Market Update | May 2022

May 26, 2022

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Ocean Freight | May updates

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Ground Freight | May updates

In meetings last week, carriers discussed current pricing and capacity trends. LTL carriers have seen volume trends slow over the past couple of months, with the most significant pressure on retail and e-commerce shipments. In contrast, industrial freight volumes are holding up better and are accelerating right now in some instances. Even with slower volume trends, carriers continue to see a stable pricing environment with expectations for low double-digit rate increases this year and continued increases in accessorial surcharges. That said, carriers continue to see high inflation for drivers, dockworkers, and equipment. They have seen significant headwinds from purchased transportation that are starting to moderate over the past year.

Separately, carriers don't have plans to add any new doors or terminals this year and don't think the industry is adding much capacity on a net basis. Lastly, M&A activity remains elevated in the space. KNX will achieve a nationwide LTL network over the next several years and is seeing more interest in LTL M&A from other TL carriers and private equity firms. On the full truckload side, tender acceptance rates have improved from the high 70s to the mid-80s, attributed to softening demand. As a result, spot rates are declining rapidly, but carriers think it is unlikely that rates will get back to 2019 levels, given underlying wage and equipment inflation. Thus the industry is hopeful that spot rates may be nearing a bottom. There are also rumors saying that small trucker capacity could start quickly exiting the market with lower spot rates. And while spot rates have softened, some carriers continue to see significant increases in contractual rates in 1Q.

Contract rates and spot rates are now broadly in line with each other, so TL contract rates will likely match inflation in the coming months to keep up with sustained elevated costs. Regarding equipment pricing trends, prices for new trucks are up 10% this year, while prices for trailers are up 30%. And prices continue to rise despite carriers already locking in their orders. Some carriers have already received multiple notices of incremental price increases of around 3% each from their suppliers, and it is the first time we've seen OEMs increase prices after orders were locked in.

Pent-up demand bolsters industrial freight volumes. Despite some recent improvements, retail inventories of motor vehicles and parts are still more than 27% below pre-pandemic levels, even though vehicle and parts retail sales are running about 29% ahead of pre-pandemic levels. Even if sales fall off, automakers still will need to push production as much as the semiconductor supply will allow for at least the rest of this year and probably longer. Although the supply chain issues for vehicle production might be easier to isolate than in the rest of manufacturing, the entire sector is experiencing the same fundamental problem: Higher demand than production can satisfy. Manufacturing output excluding motor vehicles and parts was 4.6% ahead of February 2020, seasonally adjusted, but new orders for manufactured goods in the latest month were 19% ahead of February 2020.

Fleet equipment utilization rates hit "record" highs.   Industry analysts seem optimistic for the heavy commercial truck and trailer markets for the remainder of this year and heading into 2023, mainly as fleet utilization rates are hitting record highs. DataPulse, a quarterly fleet utilization survey from MacKay & Co., showed that in the first quarter of 2022, total power Classes 6-8 utilization was 86.2% compared to an initial fleet forecast of 82%, John Blodgett, VP of sales and marketing at MacKay & Co., said during an April 20 Heavy Duty Manufacturers Association Pulse webinar. Indicative of solid freight movement, trailer utilization also hit new highs, with full-service lease and rental fleets nearing 97% utilization rates and for-hire carriers up over 93%.

Why every American should care that diesel prices are surging across the country. Too many Americans (including politicians), diesel prices are so removed from their version of reality that they often dismiss the importance of diesel to the U.S. and global economies. However, diesel is the fuel that drives the economy and leaves major industries vulnerable to cost hocks. Without diesel fuel, the U.S. economy would collapse in days. Our supply chains would completely shrivel almost overnight. Trucks use it to haul our goods across the country. Of all Class 8 trucks (the big ones), 97% use diesel. No, Elon Musk is not going to save us here. When Tesla announced the Semi in 2017, Musk projected that over 100,000 would be produced by 2022. Today there are less than 20, mostly prototypes.

Shifting supply chains settle on Mexico. China is still the manufacturer globally, accounting for 28.7% of global manufacturing output in 2019. But after a pandemic, a trade war, and rising wages in China, many manufacturers have been looking for other options. One increasingly vital option in Mexico. First, a look at supply chain problems. "It used to take 21 days for merchandise from China to come to the port of LA or port of Long Beach and get to our warehouses, and today, it takes 159 days," said Isaac Larian, CEO of MGA Entertainment, which makes Little Tikes toys like Cozy Coupes, those red and yellow plastic cars with googly eyes that kids ride in. It has factories around the world, including in Hudson, Ohio.

