Freight and Economic Market Insights

2021 is already being discussed by analysts as a year of two halves. H1 is most likely a market of continued tension as idle supply returns to active duty and catches up to demand. H2 sees the analyst community offering a range of possible scenarios from slightly looser than balanced to continued tension. The dynamic nature of this period makes a forecast difficult, and to be more specific, where the economy and freight demand are going. Economists are closely watching these variables, and we encourage our clients to do the same as they develop their forecast for H2 2021: COVID vaccine roll out, impact of the second stimulus package and a potential third package, employment figures, and consumer sentiment. Active supply expected to grow, seating idle and new vehicles as carriers increase compensation packages to bring in drivers.

The trucking industry has experienced a headwind regarding potential hiring to fill new truck orders with a forecasted rise in retirement through 2025 and decline in 21-year-olds through 2023 (Figure 1). The market expects to see continued upward pressure on driver compensation and bonuses needed to seat the expanding fleet and counter the primary driver demographic trends. C.H. Robinson has also confirmed this through voice of carrier surveys and business review conversations. In addition to compensation strategies, our carriers report increased focus on shippers of choice, short haul lanes, dedicated fleet strategies, and recognition programs for drivers.

Week 2’s regional representation of the U.S. spot market (Figure 2) continues to show a wide range of load to truck Ratios (“LTR”) in DAT’s data. There is continued tension in the Midwest, off the Southern California port region, and Laredo, TX. (LTR of 5:1 and higher is a very tight market.)

The spot market is a leading indicator of the broader and much larger contract/committed market. The broader contract market is more difficult to measure because those relationships are held in transportation management systems (“TMS”) and other datasets at the shipper and supplier level vs. more publicly available views from spot market trading platforms. What follows are some perspectives and notes on today’s environment from TMC, a division of C.H. Robinson.

We continue this month with route guide performance trends and insights to describe the broader contract market. Most of the shippers in this dataset use a traditional waterfall route guide. As such, we look broadly across industries and markets for common trends across this shipper community. Route guide performance is often measured by looking at a two key metrics. Route guide depth (“RGD”) is how deep into a route guide is needed for loads to be accepted, or the average number of tenders per load.

• Week of January 3rd - 1.82
• December 2020 - 1.79

The other metric is first tender acceptance (“FTA”) or the percent of time the primary (intended) supplier accepts the shipment tender.

• November 2020 - 82%
• December 2020 - 81%
• December 2019 - 88%

This month’s chart (Figure 3) reflects week over week change in RGD regionally. This is a lens to the contract market trends. A decrease in the sequential percent means there are fewer rejection of tenders to the primary supplier. RGD is the average number of tenders to cover a load. At 2.36 for the week of January 3rd, route guides are still struggling with the primary and secondary rejecting tenders somewhat frequently. Additionally, we see that the Midwest continues to be the most problematic market and correlated to the high load to truck ratios shown in figure 2 above. Finally, the 400-600 mile loads diverged again from other distance bands to a RGD of about 2.2 against the nationwide average of 1.82 for the week of January 3rd.

Please seek out your C.H. Robinson representative and our flatbed team, as we are seeing success with planned capacity and outsource programs.

• Residential construction continues to be the thriving industry sector tied to flatbed demand.
• Manufacturing/industrial production has continued to rebound, albeit still operating below pre-pandemic levels.
• Supply continues to be the limiter with ongoing idle trucks seeking drivers.
• Western region is seeing the greatest tension with low volume and capacity. Repositioning costs are driving up rates per mile. Great lakes area is also seeing tension with short supply as automotive sector continues to rebound.
• Southern California and Southern Texas regions are balanced.

New year, same LTL demand. Carriers saw solid volumes during Week 1 of 2021. Most indicated that volumes were good right out of the gate and will remain solid for the foreseeable future. Drivers to demand are ecommerce middle mile and the recovering manufacturing sector.

• In late December and early January, more carriers announced GRI’s between 1% and 10%. C.H. Robinson helps our clients minimize exposure to GRI’s.
• Recently, multiple LTL carriers have experienced disruptions due to ransomware attacks. C.H. Robinson security has not been breached by ransomware attacks.
• Some carriers are still rejecting transactional freight (embargos) in some markets.

The increased demand in online shipping due to the COVID-19 pandemic coupled with normal upwards growth Y/Y stressed the U.S. parcel carriers like never before. This caused widespread disruption and delays in service to businesses and consumers alike, leaving parcel carriers needing to prioritize shipment types and shippers that increase yield and apply additional charges that sub-optimize cube, weight, and revenue.

Expect new rule and rates changes in 2021

• 38% of zip codes in the U.S. will incur delivery area surcharges designed to fully cover regional costs.
• Additional handling fees will now be assessed on any package over 105 but less than 130 inches in length and girth. These shipments take up more space in the network and can be more labor intensive in final delivery.
• 2-day and 3-day service volumes projected to increase as many businesses strive to compete with Amazon.
• Guaranteed service refunds will not likely be honored for some time.
• FedEx will follow UPS’ lead and start charging late fees on past due invoices.

