Transfix Take: Midweek Market Update (Dec. 22)

2021: The Bad, the Good and the Future

Last week, freight was a tale of two markets. Capacity on the West Coast has been getting worse, with tightening capacity driving spot rates higher and creating more unstable conditions for shippers on freight originating on the West Coast. The unprecedented tightness and rising spot rates there are also pushing shippers to utilize rail on longer hauls again. This has been happening while the rest of the country has remained relatively calm. 

Going into the year’s final days, capacity will likely see traditional holiday tightness, as drivers come off the road and facilities have a smaller staff and shorter hours. The remaining driver capacity moving through the holidays will cost shippers a premium. In addition, equipment could be tied up for longer lengths of time as facilities close, causing even more intense market conditions directly around the holidays. Bottlenecks continue to worsen, which actually causes some relief in parts of the country, since freight isn’t moving readily. Shippers should not be fooled by this, as the freight is just piling up to be moved in 2022. The carriers that remain on the road through the holiday will be getting higher rates, but they will also face difficulties such as staffing shortages at facilities. 

The Bad

With the end of 2021 inching ever closer, it seems to be a good time to look back at the disruptions the industry weathered this past year:

• Port and rail congestion: This may be the issue that finally pushed the freight industry into the mainstream news. Many people are working to solve this problem, but more than 100 ships sat waiting at Southern California ports last week. As crazy as it sounds, it is now faster and more cost-effective to ship containers from Asia to the New York/New Jersey ports than to Southern California ports.
• Driver capacity: In addition to the blow the pandemic dealt to driver recruiting and training, we have seen drivers moving to work for smaller fleets or run their own.
• Equipment shortages: On top of the driver shortage, the transportation industry is also battling an equipment shortage, which has hit multiple modes, from chassis to trailers — and even trucks due to the current semiconductor shortage.
• Inventory issues: Consumers witnessed firsthand how bottlenecks throughout the supply chain have downstream impacts on their lives. Retailers have transferred inventory strategies from “just in time” to “just in case,” taking on more warehouse space. Through the past 18 months, in an attempt to meet on-demand delivery time frames consumers have come to expect, retailers have shifted inventory closer to end consumers instead of holding goods at larger DCs near metro areas.
• Weather: As if a global pandemic weren’t enough, 2021 saw major weather events that heavily affected U.S. freight markets. February’s deep freeze was the first major weather event in 2021 that set off a domino effect across all markets, supercharging capacity displacement, freight rates, and tender rejections.
• Disruptions in other parts of the world: Worldwide pandemic-related shutdowns, especially those in Southeast Asia, and world events, such as the Ever Given getting stuck in the Suez Canal, had real effects on the supply chain here in the United States.
• Mergers and acquisitions: With transportation companies outperforming expectations, a wave of M&A is changing the industry landscape for the near and far terms. Some of the largest retailers also strengthened their supply chains by acquiring logistics companies.

The Good

There were good things this past year, too! We saw the industry drive forward in incredible and sometimes unusual ways:

• Supply-chain technology investment: Money and effort is being invested in technology to improve all modes and sectors up and down the supply chain. 
• Data-driven decisions: Thanks largely to investments in technology, supply-chain companies are making decisions based on more complete data analytics. This can only improve efficiency going forward.
• Driver recognition: Drivers have been in the spotlight like never before. They are finally being recognized as the essential workers they have always been. Transfix hopped on this bandwagon with the introduction of the “TransFIX My Rig” sweepstakes as part of National Truck Driver Appreciation Week earlier this year. Along with recognition, drivers’ pay has continued to increase, and this has led to drivers having the power and ability to run for smaller carriers or even go out on their own.
• Creative partnerships: Where once may have been competitors, now are collaborators, as transportation-industry companies looked for out-of-the-box ways to work together to navigate a crazy year.

And the Future

To be sure, we won’t wake up on Jan. 1 with supply chains magically back to what we used to consider normal. “Importers should prepare for at least another 12 months of supply chain disruptions, because U.S. ports and inland transportation providers do not have enough capacity to handle even a modest increase in cargo volumes next year, according to port managers and transportation industry representatives,” Bill Mongelluzzo writes for The Journal of Commerce.

According to Mongelluzzo in another article in The Journal of Commerce: “Already strong U.S. imports will remain elevated into February and then push even higher in the second quarter of 2022, as retailers return to replenishing depleted inventories, the executive director of the Port of Los Angeles said.

“That means U.S. ports, which have been struggling with congestion all year, will only have several weeks in February during the annual [Asian] Lunar New Year lull — or next year’s version of a ‘lull’ — to reduce the cargo that is backed up on their docks before retailers focus on inventory replenishment, followed by what is likely to be an earlier-than-normal 2022 peak season, LA port chief Gene Seroka told a virtual press conference.

“Seroka noted that retailers this fall imported record peak-season volumes and are now engaged in the pre–[Asian] Lunar New Year rush to ship merchandise before many factories in Asia close on Feb. 1 for the beginning of the annual holiday celebrations.”

With bottlenecks continuing to build throughout different parts of the supply chain, we are still months away from feeling real relief in freight markets. We will continue to watch how the world reacts to pandemic developments and how it will affect us here in the U.S. — we have all seen the downstream impacts of shutdowns and production issues from other geographies. Influences from the pandemic and whether high inflation will disrupt consumer buying will be drivers of how much longer the truckload freight market will be over-constrained.

At Transfix, we are working to eliminate waste and prepare a more resilient supply chain in 2022. We will continue innovating and welcoming technology and data to create efficiencies. We know strategic partnerships are crucial to keep business moving during times of stress, and we look forward to partnering with both shippers and carriers in our efforts to improve transportation and the entire supply chain.

The movement of freight is changing in every mode, as shippers do their best to keep up with record demand while fighting congestion at multiple points throughout the supply chain. Shippers who think forward, use data and think outside the proverbial box on solutions, while partnering with companies such as Transfix, will come out of this ongoing freight rally in a better position and well ahead of competitors. The one huge win through this pandemic has been speeding up the digital transformation of the transportation industry.

With the uncertainty and volatility surrounding the U.S. 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.

This communication may contain certain forward-looking statements that are not statements of historical facts. All such statements are based on current expectations as well as estimates and assumptions that, although believed to be reasonable, are inherently uncertain. These statements involve numerous risks and uncertainties, and actual results may differ materially from those expressed in any forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements contained herein, whether as a result of new information, future events, or otherwise.