demand scenario that makes pretty much any shipping strategy more expensive.
USPS, for the second year in a row, is imposing peak surcharges. These surcharges go into effect October 3rd and impact Priority Mail and Parcel Select service levels. Speaking of surcharges, there’s good news for Fedex customers. If you’re a Fedex customer who qualifies for Residential Delivery Surcharges there’s a loophole. These surcharges are only in effect October 7 – 15 and November 15 – 28. So if you have any shipments that are going to incur this surcharge just make sure you don’t ship them on those dates and you’ll be fine. Ontrac has stopped accepting new customers for the 2021 peak season. Their CEO states that they reached max capacity back in August so anybody who’s not onboarded by September 1st can’t use Ontrac as a carrier. This reflects the trend in the market of shippers using regional carriers in order to avoid surcharges or to find a little extra capacity where they need it. Now that regional carrier capacity is starting to fill up, it’ll really be interesting to see what happens during parcel delivery season. DHL Express is abandoning its drone delivery program, saying goodbye to the Parcelcopter (which is probably the best name for a UAV that we’ve seen).
Outbound tender volumes are holding around 15,600 – 15,700 loads per day.This is only about 3% lower than the all-time high from June 7th, signaling a strong demand for freight. Despite this demand, rejections only increased about 2% during the month of August (about 22% of all loads being rejected). This seems like good news considering the fact that we’ve seen 25% rejection rates when the outbound tender volume index was much lower than it is right now. So it seems like markets have leveled out and can handle capacity in a way that’s really efficient.
Despite a lull in rejections the spot market continues to hit new highs. Spot market rates have broken all-time records, coming in now at $3.35 a mile inclusive of fuel. Normally, when rejections are low there’s not as much demand for spot rates. However with rail carriers protecting contracted rates, shippers have had to turn to the spot market. This increased demand is driving up cost. And as we approach 2022, predictions for truckload freight have (you guessed it) gone up. We have an elevated but functioning domestic freight supply chain right now. This means that capacity is tight but manageable. It also means rates are going to continue to go up as we get closer to the onset of peak season.