What can shippers do to mitigate these changes? Two shipment types facing increased charges may have some mitigation strategies available, and C.H. Robinson may be able to our clients with these opportunities:

• Non-metro deliveries and shipments now incurring additional landing may be able to be served via other modes such as consolidation or smaller regional parcel carriers.
• Express shipment costs can be mitigated by downgrading services to be more cost effective for that same transit day.
• To avoid late fees, speed up the invoice processing and payment cycle or work with your carriers to increase your terms to avoid late fees.

Capacity likely to remain constrained out of California throughout Q1, 2021 as container ships continue to arrive.

• Transloading from USWC expected to grow as steamship lines reduce the inland points they will allow their equipment to terminate in.
• Railroads seeking mid-high single digit price increases, significantly higher for freight out of deficit markets like California. Mexico drayage continues to be hindered with driver availability, as providers are selective on preferred shippers and corridors.
• Chicago is experiencing ongoing congestion on cross-country moves and facility backlogs.

• Empty container news: Southbound empty containers with non-Free and Secure Trade (“FAST”) participants are being diverted from Laredo’s main crossing, World Trade Bridge (“WTB”) to the Columbia-Solidarity bridge 22 miles away. For these carriers, the positioning of empties is taking longer due to mileage and longer crossing times at the Columbia Solidarity Bridge. C.H. Robinson is a FAST participant and able to use all crossing points north and southbound.
• Laredo volume up 9.41% on imports, while exports are 1% down (southbound), thus continuing to exasperate the imbalance of capacity (2020 v. 2019 Y/Y).
• Maquilas from border cities in Mexico are about 80% back to their normal operation schedule from holiday shutdowns. Volume will start to pick back up with outbound from these areas in January week three.
Carriers are still reporting a high amount of driver shortages from after the holidays, with backlogs being serviced this week and slowing current volumes.

• The province of Quebec has implemented strict lockdowns and curfews effective until Feburary 8th. Manufacturing sectors are seeing activities reduced to a minimum. As such, demand patterns are materially disrupted and trailers are being used for storage. Source: Truck News.
• Truckload cross border outbound from Canada into the U.S. is experiencing lower tension as many non-essential manufacturers closed for the holiday season, resulting in continued lag in outbound freight for the first two weeks of January.
• Well into Canadian winter, supply and demand introduces seasonal influences:
• Reefer demand rises as “protect from freeze” requirements are executed on some commodities.
• Alberta and British Columbia experience active capacity reduction as some drivers avoid Canadian Rockies regions.

We invite our clients to engage your C.H. Robinson team regarding our research portfolio offering insights on applied strategies and attributes of freight correlated to performance in any market. Your C.H. Robinson team will discuss capacity strategies and business processes that will help bring increased operation and spend performance.

• California: The first two weeks of January brought a historical softening in the refrigerated market as outbound demand decreased.
• Midwest & No. East: Continues with elevated demand exit these markets against stagnant supply.
• So. Florida: Floral season returns in late January to supply Valentine’s Day. Demand will spike for about 4-5 weeks.
• The forecasted demand for dry van service to support strong import activity in So. California may pull on reefer capacity (running dry) and influence the California reefer market mid-January through February.

Robinson Fresh-Product Supply Chain Insights

The Robinson Fresh division remains fully operational, and there are no impacts to supply chains to date.

• We are seeing an increase in demand for fresh commodities and will continue to watch this closely.
• With increased commodity demand, refrigerated trucking demand tends to follow

We invite our clients to engage their C.H. Robinson or TMC commercial representative to discuss collaborative strategies designed to offer quick and effective response. Our modal expertise and capacity portfolio afford for elasticity in full and partial load shipments to help minimize service disruptions in this unique market.

If you have any questions, please do not hesitate to contact your C.H. Robinson or TMC commercial representative for further information or look up any of the services listed within this report at www.chrobinson.com.

References

• 1 Bureau of Labor Statistics. Current Employment Statistics - CES (National) Table B-1a December 8, 2020
• 2 C.H. Robinson analysis of FMCA MCMIS 2019 carrier registration data
• 3 FMCSA MCMIS carrier registration data. https://www.fmcsa.dot.gov/
• 4 Leaders and Laggards, MIT-CTL capstone project with C.H. Robinson. Researchers Bleggi and Zhou, 2017
• 5 Institute for Supply Management, Purchasing Managers Index (ISM-PMI) Dec ISM-PMI Figures above 50 generally indicate expansion in the manufacturing sector. PMI strength is correlated to LTL freight demand growth.
Figures:
• 1 US Census Bureau and ACT Research, ACT December 2020 Freight Forecast
• 2 DAT Freight and Analytics, Truckload Van Load to Truck ratio. www.dat.com
• 3 TMC, A Division of C.H. Robinson. Routing Guide Depth by USA Regions

Figures

• 1 US Census Bureau and ACT Research, ACT December 2020 Freight Forecast
2 DAT Freight and Analytics, Truckload Van Load to Truck ratio. www.dat.com
• 3 TMC, A Division of C.H. Robinson. Routing Guide Depth by USA Regions