Sometimes change happens quickly – Part Deux

The hurricanes in August and early September dramatically altered the dynamics of the freight market. (Photo: Shutterstock)

The hurricanes in August and early September dramatically altered the dynamics of the freight market. (Photo: Shutterstock)

In just seven months, the trucking marketplace has gone from over-capacitized to the most under-capacitized in recent history

For years we’ve heard arguments about how better supply chain visibility will lead to a logistics environment that is easier to predict, plan, and manage. Many of these arguments have proven to have value over time as supply chain technology has improved the level of visibility each participant has of its own inventory, and then improved the visibility each participant has of the inventories held by its suppliers and the inventories held by its customers. 

We understand that there are notable exceptions, but in general, logistics managers have unprecedented visibility into the entire supply chain. Indeed, the first tangible result has been a dramatic lowering of the inventory to sales ratios at the manufacturing, wholesale, and retail levels of the economy.  So, if supply chains have better visibility and inventories are more closely monitored, why isn’t it easier to manage logistics? Why does the volatility in transportation seem to have become worse, instead of better?

We see this as yet another example of our old friend “the law of unintended consequences” coming around and biting most logistics professionals in the backside. Because supply chain visibility has grown better and better over the last couple of decades, because inventory levels at each node of the supply chain have been managed lower and lower, there is no longer any slack anywhere in the supply chain. Each small change in the level of end use consumption of any tangible good creates a whiplash effect throughout the supply chain. Small changes in end use demand create big changes in the demand for transportation as everyone scrambles to cover loads. More supply chain visibility and the ability to manage inventories to ever lower levels are resulting in greater volatility in the demand for transportation, not less. The balance between capacity and demand in every mode of transportation is becoming harder to predict, plan, and manage, not easier.

That has recently been proven out in the two modes: rail – which we will talked about last week; and truck – which we talk about this week.

Increased Volatility in Truck

In February of 2017, trucking capacity was far in excess (beyond what normal seasonality would suggest) of demand. Over the subsequent six months, demand improved and capacity tightened. Before the hurricanes hit Texas and then Florida, all modes of truckload trucking (dry van, reefer, flatbed) were steadily improving and suggesting that a ‘fall surge’ in freight was happening for the first time in a decade. Then hurricanes Harvey and Irma paid us a visit, and everything shifted into an even higher gear. In a mere seven months, the trucking marketplace has gone from over-capacitized to the most under-capacitized in recent history. 

The DAT Dry Van Weekly Barometer has hit an all-time high. For the first time, the spot rates for all modes has jumped above contract rates at the same time. It remains to be seen how long the current surges in demand will last, but capacity remains extremely tight in all modes of truckload trucking.  Stay nimble and stay tuned.

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