Port congestion means tighter capacity for final mile and domestic freight, as port congestion spills over into different lanes across the US. It can also trigger higher spot rates and more rejections on contracted loads.
California Port Congestion
Ports in California have started to back up again with the Pacific Ocean essentially becoming a parking lot for container vessels. As a result, the price of container freight is shooting up, “It’s higher than it even was last month,” Jimmy Paton of SwanLeap explains, “and this was already very high. It’s likely we’ll start to see elastic capacity taking place because when California backs up, other ports are going to start backing up and it’s going to travel around.”
When this elastic capacity happens, this is when it’s great to have technology and a transportation marketplace to be able to find capacity on new lanes or lanes that you’re familiar with when your existing sources for capacity are not working out. “If you’re using AI capacity matching in this case, you’re going to be well ahead of everybody else.”
Hernando de Soto Bridge Repair
For transportation lanes in the southeast, repairs have begun on the Hernando Desoto bridge. Officials estimate that this will be done in late July. This is a bridge on Interstate 40 connecting Arkansas to Tennessee and this is a vital lane for a lot of trucks and a lot of transportation in the southeast. “The route around it, the detour route, costs a lot more money so we’re really looking forward to seeing this open up again, seeing this bridge repaired, and to see that capacity start to loosen, and see those prices change.” says Paton.
UPS Peak Surcharges
We saw FedEx institute new peak surcharges last month and, as usual, UPS is not far behind with new peak surcharges going into effect July 4, 2021. You may recall that FedEx pulled service on about 1,400 customers last month as they were rebalancing their network and trying to get some things right for the highest amount of quality. They have since reinstituted service to those customers so it looks like they were able to sort out what was happening with their transpiration network.
“This is a perfect example of what we mean when we talk about how GRIs, general rate increases, are never done fully across the board.” notes Paton, “It’s generally the result of carriers needing to optimize their network in certain lanes. Some of them will have too many customers in one lane, some will have too few customers in one lane. Often these will balance eachother out. This is an example of this happening in real time; it usually takes much longer for these results to happen, but this is a good reminder that there’s always someone out there that needs to take your freight. It’s just a matter of if you have the ability to access them and to locate that capacity.”
Amazon Prime Days
Probably the biggest thing that’s happened in the Parcel space is that Amazon Prime Days just ended. “We’ll still be waiting to see the full effect of that: Is it going to be like it was in October where there was an onslaught of parcel shipping that occurred? We’re not sure — yet. One thing that’s interesting to note was that the revenue from this year’s Prime Day(s) was only 6% higher than last year’s.” notes Paton.
For a little more context, the average revenue for Prime Day is 60% greater than the year before it. In 2020, Prime Day saw around $10B in revenue sales. In 2021? Only about $11B in revenue.
“There’s quite a few reasons that this is happening,” states Paton, “but one that we think is very likely is changing consumer habits. Some new research just came out that 1 in 3 consumers are looking in other places on Prime Day because they think they can get better deals than Amazon. About 60% of consumers said that they would be price checking Amazon using tools like the Honey browser extension. Consumers are rebalancing things away from Amazon and towards other retailers.”
Additionally, retailers are adapting and changing, so they’re rolling out competing sales with Prime Day. “They’re also rolling out things like marketplaces for their specific products, which enables increased revenue while keeping inventory low because you have other sellers on your marketplace who are responsible for having the inventory and fulfilling those orders,” Paton continues, “There’s a little bit of change on the retail front and we’ll keep watching that closely as we’re always curious what Amazon’s going to do next.”
Domestic freight has been running at a blistering pace for the last 8 months: 25% of all loads are getting rejected, and last month the volume of loads being contracted hit a huge high — the same last month as it was right at the beginning of the 2020 holiday season. Normally, there’s an uptick in domestic freight right after Memorial Day weekend as people prepare for the July 4th holiday. “We do expect things to tighten up a little bit between now and the July 4th weekend. With ports backing up and manufacturers continuing to try to restock ahead of peak holiday season, we do expect volatility in the market.” cautions Paton
Spot rates are hovering at around $2.67 per mile on average. Spot rates generally climb after Memorial Day on the way to July 4th weekend. “It [spot rate increase] hasn’t happened yet, but it’s not too late for it to happen and we fully anticipate that it will happen, so continue to watch the spot rates.” Paton advises.
Consumer spending is still high at around 20%, which is where it’s been since the beginning of the year. Keep in mind, this is 20% higher than 2019 because 2020 wasn’t really a normal year for statistics around this time.
“In 2019 consumer spending was only up 8% over 2018 so this is a high increase by any standard and consumers are spending a lot of money, so we’ll continue to watch.” Paton explains. “What will be interesting to see is where that money is being spent. It will probably shift away from online retail to more tourism, travel and live events.”
However, if consumers have shown us anything over the last six months it’s that they really do like online shopping and they’re going to continue to do that. “Ecommerce is still going to be hot,” Jimmy Paton clarifies. “It’s really not changing any time soon and probably not in any significant way.”
May saw about a 30% dip in truck orders, and 2021 has seen staggering numbers of truck orders. Analysts say that fleets have probably ordered as many trucks as they’re going to for 2021. Even if they place more orders, they’re not necessarily going to get those trucks anytime soon. “Manufacturers haven’t started booking orders for 2022 because they’re waiting on price stability for different materials that they need to make sure they price their trucks competitively.” Paton says. “A downward trend in truck orders doesn’t necessarily mean a slowing of the economy, and it definitely doesn’t mean that any new capacity has hit the market because it hasn’t. It just means that 2021 orders are filled and they’re in the process of being fulfilled. Probably not going to hit the market until 2022, and when 2022’s orders do open up, we’ll probably start to see some of those high truck order numbers that we were seeing at the beginning of this year.”