The Roemer Report: December 2020
Tightening capacity portends tidings of comfort and joy for trucking this holiday season
In October, Bob Costello, chief economist at American Trucking Associations, told Transport Topics that industry capacity was as tight as it has been in years.
With St. Nicholas’ loading up his miniature sleigh for a festive Christmas Eve jaunt, the news that load rates are rising is jolly news indeed, sure to have visions of sugar plums dancing in truckers’ heads this Christmas season.
Reindeer games continue
With the coming holidays the industry is facing unprecedented cost and operating challenges. The reindeer games to see who gets to pull Santa’s sled this year have been especially intense.
TalkBusiness.com noted with truck capacity limited, spot rates were up nearly 50 percent in October heading into holiday shipping season. Tightening capacity and the ongoing driver shortage will mean increasing rates for shippers, according to Ruan, primarily due to carriers shutting down early into the pandemic and others downsizing when demand dropped in several critical sectors.
According to a mid-November blog from Ruan, to nobody’s surprise the economy saw a sharp decline in the second quarter, with real GDP decreasing 31.4 percent according to the source. The rebound was equally as sharp Ruan explains, noting that after pandemic restrictions lifted slightly, GDP increased to an annual rate of 33.1 percent.
Ruan projects the fourth quarter economy will show about 3 percent growth in the fourth quarter in response to growing consumer confidence. However Ruan cautioned the recent surge of COVID-19 cases was troubling and fretted that it could derail Chris, er the economic recovery. However with rates staying strong those jingle bells of alarm don’t seem to be ringing.
Fewer economic presents under the tree this year
Projecting the e-commerce, home improvement, medical, food and beverage and residential construction sectors of the economy will continue to perform well, Ruan notes each of these industries will rely heavily on the trucking industry. Other sectors, the company points out, like travel and tourism, entertainment, and services will be leaving fewer presents for the transportation industry to pick up as a whole.
All I want for Christmas is a driver in every seat
Ruan explains that the deficit of professional drivers with good safety records is significantly impacting capacity. With thousands of drivers disqualified from driving since the Federal Motor Carrier Safety Administration’s Drug and Alcohol Clearinghouse came on board in January 2020 Ruan said many carriers have announced driver pay hikes to help retain and attract safe drivers, a key element in obtaining affordable motor carrier insurance.
Something extra in the pay packet for drivers
To cover pay increase, Ruan finds spot and contract rates are also increasing. Citing DAT Solutions, Ruan noted van spot market load rates were up 33 percent in October compared to last year.
“Spot rates are likely to remain high heading into the holiday season,” Ruan projects, highlighting the Cass Truckload Linehaul Index (measure of per-mile contract linehaul rates) declined 3.4 percent year-over-year in September. Not super-great tidings, but it was the highest reading since December
Ruan offered statistics from the Morgan Stanley Truckload Freight Index. Measuring demand for truckload services compared to supply, Ruan found the index declined through October but outperformed seasonality.
Things are tight, no, really
According to ATA’s advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index, capacity is tight, despite trucking tonnage falling below 2019 levels. The ATA largely attributes the lower 2020 volumes to a schism in the freight market—some verticals segments offer plenty of opportunity for the industry, like construction or retail, others, not so much because of the pandemic.
By and large, the transportation industry is rallying from the declines in the second quarter, and the industry is likely to continue to perform well. As capacity continues to tighten, shippers must be able to find carrier partners with the capacity to haul their valuable freight.
No nightmare before Christmas
According to the October Logistics Manager’s Index (LMI) Report, Transport Topics reported the LMI skyrocketed to 71.6, up by more than 20 points from about July, when it reached an industry record low of 51.3 in April. Transport Topics noted the LMI indicated inventory levels in October were at their highest point in more than two and a half years as retailers started restocking in anticipation of an improving economy.
Dale Rogers, a business professor in the department of supply chain management of the W.P. Carey School of Business at Arizona State University and an LMI author told Transport Topics the October index was real evidence the trucking and logistics economy is surging. “It’s incredible how all of the indicators are going up,” Rogers said. “I think people are betting this will be a big Christmas. So businesses are positioning inventory, warehouses are full, warehouse prices are going up, transportation prices are going up.”
Transport Topics finds that eight months into the COVID-19 pandemic, the trucking and logistics industry’s economy was performing far better than the overall U.S. economy. According to the latest data from DAT Freight and Analytics, contract and spot rates are at some of the highest levels they have been at in years.
Explaining that the van load-to-truck ratio is a sensitive, real-time indicator of the balance between spot market demand and capacity, DAT stats showed the ratio was up 156.3% in October compared to the same period in 2019. Van spot rates also climbed some 33% year-over-year. According to the source the flatbed load-to-truck ratio was up 243.4% year-over-year, and the refrigerated load-to-truck ratio is up 155.3% compared with October 2019.
ATA realistically optimistic
ATA’s Chief Economist Bob Costello told Transport Topics the organization generally remains optimistic about trucking’s current economy. “Trucking continues,” said Costello, “for the most part — not exclusively, but for the most part — on the good side of the economy, because goods are doing better than services.” Pointing out that while retailers such as Walmart and Amazon.com Inc. are reporting record business the service industry including restaurants and hotels and bars is slumping.
Better than anticipated growth in employment
The Labor Department reported November 6 the nation’s unemployment rate fell to a better-than-anticipated 6.9%, with the number of unemployed decreasing by 1.5 million. Transportation employment, said the Labor Department, increased by 63,000 in October. About 28,000 warehousing and storage jobs were added plus transit and ground passenger transportation added another 25,000, while trucking added 10,000 jobs.
We wish you a Merry Christmas and a most Joyous Holiday Season; and we thank our truckers for spreading joy and holiday cheer across our great land!