Perfect storm of tight supply, strong demand hits shippers
As shippers enter their peak season, they face a steeper and tougher peak to climb than in seasons past.
The U.S. economy remains on one of its best trajectories in years, leading to higher demand from consumers. The demand is butting up against tight transportation supply, especially for trucking. As a result, intermodal freight likely will become an increasingly popular option during the peak season.
A panel of freight industry experts delivered this message during last Thursday’s “Navigating New Realities: Peak Shipping Season Intermodal Outlook” webinar hosted by American Shipper. Patrick Duffy, research director at American Shipper, said this peak season stands out for “particularly daunting conditions: surging imports, perhaps to beat tariffs; reductions in carrier service due to consolidation; GRI (general rate increases); and bunker surcharges.”
“As trade rhetoric continues to grow negative and trucking capacity remains tight, you have beneficial cargo owners and forwarders shipping earlier this year and wondering whether they will have to rely on air cargo to fill their shelves,” Duffy said.
Webinar panelist Ibrahiim Bayaan, chief economist at FreightWaves, said this year’s peak shipping season comes against the backdrop of a robust U.S. economy.
U.S. gross domestic product grew 4.1 percent on an annualized basis in the second quarter, “one of the strongest quarters since the recession,” Bayaan said. While annualized GDP growth once hovered closer to 2 percent to 2.25 percent, “we have been able to exceed those levels over the past several quarters, particularly this year because of some policy changes.”
The U.S. economy “is in a different state than it was four or five years ago,” he added.
Other economic indicators also are strong and accelerating. Bayaan noted that retail sales plateaued last year, especially after a series of hurricanes hit the U.S. Southeast and Gulf Coast. But low unemployment and high consumer confidence are pushing retail sales up 6 percent this year. Retailers, though, are still keeping their inventories lean, with the U.S. inventory-to-sales ratio falling from the high levels of the second half of 2016.
“You have this combination of low inventories and high demand, which means inventories have to be replenished and sent out again,” Bayaan said. “This lean inventory is positive for the transportation industry, but it does put pressure on carriers to do things in a timely fashion.”
Of course, more of those goods are moving through ports, and FreightWaves’ data platform SONAR points to shippers having started their peak shipping early. Bayaan said the inbound tender volume index for shipments coming through Los Angeles peaked at over 189 in July before settling at its current level of 175. The San Francisco inbound tender index hit a 121 level in June before settling to its current 98 level.
“Everything is pointing to a very strong peak season as far as freight,” Bayaan said.
The increase in inventory replenishment, along with shrinking truck capacity due to electronic logging device and hours-of-service mandates, has pushed up producer prices for trucking 11 percent year-to-date, Bayaan said. Meanwhile, the pool of commercial drivers has not kept up, with 2 percent growth this year.
“It feels like the U.S. economy is running out of excess capacity,” Bayaan said. The United States is “producing as much as we have capability to produce.”
Steve Golich, executive vice president & COO of Alliance Shippers, one of the largest privately held intermodal marketing companies in the United States, echoed that trucking capacity is tighter than it’s been in a while because of the ELD and HOS mandates.
For example, moving a trailer from the Chicago rail ramp to auto industry customers in Michigan used to take one day. But the new mandates mean “a driver cannot make that turn in a day. We are paying a driver for two days as opposed to one.”
That is when you can find a driver. Golich noted the aging workforce, with the median age of commercial drivers now in the mid-50s. Better pay and lower barriers to entering the profession help, but “we are behind the eight ball in truck driver capacity.”
The upshot for Alliance is that “we are not on edge looking for new business as much as trying to maintain and protect the business we have today,” Golich said.
Tom Williams, group vice president of consumer products for BNSF, said overall intermodal volumes are up in the mid-single-digit range this year, which he said is about the seasonal norm.
“We are not seeing a trend that suggests overall that the peak season is earlier this year,” Williams said.
But demand for ocean containers is creating a “shift between what moves intact in ocean containers and what gets transloaded in domestic containers.” He said there is increasingly tight demand for shifting 20- and 40-foot containers into domestic 53-foot containers for intermodal rail.
“Transloading is really busy right now,” Williams said.
While e-commerce was expected to chiefly benefit trucking, Williams said intermodal rail also is playing an important role as more containers move to inland fulfillment and distribution centers. New analytic and tracking tools also are providing e-commerce vendors better tracking capability for intermodal rail.
“Intermodal is a very good solution for evolving supply chain needs,” Williams said. “The proliferation of e-commerce in retail might be seen as a headwind for intermodal, but intermodal is every bit as effective as it is for brick and mortar.”
In response to growing intermodal demand from e-commerce, BNSF is adding hub capacity in Southern California, which remains the epicenter for Asian imports into the United States. BNSF also is looking at container-handling technology such as what OOCL installed at its Long Beach terminal.
It’s not too late to hear what the experts had to say during American Shippers’ webinar, “Navigating New Realities: Peak Shipping Season Intermodal Outlook.” Replay the webinar here: https://www.americanshipper.com/main/checkemailinxpo.aspx?fdid=802f8d24-ddad-413c-af49-389a1d09f129&source=fw