The Taxman Cometh
Reporter's Notebook: April 18, 2022
Welcome to Please Haul My Freight: Edition 20. Here are some items in my notebook on this US Tax Day 2022:
DRY VAN SPOT RATES: No sugar coating here — dry van spot market rates are falling quickly. Let’s compare January 13 to April 13 on DAT’s Daily Top 50 Lanes:
2022: Down 24.1%
2021: Up 4.8%
Rates on the DAT Top 50 went negative year over year on March 31 (see chart below).
JOC’s Shipper Truckload Spot Rate Index fell 8 cents sequentially in March and is down another 18 cents sequentially in our intra-April number. Our weighted national shipper rate is still about 8% to 10% higher than a year ago, but that won’t hold for long.
But let’s not declare an imminent freight recession yet. Some smart people say it’s way too early to say anything. Donald Broughton wrote in a note entitled, “Dismal Science”:
“It is true that as the price of crude oil soared above $100 a barrel, the price of diesel fuel (and the fuel surcharge amount derived from it) also soared…And it is true that since then, there have also been sequential declines in load post volumes.
However, this has prompted several alarmists, who have either forgotten or failed to learn the principle ‘correlation is not causation, to publish articles about the ‘sharp, painful downturn’ and make ‘the sky is falling’ predictions…
We assert that the recent sequential declines in load post volumes and pricing in the spot market are the consequence of several other factors, factors not related to consumer spending.”
Another point from Broughton:
“The January and February load levels were unseasonably strong. Instead of sequentially declining through the first 10 weeks of the quarter, they rose to levels materially above December, and recent declines have only brought them back to December levels, still not where they would have been with normal seasonality.”
From Jeff Tucker of Tucker Company Worldwide:
“How do we jump from all-time high demand to third-highest ever demand, and call a freight recession? Might we first characterize it as a slowdown in spot? Flirting with equilibrium?…
Even today, in March numbers, we increased the number of both drivers and motor carriers from February. Yes, at some point, both the huge influx of drivers and the buying behavior of shippers, will catch up and normalize this market. But recession? Sounds like some folks are desperately seeking headlines.”
From Andrew Smith, VP of Sales and Operations with Circle Logistics:
This decline in truckload rates doesn’t apply across the entire truckload market: Flatbed is just picking up steam, Expedited is in high demand, and reefer/produce season is just around the corner.
The recent volume downturn has actually been in the works since December but rates didn’t drop until March. Omicron and prolonged winter weather related truck repairs pulled a massive amount of trucks off the road in January and February -driving rates higher while volumes were decreasing.
Sky high winter rates are just correcting and haven’t even crossed back below November rates- and would still need to drop more than $0.50/mi before carriers see any real pain
Chemicals are considered a leading indicator of the economy and critical to CPG production: chemical rail tonnage has been considerably higher in the past few months
From Michigan State Professor Jason Miller:
“We shouldn’t get ahead of ourselves. It does not appear as of yet that there are imminent signs of truckload volumes falling too drastically, as we continue to see recovery in the manufacturing sector (still the largest source of trucking ton-miles), housing starts remain strong, housing prices are strong (which supports home improvement activity), farmers are looking at a highly profitable year despite elevated input costs, and the infrastructure package kicks in.”
More in this article from Loadsmart and Transfix, digital freight brokers which provide pricing data to the Journal of Commerce.
TL CONTRACTS: How will truckload shippers approach their OTR contracts? Here is what one shipper said about its annual contract with a top US 3PL:
“They agreed to adjust rates downward, and they of course advised us that this could impact their ability to secure capacity. But I am willing to take that risk, as I see the market softening.”
Another said he won’t push too hard on rate concessions with asset-based carriers:
“We have to plan our budgets for the rest of the year. I don't want to sign up for softer rates if that means in the third and fourth quarter, they're gonna come back and say, ‘We gotta raise your rates keep freight going.’”
That shipper also pointed out how trucking costs are still going up, citing Walmart raising the starting pay for 12,000 drivers to $110,000 annually.
