Guest Post from David Broering, President, Non-Asset
At the time of this writing, the transportation marketplace is undergoing seismic shifts in supply and demand on a day-by-day basis. As we saw coming into the market shifts in early 2018 and mid-2019, the marketplace moves at a much greater speed in response to these events than they would have in the past years – much of this aided by technological advances in market visibility. Making sense of the market at a time like this is a challenge for anyone in the industry, no matter the experience, let alone someone trying to manage a business through the intense circumstances that we are having to navigate under COVID-19 stresses and pressures.
There are a few key factors that are driving the volumes and pricing higher – record demand in the food & beverage space and the distinct lack of imports from Asia to name two. One thing is certain, the degree to which the market is affected is not consistent across the country and is being felt differently in various regions around the United States. Some of this is due to the massively accelerating demand emanating from the food and beverage and medical verticals, and others are due to the complete shuttering of industries during these unprecedented times.
In order to try to make some sense out of the mess that we are dealing with, we are going to look at the key factors causing issues and try to shed some light on what is going on in the market in these uncertain times. We are also going to explore how to find new outlets for capacity that can help control costs by expanding your capacity networks.
Navigating the Marketplace
2019 was a flat year for the market and the first two months of 2020 followed right in those footsteps. The incredible consistency of the market seems to have lulled many into a sense that 2020 was going to continue on for the entire year as 2019’s market did. Truth be told, it was looking like that was going to be the case assuming there were no cataclysmic events to tip the balance in the market. Yet, here we are, caught flat footed and getting knocked around by the most turbulent market event the domestic North American transportation market has ever seen – the COVID-19 Pandemic.
Many in our industry began to take notice of the effect that COVID-19 might have on our market as China shuttered their economy for nearly five weeks to attempt to contain this virus. As that drama unfolded, many began contingency planning for what was expected to be a tidal wave of imports that were going to be unleashed on U.S. soil two-four- weeks after the Chinese economy got going again. However, as the reality of the contagion has begun to settle in, we are facing a completely different dynamic than expected – a marketplace that has been splintered by state government imposed lock downs and furious demand from consumers to provide the necessary food and supplies for their families while living through the largest disruption to our society and economy since 1918.
The unfolding COVID-19 situation and related downstream effects have broadly caused increases in demand for freight and rejection of tenders by carriers, both of which have led to an increase in volumes going to the spot market [up 10 percent in two weeks] as well the spot market rates [up 15 percent in two weeks] themselves. Carriers reject more contracted freight due to a lack of available capacity or because they are moving into the spot market for better rates; either way, there is a strong correlation between increased tender rejections and increased spot market rates. Shippers of essentials are certainly feeling the pain of reduced capacity and higher rates.
This is happening with greater severity in markets in the southeast, southwest, and midwest than on the east and west coasts. Why? There are two main reasons: the lack of import freight has left more capacity in both over the road (OTR) and intermodal markets on both coasts and production of food and supplies tends to be located in the above referenced markets that are surging.
Moreover, many of the industries that are not considered “essential” do a large amount of importing as a percentage of their total supply chain spend. Conversely, food production – and to a degree, medical equipment – have a higher proportion of domestic manufacturing and intra-North American importing for those absolute essentials. In certain cases, regions of the U.S. refrigerated volumes are up 50 percent or more year-over-year. We are seeing this sort of unplanned demand that leads to huge spikes in spot market freight – and inevitably a drastic increase in transportation costs as well as a distinct lack of capacity where it is needed at a time when it is sorely needed.
Finding New Outlets for Capacity
Today we are working to move “essential” items to the best and most useful destination in as expeditious a method as possible. Standing in between the manufacturer and distributor or distributor and store is a fragmented carrier marketplace that is also finding their own challenges navigating the market. For many carriers, a good portion of their business has been displaced or shut down completely and leaves them scrambling to find other ways to utilize their equipment to generate much needed revenue.
Those focused on non-essential retail, automotive, or non-essential manufacturing have seen their customers shuttering their plants, DCs, and stores knowing that the required social distancing techniques will benefit them without sales. With entire industries shut down, there is capacity starting to arrive on the scene that can help with some of the demand. Connecting that supply with the right demand is the challenging part with no notice or time to spare. 3PLs stand to be the best connector for these endeavors as they likely do business with many of these carriers in those lines of work. They can help to figure out how to give carriers the network intelligence they need in order to reposition assets and operations to better fit the available market, providing much needed capacity to markets short in supply.
One market segment that looks to be set up to continue to struggle despite this additional available capacity from other industries is the refrigerated business. 95 percent of the capacity in the refrigerated market is already focused on the verticals that are considered essential – Food & Beverage and Medicines. As such, this aspect of the market is going to continue to get tighter and will most likely remain there for the duration of the year as capacity was already relatively tight in this space before this began. One area to consider for this space to get your temp control freight moving is intermodal. There are quite a few players in the market that offer refrigerated intermodal capacity on a national scale. Finding the right products with the right shelf life and the ability to run them a bit slower [truckload transit time +2 days on average] is the key to successfully harnessing the power of intermodal – it’s also quite a bit more affordable than OTR on most lanes.
Where is this all going?
We are not going to know what reality is in our marketplace for a few more weeks. As the country begins to settle into “shelter in home” in phases – starting with the biggest cities on and working their way onward – we will get a better idea of what consumption looks like, and in turn what is going to be needed to maintain that supply chain. That will make things more predictable than they are today, but it’s certain that supply and demand are going to be lumpy and move in pockets as the market shifts with things like seasonal produce moving from the west coast to Arizona, Texas, and the southeast. Moreover, as the virus continues to take hold of more of our populace, what is it going to do to our driver community that is forced into situations that challenge the need to stay at a distance? All of these factors are going to keep the market in a constant state of flux and require a good awareness of those movements to successfully navigate them.
Staying attuned to the market through your trusted sources and relying on partners to help you navigate the market is the key to knowing how to best leverage your resources and find the most cost effective way to provide high quality and consistent service – which is paramount in situations like this for “essentials” providers.
There has never been a time where the supply chain has been more important to America than right now, and it’s our job to continue to work to find the best ways to facilitate that together.
Joining NFI in 2012, David is in charge of NFI’s brokerage, transportation management, intermodal, drayage, and global businesses. David is leading this rapidly expanding division by offering a more robust suite of services to new and existing NFI clients.