USA MARKET UPDATE

August 19, 2021

The Compass team is continuing to work closely with our clients to navigate the challenges of the current logistics market. As part of that effort, please find our most recent market assessment. We remain committed to helping all our clients and partners better understand these evolving challenges and working with them to ensure their supply chains remain stable.

Trucking and Container Drayage

The US is experiencing long-term disruptions to the trucking market caused by what has become a permanent shortage of drivers and equipment.

Prior to the COVID-19 pandemic, the US Government imposed stricter regulations on trucker drive time. These changes caused many truckers to leave the industry, causing a shortage of drivers that persists to the present time. To complicate this, the past year has seen unusually high demand for trucking services due to the growth of e-commerce and strong import volumes.

At this time, capacity remains very limited for all types of trucking services, including container drayage. It can easily take in excess of a week for containers to be pulled from any port or rail ramp due to the shortage of chassis and drivers. The chassis shortage is particularly severe at Midwest rail ramps.

Below is a snapshot of load-to-truck ratios based on the most recent data from DAT. As these figures indicate, demand for equipment is exponentially higher than the amount of equipment available. The demand for trucks is 30 – 70% higher than the strong levels seen a year ago.

Dry Vans:  5.5+ loads/1 truck for most states

Flatbeds: 18+ loads/1 truck for nearly all states

Refrigerated Trailer: 12+ loads/1 truck for most states

Less-than-truckload (LTL) networks are also being disrupted by the capacity shortages. Even amongst the most reliable carriers, transit delays of upwards of a week are not unusual as carriers struggle with limited trailers and drivers.

Ocean Freight

The global ocean freight market that has been severely stressed for the past year is poised for further stress as 2021 peak season starts this month.

Strong US demand for imports from East Asia has triggered a spike in global spot and contract rates, as well as a shortage of available empty containers in much of the world – including the inland US. Drewry’s global spot rate composite index is up 358% year-over-year as of last week. Rates from China are up 285% to the US East Coast and 241% to the West Coast.

Port congestion has spread beyond Long Beach to affect most major US ports and rail ramps. According to FreightWaves, vessels are waiting offshore for berthing space at Long Beach (125 vessels in waiting), Savannah (17 vessels), and New York (9 vessels). The shortage of drayage equipment is adding further fuel to the port congestion problem throughout the country.

Much attention has been drawn to the small number of ocean carriers controlling a growing portion of the global container freight market and accusations of unfair pricing practices by these companies. The world’s eight leading container carriers are responsible for over 80% of market share, according to current Alphaliner data. The Biden Administration recently ordered the Department of Justice and the Federal Maritime Commission (FMC) to investigate and take action against improper pricing practices amongst these carriers. Several of these carriers collaborated to form shipping alliances in years past, raising questions about possible noncompetitive pricing practices. Nine carriers are under audit by the FMC to identify possible improper detention and demurrage charges.

Historically, ocean freight peak season has run each year from August through December as retailers source merchandise from overseas in preparation for the holiday season. This year is unique in that strong volumes that started during the 2020 peak season still persist, with carriers levying peak season surcharges over the past several months. It is expected that these surcharges will increase over the next four months as shipping volumes rise.

Airfreight

While many passenger flights have resumed, bringing belly-hold capacity on-line, the airfreight market is still challenged by strong demand and structural constraints from within the industry.

Capacity continues to be tight, especially on services to East Asia and Oceania and with freighter services. Courier/integrator services have been disrupted by staff shortages, aircrew shortages, and severe summer weather – particularly in hub cities such as Memphis. Delivery schedules, including for premium overnight services, are routinely not being met by courier companies due to these issues.

All major US airports are experiencing congestion at cargo terminals. Trucks servicing these terminals are routinely forced to wait upwards of 4-8 hours to pick up or drop off cargo – including for premium bookings. At the most congested airports – such as Chicago O’ Hare (ORD) – pickups require advanced scheduling and often must be made in the middle of the night.

These issues are exacerbated by the fact that there are a limited number of trucking carriers permitted to deliver to airports, and that airlines and airport handling companies are working at reduced staff levels. Several major airlines have completely divested of cargo customer service staff in the US. It is common for airlines to take several days to respond to correspondence and booking requests. Several carriers no longer monitor their phone lines. To mitigate these issues, the Compass team is utilizing online booking tools as much as possible.

Best Practices to Ensure Your Shipments Run Smoothly

  • Planning Ahead: Plan your shipment out as far in advance as possible. Bookings for all methods of transportation require a much longer time to secure than in years past.
  • Budget Flexibility: Spot rates for all services are fluctuating every few days with the market – in some instances by significant amounts. Shipping budgets should take into account fluctuations in rates on a week-to-week basis. With peak shipping season beginning this month, market rates should be expected to climb over the next four months.
  • Understanding Lead Time Requirements vs. Transit Time Realities: It has become normal for actual air, land, and sea transit times to run longer than published schedules. Compass has no ability to control carrier transit times, and shipments typically cannot be expedited once already en-route. This must be kept in mind during lead-time planning. If a shipment has strict lead time requirements, this should be communicated to Compass at the time of quoting so an appropriate routing can be planned.