It is becoming increasingly difficult to source transportation out of the Northeast. Over the past month, reefer capacity has become easier to source across the country due to seasonal trends along with absolute capacity beginning to return to the market.
“Historically, it’s usually easier to source capacity during the first quarter than it is the fourth quarter,” Capital Logistics founder and Chief Operating Officer Michael Feig told me Monday. “I think we are seeing that trend continue although it’s at higher prices.”
This leads into another topic that I believe is putting pressure on our measure of reefer relative capacity (ROTRI.USA). Relative capacity is the measure of how difficult it is for shippers or brokers to source capacity on a certain lane but it isn’t directly correlated to absolute capacity or the total number of trucks available for dispatch. As more contracted freight transportation is renegotiated at a higher rate per mile, naturally tender rejections are going to face downward pressure. I believe that this is contributing to the loosening of capacity that has been experienced over the past month.
As bid season continues for the next several months, CPG companies can expect their transportation costs to increase substantially on a year-over-year (y/y) basis. Truckstop.com reefer spot rates are higher by ~50% compared to the early months of 2020.
Map: FreightWaves SONAR; height: reefer volumes, color: reefer outbound tender reject index w/w change.
Over the past week, reefer relative capacity tightened considerably in several markets in the Northeast and coastal markets. The markets with the largest week-over-week (w/w) basis point jumps in this region were Winchester, Virginia (1,713bps), Baltimore (813bps) and Boston (676bps).
“The Northeast has gotten a lot tighter, in particular the Philadelphia and Wilmington markets,” Feig said in the call on Monday in reference to where reefer capacity had tightened over the past several weeks. The reasoning behind the tightening is a surge in produce into the Northeast ports. While California and Florida produce many fruits and vegetables during the spring and summer, companies are forced to import more fruits from abroad during nonpeak season.
So what should shippers that are located in these areas do? First, shippers should lengthen tender lead times to alleviate some of the stress that is put on their supply chains due to capacity that is already constrained and tightening. Lengthening tender lead times improves the routing guide compliance and should lower the cost of purchased transportation.
Secondly, it is important to be a “shipper of choice.” Shippers of choice are companies that exemplify qualities that are attractive to carriers and other transportation partners. There are five different areas that companies will need to focus on in order to be a shipper of choice: Pay fast and pay accurately; keep drivers out of detention; remember the golden rule; be more flexible; and increase visibility.
It is vitally important for shippers to form strong relationships with 3PLs and carriers in order to ensure reliable service at a reasonable cost.
Going forward, the positive news is that absolute capacity is certainly expanding and with all variables remaining constant should lower transportation costs. I expect that rates will be high on a historical standard for much of the first half of 2021 but the picture is less clear on the back half of the year.
“Will this summer bring tight capacity to the reefer market relative to last summer?” Feig asked. “I think it’s really too early to tell.”
Kraft Heinz is developing and testing its first-ever recyclable microwavable cup. I have written multiple times in the past several months about how consumers are demanding their favorite brands to be more socially responsible, not only with regard to ethical labor and animal welfare but also carbon impacts and climate change.
Image: Business Wire
Kraft Heinz is showing its dedication to a more sustainable future by designing and now testing the first-ever recyclable microwavable cup. After testing is completed, the company is planning on launching a line of its famous Kraft Macaroni & Cheese using this cup later in 2021.
“Consumers are at the heart of everything we do and we know they’re looking for more sustainable packaging options without sacrificing the convenience or taste they love from Kraft Mac & Cheese,” wrote Matt Carpenter, the marketing director at Kraft Heinz, in a press release last Wednesday.