Will Demand Plateau Any Time Soon?
There was a lot of speculation about how Labor Day week would turn out, with the 3-day DOT road-check blitz following on the heels of the holiday, and Transfix saw markets stay fairly steady week over week.
“Just don’t let that fool you into thinking rejections and tightness in the market will cool down this calendar year,” says Justin Maze, Transfix’s senior carrier account manager. “The holiday season is in sight, and this year will be very different. Supply chains are heavily affected by changes consumers have made to the way they shop, and this will play out through the holidays.”
“As for the coming weeks, freight is going to continue to flow around the country at a high level, exacerbating the capacity crunch shippers and brokers are feeling. The carrier market is here to stay,” Maze says. “Maritime bookings from Asia to America are not only in high demand with a high price tag, but importers are booking up to 6 weeks in advance, compared with the usual 2 weeks.”
JOC.com confirms: “U.S. imports from Asia in August jumped 34% from June, driven by ongoing strong demand for e-commerce fulfillment and personal protective equipment. Imports from China alone last month were up 32% from June.” Spot China-to-California rates have been shattering records, according to American Shipper. Air cargo is also seeing huge increases in rates and decreases in capacity.
“Internally, we have felt some areas start to loosen up, but again, don’t be fooled: These markets are still very tight,” Maze says. “We have felt relief in major markets, such as Houston and Southern California. On the flip side, we have felt other markets, such as Harrisburg, Elizabeth and Chicago, continue to heat up. We expect overall freight demand to start stabilizing through September.”
Tender Rejections Up Again
With demand continually outstripping capacity, both accepted tenders and tender rejections remain at very high levels. Carriers are searching for the highest rates and best loads. Drivers are particularly selective in the days leading up to a holiday, as they search for loads that lead them home. OTRI rose nearly 5% this week, matching the all-time high from March 2018 at nearly 27%.
There is a geographic divergence in rejection rates in the U.S., Freightwaves reports. Zach Strickland, director of freight market intelligence, says, “Several of the largest freight markets in the West are showing declines in outbound tender rejection rates during the past two weeks (from a very high level), while many of the largest freight markets in the eastern half of the U.S. are showing further increases in outbound tender rejection rates.”
Lack of Drivers Further Tightens Capacity, Drives Up Rates
Despite months of high volumes, the trucking industry has not recovered all the jobs it lost to COVID-19, and that is driving up rates, as well.
Unadjusted trucking employment numbers fell by 92,800 jobs from February through April, according to the US Bureau of Labor Statistics (BLS). While for-hire trucking companies recovered 52,200 jobs since April, unadjusted August payroll numbers were still about 36,600 jobs short of this year’s February peak of just more than 1.5 million employees.
“What is more, the unadjusted trucking employment figure for last month was 1.45 million, 85,800 jobs below year-ago employment in for-hire trucking,” William B. Cassidy writes for JOC.com. “That translates to a 5.5% year-over-year decline in trucking employment, a gap that is contributing to the capacity shortfall shippers are suffering and rapidly rising spot truck rates.”
The number of workers employed by for-hire trucking firms started to decline before the pandemic-induced recession. In 2019, trucking had a net gain of 24,200 jobs, compared with 77,900 jobs gained in 2018, 48,400 in 2017, and 22,200 in 2016, according to the BLS. “That is a measurable contributing factor to rising truckload and less-than-truckload (LTL) rates in the third quarter,” Cassidy writes.
“A comparison by Michigan State University of North American Industry Classification System (NAICS) industry data for truck transportation and the American Trucking Association’s (ATA) For-Hire Truck Tonnage Index shows truck tonnage — demand — has outpaced trucking employment and capacity — supply — since the US economic recovery began in May. That supply shortfall helps explain the strength of the spot market. Shippers are turning to spot when they cannot get trucks from contract carriers.”
Jason Miller, associate professor of logistics at Michigan State University and creator of the ATA indices, says: “It’s been interesting to see how slow capacity has been to come back. I think the issue is that so much capacity is really regional. If you specialize in the Upper Midwest, you may still have core shippers there with depressed volumes, so you’re not able to hire.”
Miller does not think this is a “traditional” driver shortage, however. Rather than a lack of available workers, this shortage is “a paralysis at carriers who do not want to add drivers because of uncertainty,” he said. “They don’t know if this high level of demand is going to stay with them moving forward. They don’t want to bring on a lot of people and then have to lay them off in a few months if demand drops.”
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.