FLATBED RATES: Andrew Smith made a point above on flatbed rates. Here is DAT’s data on monthly flatbed spot rates, excluding fuel. No freight recession here:
LTL OUTLOOK: Amit Mehotra of Deutsche Bank reports that LTL is still strong and no concerns of a freight recession near term.
“Our contacts noted March shipments was up 0.2% vs. February, and April is about flat with March. This is a bit worse than seasonality (March is usually +1% vs. Feb and April typically 1-2% above March), but our contacts noted ‘we were full’ and they can only ‘put so much on trucks each day,’ implying a capacity constrained environment. To this point, our contacts noted that this week, large national customers (mostly 3PLs), ‘had more business they would like to give us at today’s prices.’ There is an expectation, however, for a positive inflection in service, which our contacts indicated deteriorated during COVID. Our contacts noted that its systems and terminals are ‘no longer backlogged,’ which allows for a more fluid network and service metrics to return to more appropriate levels.”
OCEAN OUTLOOK: No freight recession in ocean transportation. Laden imports have exceeding 2 million TEU per month since July 2020, and topped 2.5 million TEU in March for the third time in the last 12 months, according to PIERS.
From a Bank of America research note:
ZIM is not seeing any softening in demand from US customers, which are asking for additional capacity allocations on concerns of long-term access to space. The liner’s vessels remain full on the Asia to U.S. trade lane.
ZIM noted that U S inventories are rebuilding, but the inventory-to-sales ratio remains historically low given elevated sales. Congestion in the ports of LA and LB has been volatile, and cargo has shifted from USWC to USEC, which has increased congestion in New York, Savannah, and Charleston ports.
Toll Group Managing Director Thomas Knudsen predicted the global supply chain disruption will last at least another 12 months.
Volume is still strong in Charleston, and the SC Ports has done a remarkable job reducing the 27 anchored vessels to 12 in the last four weeks. Its anchored vessel total is now on par with the Port of Virginia.
Griff Lynch, CEO of the Georgia Ports Authority, also warned the number of anchored vessels outside Savannah will probably rise this summer. Not necessarily 31 vessels like last September, but not in the single digits like they are today.
And this from an NVOCC executive:
“The rest of this year is going to be as disruptive as last year, especially with so many shutdowns, delays, and fits-and-starts in China, and vessels still stacked up everywhere you can imagine. No freight recession.”
THE WINDY CITY: The NVOCC turned the question back to me: If there was a looming freight recession, why is BNSF Logistics Park Chicago (LPC) struggling with international intermodal freight?
“Drivers are doing one turn a day at this point, it’s so bad. The BCOs are looking at me sideways saying, ‘Are you serious? You want to charge me $100 flip fee, three hours waiting time, and you are still not moving my box today?’ Sometimes the drivers have to leave because they're sitting in line for so long that they're going to run out of hours. And I feel like 99.9% of international containers are on the ground right now in LPC.”
Problems with Tideworks Technology software (see the edition entitled “International Intrigue”) don’t seem to be resolved either.
John Roetter of International Transload Logistics:
“We now have an email chain going on with one of our customers that is well over 30 pages trying to get two containers out of BNSF LPC Elwood.
It started April 7 when we went into LPC and there were no chassis available. Then when we finally were able to secure chassis, the containers were not in the designated location. BNSF could not find them. Our driver went back April 14 at 9:35 a.m., and he ended up finding the containers high up in a stack, only to find out that they were billed outbound so he could not outgate them. On April 15, there was labor shortage. Evidently, a lot of their personal took off Good Friday, called in sick, or did not show up. According to one of our guys, the stress level among all drivers was escalating fast on Friday.”
The original problem was a miscommunication between SSL and BCO — not BNSF’s fault — but losing track of containers inside LPC is on BNSF and Tideworks.
Here’s what a source of mine said:
“We're still having the same issues that we had with Oasis [software[. Empties are showing here but have been gone for a month…So much for tech making our job easier.”
