Rates and Volumes Will Continue to Rise Through Early Summer
Transfix believes rates will continue to rise through the end of June, and volumes could keep hitting continued highs, due to the end of month, end of quarter and a holiday all in one week. Further, we expect upward rates to continue past Independence Day this year, unlike typical seasonal patterns.
The fast rise in freight volumes are a mix of produce season and shippers/consumers playing catch up, as the economy reopens. Retail sales are up 17% from April, beating projections of 5%, but still 6% down from May of last year. Industrial production is still down 15% YoY, which indicates consumer spending is really driving the freight markets.
“Retail patterns have shifted dramatically,” said Chris Caplice, executive director of MIT’s Center for Transportation & Logistics and head of the Chainalytics Freight Market Intelligence Consortium, on Overdrive. The contract freight market has seen “an incredible imbalance,” he said, in terms of freight demand. Some sectors have remained resilient throughout the downturn. Others, such as industrials and manufacturing, “have just stopped.” Carriers with diverse sources of freight have been able to better weather the storm.
While freight volumes keep climbing, overall economic numbers do not show the same increases. This could lead to a continued roller-coaster ride, as volumes could fall faster in later July/August than a normal seasonal trend would indicate.
Justin Maze, Transfix’s senior carrier account manager, explains: “What the industry is seeing right now is very unpredictable. What we do know is there is a great opportunity for a domino effect to happen across markets that will continue to raise rates in some markets, as other markets, such as California, start to cool down. Carriers have taken notice of California’s markets during the past few weeks, where long haul freight out of the state has been at record highs. This has led to many carriers repositioning their trucks and sending them into California, causing a double effect on many markets around the country. Not only is there now less capacity in those markets, but there is more of a demand to move and position freight in regional markets after the freight comes from the West Coast. Tender rejections are increasing, causing an upward pressure on rates throughout all regions.”
With the unreliable pace of US economic recovery, shippers need a partner that can help adapt capacity in uncertain times. Our carrier network was specifically developed to provide flexibility in changing circumstances across the country.
Capacity Starts to Tighten Along With Rise in Volume
With freight volumes still well above both 2018 and 2019 levels, capacity has been slower to react. “Tender rejections are finally reaching levels that may suggest upward pressure on rates,” Seth Holm reports on Freightwaves.
The Outbound Tender Volume Index is at 11,324, up slightly from last week and up 8% year-over-year. 2019 was considered a relatively soft freight market, but 2018 was a banner year for freight volumes; the current freight volume total is nearly 5% over 2018.
With volumes up, this was the seventh week in a row during which rejections rose nationally. The Outbound Tender Rejection Index crossed 7% for the first time since March. As long as volumes stay elevated, Freightwaves reports, tender rejections should continue rising and putting pressure on rates.
Changes to PPP … Again
When we reported on the Paycheck Protection Program, part of Congress’ Coronavirus Relief Bill, in our April 27 Market Impact, the loan program had just been replenished. Since then, much confusion has ensued about processes, rules and forgiveness.
Most recently, in early June, the president signed the Paycheck Protection Program Flexibility Act of 2020, which extends the baseline period recipients have to spend the funds from the original 8 weeks to 24 weeks. If you got your loan before June 5, that means that you can choose which payment period you want to use in terms of your accounting for use-of-funds and for application for loan forgiveness. Loans issued after June 5 will use the 24-week period.
Additional changes include forgiveness parameters — payroll now needs to be only 60% of the loan, as opposed to the original 75% — and how to count employees and potential staff reductions, among other things. Chad Halstead, partner with the Katz, Sapper & Miller CPA firm, answers specific questions in a recent Overdrive article. We suggest you consult your legal and/or accounting counsel for specific assistance.
Transfix continues to advocate for additional federal support for the trucking industry. Transfix President and CEO Lily Shen recently addressed the issue on JOC.com: “Both the airline and railroad industries have received billions of dollars in federal aid in the last two months. The same kind of assurances need to be made to small and mid-sized carriers, because without them, our national economic engine would seize overnight.”
The Transfix team will be monitoring COVID-19’s impact on rates and volume. As a company, Transfix remains committed to providing critical services to our customers during this crucial time. For more on COVID-19’s impact on the freight market, please refer to our website, blog, social channels, and via email.