North American Freight Market Insights

TOP STORY: The impact of hurricane season and recent storms on transportation

During national holidays and annual events, it’s simple to predict when drivers and carriers will take time off and shippers will ship less.

But what about large, unpredictable events, like hurricanes? NOAA has forecasted another active hurricane season. In fact, forecasters suggest 2021 will be a year of higher than normal hurricane activity. While this does not necessarily mean transportation disruption, supply chain professionals should plan for “what-if” scenarios.

Hurricane season in the United States is typically June through November every year. While hurricanes are not scheduled events like national holidays or DOT’s annual Roadcheck week, there is a predictability to their impact. This predictability means it’s possible—and smart—to use insights gained from past hurricanes to develop more resilient supply chain strategies in the face of disruption.

Harvey, Irma, Michael, Laura, and Delta
Using DAT data during five hurricanes in recent history offers many insights on load to truck ratios (LTR) and spot market cost per mile (CPM).

Insights gained from hurricane Harvey

In 2017, hurricanes Harvey and Irma landed back to back and disrupted life and logistics for the southeast United States. Harvey had two landfalls and stalled over the Houston, TX region, dropping unprecedented rain—as high as 60.5". This caused flooding, shutting down logistics hubs, roads, and supply chains for the fourth largest city in the United States.

Two weeks later, Irma landed in south Florida and moved north up the peninsula with gale-force winds and rain to Georgia, before weakening to a tropical storm.

Respectively, the two visuals below show outbound and inbound loads from the Houston area during hurricane Harvey. Both provide an aggregate view of a 150-mile radius and show load volumes and load volume changes as a rolling seven-day average. Here’s how to interpret the charts:

• Day zero: Harvey’s landfall in Texas, the day of impact in Louisiana is not represented.
• Gray bars: Change in loads per day in the Houston region.
• Orange bars: Change in loads nationally.
• Blue line: The DAT outbound aggregate change in CPM for the Houston area.
• Orange line: The nationwide aggregate change in CPM.

There is an increase of about 7% in CPM just before landfall, then the CPM increase falls off as the Houston shipping community essentially shuts down from the storm and flooding. By day five, pricing starts to rise as the market works to entice carriers to move freight within the flood area. Pricing continues to rise over 35% from the start of the event to day 11, before finally settling down around day 15.

Note how the overall market rose about 10% during the worst part of the storm and settled to ~5% increase for the period shown. As the fourth largest city in the United States, Houston has an impactful freight economy, which can (and did) disrupt truck flows nationwide. Also, keep in mind that during the peak of the storm, both loads posted and trucks posted in the Houston area fell (similar to some national holidays), making LTR's appear a bit misleading when compared to non-disruptive periods.

Source: C.H. Robinson seven-day average load volume and rate data outbound shipments from a 150-mile radius region from Houston, TX.

For inbound loads to the Houston area, businesses and carriers curtailed activity and increased CPM three days before Harvey hit Texas. This activity continued upward to day 11 before decreasing.

Note the persistent elevation in CPM for inbound loads compared to the rest of the country after Harvey. Demand into the Houston area was elevated for quite some time beyond what is shown here, first for relief and then for recovery. This imbalance continued to disrupt historical freight flows into the region and contributed to some nationwide disruption of capacity flow.

Source: C.H. Robinson seven-day average load volume and rate data inbound shipments from a 150-mile radius region from Houston, TX.

When looking at inbound loads to the Houston area, we see that businesses and carriers curtail activity with increases in CPM occurring three days before Harvey made land fall in Texas and continuing upward to day 11 before starting its way down. Note the persistent elevation in change in CPM for IB vs. the rest of the country. There was elevated demand into the Houston area for quite some time (beyond the time shown here), first for relief and then for recovery that continued to disrupt historical freight flows into the region and contributing to some nationwide disruption of capacity flow.

Comparing Harvey’s disruption to other recent hurricanes
The below table demonstrates the varying impact on transportation and logistics that can occur from hurricanes in the United States.

Considerations and best practices for hurricane season
While a more active hurricane season does not mean that the landfall and disruption experience will be like the examples offered, it does afford the opportunity to consider today's already tense market compared to previous years.

Below is a six-year view of DAT's LTR. Displayed by the red line, 2021 has the greatest ongoing tension. When tension is high and a large regional or national disruptive event occurs, the tension is exacerbated. For example, February’s winter weather in the South and Southwest disrupted both regional freight and capacity flows as well as national LTRs with a record 12:1 LTR nationwide average.

Another example, DOT's Roadcheck week, a three-day event, this year it was held a month earlier. Held in May 2021, LTRs peaked at nearly 8:1, exceeding even 2018's levels.

Ultimately, it’s reasonable to expect a significant hurricane event could greatly impact trucking across the country.

Key insights about hurricane disruption

1. More intense storms have a lingering impact on volumes
   Storms like Michael and Harvey both experienced increased inbound and decreased outbound orders.

   Carriers tend to keep drivers away from areas with weather issues—for both the safety of the driver and the equipment. Even with volume decreasing, capacity into and out of the region dropped so much that pricing increased meaningfully.

2. During the volume lull and surge, cost increases are almost a certainty
   While the intensity of the storm is a factor of this increase, costs tend to have a greater impact on larger economic markets.

3. Cost/mile increases out of storm-impacted areas
   However, the largest impact on CPM is inbound orders to impacted regions.

