Is the F-150 production shutdown visible in freight market data?

Early on the morning of May 2, an industrial accident at the Meridian Magnesium plant in Eaton Rapids, Michigan caused molten magnesium to ignite in the bottom of a scrap conveyor. The factory’s fire suppression system activated, but unfortunately sprayed water on the flaming magnesium, which caused two large explosions that sent workers flying through the air. Miraculously, there were no fatalities. Weeks later, on May 21, Eaton Rapids Fire Chief Roger McNutt said that the cause of the fire was undetermined and that “As far as I’m concerned the case is closed.”

The explosions caused about $8M of damage to the Meridian Magnesium plant and severely damaged the roof, but the destruction at the Michigan automotive supplier had ripple effects throughout the supply chain. In the modern world of lean manufacturing and just-in-time delivery, automotive factories do not maintain large inventories of parts. Even a comparatively minor problem, like a truck running a few hours late, can cause a plant shutdown, because in some cases parts are unloaded directly from a truck onto production lines. 

The truck side of the Ford Kansas City Assembly Plant in Missouri shut down first (for about two weeks), and then Ford closed down operations at its Dearborn Truck Plant (for eight days). These are large facilities: for reference, the Dearborn Truck Plant built 31,482 trucks in the month of April alone.

We wondered whether these large-scale production shutdowns would be visible in the freight market data displayed in our new SaaS product SONAR, which we launched (beta) last week at Transparency18. We charted the inbound and outbound turndowns for both Detroit and Kansas City to see how the supply (capacity) and demand (freight volumes) dynamic was affected in those two markets. Check out the charts below:

The first chart displays the outbound tender rejection index for Kansas City (SONAR code: otri.mci) and compares it to Detroit (otri.dtw). The bolder line, representing Kansas City, shows a small dip, but it began before the May 2 fire and doesn’t seem to be that significant. This might be because the Kansas City plant also builds the Ford Transit van, so only about half of its capacity was affected. The drop in OTRI for Detroit was much more significant (about 25%, from ~16% of all loads to about 12% of all loads), and begins when the Dearborn Truck Plant shut down on May 9, and continues for more than a week. This makes sense: with fewer loads coming out of Detroit, there was more capacity than demand, so carriers rejected fewer loads tendered by shippers.

The second chart displays the inbound tender rejection index for Kansas City (SONAR code: itri.mci) and compares it to Detroit (itri.dtw). An increase in inbound turndowns indicates that carriers are growing increasingly unwilling to travel into a certain market: often weather events, like the Nor’easters that blanketed Philadelphia with snow in March, can trigger an ITRI spike, but typically it has to do with the amount of freight leaving the market. Carriers reject loads going into a dead freight market more frequently because they’re searching for a high enough rate to cover their backhaul. Interestingly, the inbound rejections to Kansas City (blue line) increased much faster than Detroit’s ITRI, possibly because Kansas City has a less diversified industrial output, and its market is more affected by a single plant shutdown. Kansas City ITRI shot up 46%, from about 27.4% of all inbound loads to 40.15% of all inbound loads. In other words, if there are normally barely enough loads to get out of Kansas City, a shutdown could have an outsized effect. The Detroit XMA would be less affected, in theory, because there are automotive plants from Ford, GM, and Chevrolet scattered across all of Southeastern Michigan. 

In conclusion, we feel confident that the F-150 production shutdowns perceptibly affected freight markets in at least two markets, and most likely impacted spot prices in associated lanes.

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