BNSF is also grounding containers in Lot W again, according to three sources.
The Illinois Trucking Association-Geostamp data also shows truck turn times in BNSF LPC and Cicero are getting worse.1
BNSF has owned up to the service disruptions:
With our goal of adding 1,800 people to our Train, Yard and Engine (TY&E) workforce this year, 115 new employees have already been deployed and another 291 are currently in training classes…We appreciate your patience as these recruiting efforts will take some time. We remain confident that this hiring plan, combined with all the network productivity initiatives being implemented, will restore the level of service that you expect from us.
I wonder what role BNSF’s new Hi-Viz attendance policy plays here. Ever wonder why railroads have a hard time hiring people? Read this thread on Trainorders.
LONE STAR TRAIN: BNSF is testing an international intermodal train from Port Houston to BNSF Alliance (Dallas), as JOC’s Michael Angell reported last week. Union Pacific Railroad tried this route between 2013 and 2019, but it took 48 hours to make containers available. Too long.
An overnight train running Monday to Friday is the only way this will work. But BNSF won’t sink money into a daily train without the committed volume. A classic chicken and the egg situation.
Intermodal veteran John Knight, who spent 13 years with KCS, had the idea of mixing J.B. Hunt containers with ocean boxes from Port Houston:
“It will be interesting to see if [BNSF will] try to combine this train with traffic from Mexico. Domestic trains with KCS interchange at Robstown, Texas. BNSF could use that train to grab a port connection daily, making it possibly cost effective. There is a departure from Alliance to Robstown to handle the backhaul.”
GROWTH SPURT: COFC Logistics — which provides BNSF capacity to non-asset IMCs — will double its 53-foot container fleet within the next 12 months. COFC owns 5,000 domestic intermodal containers, but recently ordered another 5,500 through three Chinese manufacturers, upping his total to 10,000 containers.
COFC CEO Garry Old said there is an opportunity for non-asset IMCs to court shippers not following Schneider to Union Pacific because they like BNSF better. Within the next four years, Old wants to double the fleet again to 20,000 containers.
NORFOLK SOUTHERN: NS will convert Detroit, Columbus, Cleveland, and Jacksonville into Tier 1 terminals for ocean containers effective June 1.
Tier 1 = Day of Notification + 24 Hours of Free Time. NS wrote:
Our goal with this change is to increase velocity, allowing us to operate a more efficient transportation network. We understand that there may be challenges around these necessary changes, and we appreciate your understanding as we move forward.
I also asked IMCs about Jacksonville where Norfolk Southern is struggling with poor service. None think NS Jacksonville will be reliable again until 2023 due to a recent crane fire.
DEMURRAGE NO-NO: The Federal Maritime Commission took a common sense step to warn ocean carriers not to assess detention and demurrage on beneficial cargo owners impacted by the cyber attack on Expeditors International. Smart move.
BYE BYE BRADLEY: XPO and GXO founder Brad Jacobs sold 5.4 million shares in each company, it was announced last week. Last December, he sold 3.2 million shares. If history repeats itself with Jacobs, then I don’t think he will be CEO in April 2023. I think this is his exit strategy. But who knows?
JOC INLAND: If you enjoy Please Haul My Freight, I encourage you to register to attend our conference in Chicago this September where we will talk about all these issues. I also recommend Cathy Morrow Roberson’s Freight Forward newsletter out every Monday.
Any opinions in this notebook represent the author’s views, not the Journal of Commerce, IHS Markit, or S&P Global. Any rumors in this notebook are just that: rumors. Unconfirmed. Not news stories.
Do you have an opinion or a subject you’d like me to cover? Email me ari.ashe@spglobal.com to send your thoughts.
You may also request the data behind JOC’s Intermodal Savings Index and JOC’s Shipper Truckload Spot Rate Index, available to paid JOC subscribers. Not a paid subscriber? Sign up for one!
Red denotes longer truck turn times. Green denotes shorter truck turn times. Yellow denotes roughly unchanged turn times.