4. Major disruptive events amplify market tension

Develop a proactive hurricane strategy

Each hurricane event has a unique impact on supply chains. When planning and monitoring an impending landfall, consider the following:

• Location of landfall
• Duration of landfall
• Localized or super regional
• Other mitigating events such as current market tension
• Nationwide impact: The broader supply chain and transportation experience could be disrupted
• Consider advanced deployment of inventory and pull forward of orders
  • Focus on inbound materials and goods from the region
  • Deploy inventory to a safe location
  • Create a backup distribution center strategy if a location is shut down
• Transportation:
  • Create a capacity strategy for lanes exiting backup distribution centers
  • Prepare your budget for sourcing locations that have different costs
  • Plan for the lingering effects beyond the immediate landfall
  • Expect increased tension and pricing in the broader market
• Collaborate and communicate strategy with supply chain partners (suppliers, customers, warehouse and transportation providers, etc.)

Finally, remember to be flexible. As every hurricane is unique, and this season overlaps with an exceptionally unique and tight truckload market, be prepared for the unexpected—road closures, power outages, bad weather, capacity stresses across surface transportation modes, and pricing pressure to name a few.

TOP STORY: Decrease in challenging intermodal markets

For information about the Union Pacific temporary container suspension, check out our Client Advisories.

Broadly, intermodal volumes are remaining stable with some recent relaxation that aligns with similar relaxation in July 2020. Volume is expected to remain strong through the second half of the year, with some localized challenges with capacity also continuing.

• Dray capacity has pockets of limitations, be flexible.
• California outbound loads face challenges across the country as elevated import container volumes are forecasted to continue.

There is opportunity to accept goods when available and turn trailers/containers as fast as possible to return capacity to the network. Intermodal is open and continues to participate in the broad freight flows and migration of loads in today's market.

Connect with your C.H. Robinson account manager to address strategies that minimize peak season and dwell surcharges.

TOP STORY: Infrastructure package still under negotiation

Congress and the White House continue to negotiate on an infrastructure package. The final package is some time out, with a great deal of negotiation still to occur. Currently, it is not possible to offer insights on the freight policy or timelines that result from the eventual agreement.

TOP STORY: Analysts forecast deceleration of the spot market in the second half of 2021: Considerations to keep in mind

C.H. Robinson’s spot market van truckload cost per file forecast suggests sustained tension well above historical norms. As part of that, our forecast predicts pricing that trends away from the downturn forecasted by industry analysts in the second half of the year.

Rather, C.H. Robinson’s forecast continues to show upward pressure on spot truckload pricing through the end of the year. Below are some key points to consider as when reflecting on the varied forecasts.

Broad labor challenges
On the labor side, the evolving Delta and Gamma COVID-19 variants continue to impose more broad challenges broadly to labor and increase downward pressure on the long-haul truck driver population.

Highly transmissible COVID-19 variants continue to emerge amidst the re-opening process and will likely continue as colder weather returns this fall. This will primarily impact supply with continued pressure on the labor market, driving consumer and wage inflation. This is reflected in the strong June inflation numbers.

Demand levels are strong
Strong levels of demand continue to outstrip supply for goods and services, keeping inventory levels of goods low and creating tension for transportation capacity.

With demand looking very robust, the economy is on track for strong growth. Business and retail inventories are low while corporate earnings/capital expenditure projects are robust. Household balance sheets are in good shape with $3T (USD) in excess savings since the start of COVID-19.

To reiterate, inflation in the freight industry last year is now spreading to the broader economy. This causes increased competition for freight jobs from higher paying, and in some cases, more attractive jobs. Expect capacity to remain relatively tight in the second half of 2021. C.H. Robinson’s forecast for spot rate growth for 2021 remains above analyst forecasts for the second half of the year.

The impact of COVID-19 on supply chains and the larger economy
Economically, the United States is not an island. As such, economic and transportation forecasts for North America and the United States require study and involvement of the world situation in the models.

Since COVID-19 variants are much more transmissible (especially Delta) and there are uneven rates of vaccinations around the world, new daily global COVID-19 cases are in the 500K+ range.

The number of new variants is a function of COVID-19 cases and time. The more global COVID-19 cases, the more opportunity that one of these mutations is a more transmissible or dangerous variant.

Shown in the chart below, the WHO first identified the four variants of concern they are tracking, however there are four additional variants of interest and 11 more designated for further monitoring.

Source: Global New Daily COVID-19 Cases from the WHO

The Delta variant is especially concerning because the measure of transmissibility, the R0, is estimated at 5-8x the original virus. It’s also 2.5x more lethal.

The following figure offers perspective on the increased communicability of the Delta variant. This evolving situation has the possibility of rapid growth and COVID-19 cases that will influence global and likely North American social and economic environments. This is an important perspective because there were many regions of the world not largely effected by the first wave of COVID-19 that are being materially impacted from the Delta variant.

Source: R0 of COVID-19 variants and common diseases from BBC

Revisiting the topic of inflation
June’s core CPI increased 0.9% month over month (M/M) versus the expectations of 0.4% M/M, which puts the United States on track for 6% CPI for the full year. In the chart below, this is represented by the blue dotted line.

This 6% figure is achieved by doubling the six months of growth that the United States has experienced year to date. This is a clear departure from the pattern of a narrow 2% band seen since 2011. This growth is accompanied by an even more aggressive 1% M/M growth for the June Producer Price Index (PPI)

COVID-19 led to initial supply constraints, this, combined with the stimulus jumpstart of the economy is driving most of the inflation. As shown in the CPI, massive inflation across the economy means labor rates rise.

Consider that transportation costs led our recent inflation. They will continue to increase as the inputs to transportation cost structures rise and transportation rates will reflect the inflationary pressure through 2021.

The evolving COVID-19 variants will affect the global economy and inflation. Be mindful of the global economy and supply chain in the second half of 2021 and into 2022 when conducting business and supply chain planning.