Transfix Take: Weekly Market Update (Nov. 9)
A Seasonal Trend is Finally Afoot
One week of November down, and we finally may be seeing a seasonal trend play out in 2020, though volume, rates and tender rejections still remain higher than at any time in history. The seasonal trend has volumes, rates, and tender rejections moving upward again during the first week of November, which is traditional after a slight breathing period in mid–late October.
“Capacity will struggle to catch up to demand for some time to come,” Justin Maze, Transfix’s senior manager of carrier account management, says. “Unlike on the supply side, demand is likely to stay. Shippers continue to struggle with inventory, and even when they get through the peak holiday crunch, they most likely will shift away from a ‘just in time’ inventory process. The pandemic still lurks, and shippers need to make sure they have stocked warehouses in preparation for panic buying.”
The biggest uncertainty, of course, is COVID-19. Another uncertainty is a potential government stimulus package. We’ll see if the completion of the election will cause a stimulus bill to pass. More stimulus could have two effects on the freight markets. Following the first stimulus, drivers were more likely to remain home rather than drive, which affects the already deep driver shortage. On the other end, consumers would have more money to spend on goods, leading to more freight that needs to be moved.
As Transfix talks to carriers, we are hearing how much of an impact the current driver shortage is having on their abilities to perform and grow with demand. According to the CEO of Commercial Vehicle Training Association, the number of new CDL drivers will be down 35% YoY — a direct effect of COVID-19. Driving schools were closed, as were DMVs, and even those that are open have slower processes. The shutdowns prevented close to 40,000 new CDL drivers from hitting the roads, and there is currently a 30–90–day wait to take the commercial license permit test in most states.
To dive a bit deeper, we looked at October new class truck orders, which are at levels we haven’t seen since October 2018, and trailers seem to be sold out for months. Even Ryder has claimed their best quarter on used truck sales.
“Many believe these are just replenishment orders finally being placed following carrier hesitancy based on market uncertainty,” Maze says. “A truck means nothing without a driver, and this is where you can gauge the relevance. In my opinion, capacity is going to be very slow to ramp up to current demand.”
OTRI Marks Another All-Time High
The Outbound Tender Reject Index (OTRI) reached another all-time high of 27.26%, bringing spot rates up with it. “Not only is this a three-year series high, but it is trending higher,” Seth Holm writes on FreightWaves. “After a few weeks of decline off historically high levels, the West Coast markets began to tighten once again this week. On the heels of the last import surge prior to holiday shopping, rejection rates out of Los Angeles have turned back up this week.”
Transfix Study Unlocks Attitudes About Holiday Season
Transfix released the results of a national, two-sided study, “The Great Holiday Rewrite: Supply Chain In the COVID Era.” The study analyzes changes in consumer behavior ahead of the 2020 holiday season, as well as the anticipated impact for brands as they adjust their supply chain strategies.
Among the findings, 79% of U.S. consumers agree their 2020 spending has been less predictable than in previous years, yet 72% of shippers say they lack visibility into key performance metrics needed to inform rapidly changing inventory and transportation decisions. Coupled with gaps in both technology and reliable freight capacity, 72% of shippers say they aren’t confident that their supply chain is set up for success heading into the critical holiday season.
“COVID has made for one of the most challenging years in supply chain history, but consumer expectations are still at an all-time high, as we head into the most critical season for brands and retailers,” said Ahmad El-Dardiry, chief operating officer of Transfix. “With high stakes and a less predictable market, shipper success will ultimately rely on access to technology, insights and a trusted network of transportation providers to deliver on customer promises.”
Manufacturing Hit 2020 High in October
In its monthly “Manufacturing Report on Business,” the Institute for Supply Management (ISM) reported its key metric, the PMI, hit 59.3 in October (a reading of 50 or higher indicates growth), which topped September’s 55.4 by 3.9%. This is the highest PMI reading since September 2018 and the highest reading in 12 months.
“New orders, which are commonly referred to as the engine that drives manufacturing, came in at 67.9, which was up 7.7% over September’s 60.4, and up for the fifth consecutive month. This reading is the category’s highest, for any month, going back to January 2004’s 70.6, and with the exception of June 2020, the 7.7% October increase is the largest one going back to March 2009, when it jumped 8.6%,” Jeff Berman reports in Logistics Management.
“The new orders number was very strong, and inventories are climbing up positively, too, which shows that people are optimistic and stocking up for the future,” Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said.
With the uncertainty and volatility surrounding the US economic recovery, shippers need a partner that can help them adapt and excel — no matter the circumstance. Shippers turn to Transfix for our leading technology and reliable carrier network. As volumes drive higher, we are here to help: Learn more about our Core Carrier program and Dynamic Lane Rates. As part of our ongoing market coverage, we’ll continue to provide breaking news, resources and insight into emerging trends and the pandemic’s impact on the transportation industry.