Shippers have been renegotiating their contracts with carriers and raising contract rates, however, this has not taken the pressure off the spot market, as we are continuing to see an OTR truck capacity crunch across the country.
One of the questions we need to ask at this stage is, as rates have reached an all-time high, have we hit a ceiling?
Well, let’s look at some facts. We have seen a rise in the number of new FMCSA authorities being issued, but we see this as more Owner Operators leaving their company jobs and going out on their own.
We have also seen larger orders for trailers and trucks come up significantly to add capacity, but we do not see any of the larger fleets adding new capacity easily as we are seeing major difficulty for these carriers to recruit new drivers.
As we come upon peak season, we have to see how carriers will manage their drivers over this period. May drivers will want to go home to be with their families, which will further reduce capacity that is on the road, and much of the freight during this busy period has a relevant tendency of urgency attached to it.
So even though we feel there really is not much space left for shippers to continue to pay higher freight rates and many 3PLs under contract have taken some very heavy hits on their rates, we do not see how they can afford rates to go any further up, but if the trucks are not there and the capacity is not there and the freight volumes are giving carriers a much larger choice to reject available freight then we do not see how rates cannot be pushed slighter higher.
We do not see a huge doubling up of freight rates, we see simply the reduction in driver availability causing further capacity tightens forcing some shippers that must move their fright to meet inventory requirements being forced to pay higher rates.
THE OCEAN IMPORTS
Traditionally intermodal picks up the slack of ocean freight imports, but this year much of the rail capacity was reduced, due to COVID and so a lot of that freight was pushed onto trucks. This has been a big deal in Los Angeles as imports from Asia increased substantially this year and rail just did not have the capacity to cope.
This is also extremely detrimental to capacity in Los Angeles, as a lot of freight that is destined to be moved on rail is over 500 miles, and so with a higher number of trucks being sent out of Los Angeles for long haul freight, this dramatically reduces truck capacity in Los Angeles and as there is also a lack of inbound freight to Los Angeles it is taking a much longer period of time for those trucks to get back.
We would like to point out, even though the number of imports to Los Angeles is still up over the last few years, we have seen the number of imports flattening out and stabilizing. We can say this may be due to the backlog of containers that are being stored at the ports due to a lack of capacity to process it and deliver it.
There has also been a labor issue for the ports and warehouse utilization is also very high, and so both ports and warehouses are having difficulty getting enough labor to handle all the extra container imports.
However, the rail capacity between Los Angeles and Chicago, IL which is the highest capacity rail lane in the country, we have seen overall intermodal rates on this lane started to come down, which does mean there is a slight shift to a downturn in freight volumes, as it does mean railways are able to handle a little bit more.
Interestingly, Houston ports have come down and it is one of the lowest ports in way of imports in the country right now.
As we move into the winter months, we are now seeing a greater rise of COVID-19 cases, we have now reached a saturated pipeline for freight capacity, and we are hitting the holidays, one of the key questions to ask now is, what is the next phase for freight?
As we saw in March and April we had a lot of panic buying and business closures, we do not feel an event like that will occur again as we see we have all learned a lot from that and we are a lot more prepared.
We do however see the increased infection rates and more stringent stay-at-home policies will continue to perpetuate the consumer buying behavior towards product buying which will continue to benefit the freight market.
The vaccine will of course begin to correct this but this will take a long time until we go back to some form of normality in the freight market.
There are still a lot of questions to answer, there is still a lot to do and figure out and we are heading into the peak season, and to top it all off we only have another 6 weeks left of 2020.
So we thank you very much for checking in with us again this week and please make sure to reach out to us in case you have any questions or would like to discuss any freight opportunities.
Have a great week everyone and stay safe.