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By Dean Croke, DAT Solutions
You can always count on June being a crucial month for shippers. Southern states are in the middle of peak produce season, while those further north are on the cusp of it. Retailers are gearing up for summer and back-to-school shopping.
This year, while truckload freight volumes declined during the month of May, capacity has stayed tight across different sectors of the economy.
The national average van load-to-truck ratio—the number of available loads for each truck posted to the DAT load board network—was 6.1 in May compared to 1.9 in 2020 and 1.8 in 2019. The refrigerated ratio was almost 13.0 after registering 3.0 and 2.8 in 2020 and 2019 respectively.
Not surprisingly, spot dry van and refrigerated truckload rates entered June at historic levels. National weekly average line-haul rates are nearly 90 cents a mile higher than they were a year ago and roughly 55 cents more than in 2018. Then there's a surcharge for the price of fuel, which is at a two-year high.
Why are rates increasing? In previous columns, we've covered the truck driver shortage and imbalances in supply chains as businesses adjust to people venturing out of their homes. Here are three more supply-chain dominos worth monitoring:
1. Port throughput
U.S. ports handled 2.15 million TEU in April, the latest month for which final numbers are available, according to Global Port Tracker. On the shipping calendar April is usually the second-slowest month but this April was by far the busiest on record, up 33% from a year earlier.
The first half of 2021 is forecast at 12.8 million TEU, up 35% over the same period in 2020. Year-over-year comparisons are skewed because imports declined so sharply during the first half of last year, but the six-month estimate would put 2021 on track to easily beat 2020's full-year total of 22 million TEU, which was up 1.9% over 2019 despite the pandemic.
Right now drayage operators are booked solid. Chassis trailers are in high demand as they sit for extended periods waiting to be unloaded at packed warehouses, drayage rates are up and so is the length of haul.
2. Pallet availability
There are roughly 2 billion pallets in circulation across the United States and 4 billion in Europe, according to the Global Wood Packaging Forum. Nearly 90% of all products are shipped on pallets, and 90% of all those pallets are made of wood. The price of wood has doubled and in some cases tripled during the past year, driving up costs.
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Pallets that are already in the supply chain aren't always in the right place at the right time. Dwell time is up for non-perishable inventory, which indicates pallets may be sitting longer at warehouses or loading docks. The National Watermelon Association calls the shortage of pallets "possibly the most significant (and threatening) issue that we have ever seen." One farmer was told by one pallet supplier that they are not taking any new customers due to an inability to fill even existing customer demand.
3. Warehouse capacity
The Logistics Managers Index (LMI) is a joint project of supply chain academics that measures shipper sentiment on inventory levels and costs, warehousing capacity, transportation pricing, and more. According to Zac Rogers, assistant professor at Colorado State University and one of the LMI's authors, many supply networks are suffering from a "bullwhip effect" in which smaller variations in demand at the consumer level led to wild swings further upstream. The effects of this are apparent in the ongoing lack of warehouse capacity reported by respondents in May, as inventory rushes in and retailers struggle to keep products on shelves.
Looking forward at the next 12 months, "respondents expect to utilize increasingly greater amounts of available warehouse space throughout the year as supply struggles to keep up with demand." But they are not particularly hopeful regarding new storage facilities coming online.
For carriers this is translating into much higher dwell times as they sit at shipper locations waiting to be unloaded and effectively unavailable for dispatch.
Demand for truckload services typically starts to ease after the Fourth of July holiday. At a time when life is starting to feel routine again, changes in port activity, warehouse capacity and pallet availability will tell us if supply chains are starting to follow a more normal pattern as well. Keep watching this space.
Dean Croke is the principal industry analyst at DAT Freight & Analytics, which operates in the industry's largest load board for spot truckload freight, and a data analytics program based on $126 billion in annual spot and contract freight transactions. For information, visit dat.com.
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