Werner beats in Q1 and expects spot-market carriers to fail. Price increases continue unabated. The one-way TL segment, 37% of Werner's 8,200-unit fleet, only generates 10% of its revenue in the spot market. Contractual rates in the segment have increased by a low-double-digit percentage so far in 2022 as the division remains "consistently oversold." One-way revenue increased 19% year-over-year to $187 million as revenue per truck per week grew 11%, and average trucks in service increased 7%. The dedicated fleet reported 13% year-over-year revenue growth as the fleet count increased by 5%, and revenue per truck per week was up 7%. Roughly 60% of Werner's freight is tied to retail, with the majority coming from discount retailers and home improvement stores. The revenue book from that group is growing as its top customers are logging top-line growth of 17% on average.

Walmart's driver pay boost goes beyond miles driven. Walmart Inc. made a big splash recently with the news that it was boosting its overall pay package for first-year drivers to as much as $110,000 a year. But Fernando Cortes, the senior vice president of Walmart Transportation, told Transport Topics that its new compensation package for drivers of all experience levels covers more than pay per mile. "We wanted to reinforce that we offer one of the best driving jobs in the industry, so we increased pay for most aspects of the job," Cortes said. "This includes increasing per-mile pay by about 10% compared to before. We also increased pay for wait time and activities like live loads and unloads. Altogether, we think these increases will help us continue to attract the best of the best."

April's average used Class 8 retail price breaks $100,000. In April, the average retail price of a used Class 8 vehicle pushed past the $100,000 mark for the first time, ACT Research reported. "It was $101,736," ACT Vice President Steve Tam told Transport Topics. "A year earlier, it was $53,412. Not quite double, but darn near."

Crisis or hiccup? Assessing the logistics impact of China lockdowns. A mixed bag of circumstances and time horizons are creating diverging narratives about whether shipping delays stemming from the shutdown of Shanghai and other Chinese cities are getting better or presage massive supply chain gridlock. There is no sign that Shanghai's lockdown is easing anytime soon. Footage on social media shows steel fences installed on public roads and inside residential compounds to keep people from traveling to other districts and moving into neighborhoods. On Monday, the Shanghai Health Commission reported 2,472 new positive cases of COVID-19, up from 1,401 the previous day. Total daily case levels exceed 30,000. Fifty-two people died Monday of COVID, according to the China Daily.

Despite softening spot rates and spiking fuel, signs show a strong freight market. "Yes, freight has eased off from the robust growth we saw coming out of the economic restart, but freight volumes continue to grow," Ake added. "FTR is forecasting Class 8 freight growth to remain at healthy levels this year and still be just under 3% next year. Of course, there are risks to this forecast, and if the economy eventually goes into recession, it would probably take the freight markets with it."

Railroads say higher volumes and labor constraints present obstacles to better service. BNSF is also asking shippers to reduce inventory as the railroad looks to temporarily reduce the overall number of cars on its network by 2%. "As our velocity slowed with increased demand, there was an understandable reaction from our customers to add more cars on the network in hopes that they would quickly increase their chances of getting their shipment," said Matt Garland, vice president of transportation. "Unfortunately, adding cars to the network has the opposite result."

The Port of Long Beach currently has ten container vessels at berth and three container vessels at anchor within 40NM destined for POLB's marine terminals. The average at anchor is 3.3 days.

Weekly Spot Market Pricing (DAT)

Dry Van National Average RPM @ $2.70 (-$0.08 vs. prior week)

  • - $0.60 vs. current contract rates
  • + $0.10 vs. May-2021 spot rates

Flatbed National Average RPM @ $3.45 (+ $0.04 vs. prior week)

  • - $0.38 vs. contract rates
  • + $0.33 vs. May-2021 spot rates

Intermodal National Average RPM @ $1.99 (+ $0.10 vs. prior week)

  • + $0.31 vs. May-2021 spot rates

Diesel costs for last week came in at $5.509 per gallon, up $0.349 week over week, up 7% month over month, and up 75% year over year.

Air Freight | May updates

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Commercial Air Operations Update

IATA released an information page listing airlines' status globally, free for all to access. Visit the IATA page here.

Charter Operations and Aircraft Availability

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