Reefer spot rates hit five-month low as capacity loosens. After a relentless uptrend from May through September 2020, reefer spot rates stabilized through the end of the year. Aside from a short-lived spike around the holiday season, rates have contracted at a rapid rate through 2021 and are now at the lowest level since August.
The decline in reefer spot rates coincides with falling tender rejection rates (ROTRI), a measure of how difficult it is for shippers to source capacity. Easing price pressure doesn’t come as a surprise as we enter one of the softest times of the year for freight and contract rates rise against the spot market, improving routing guide compliance.
Chart: FreightWaves SONAR; white line: reefer outbound tender reject index, green line: Truckstop.com national reefer spot rate per mile.
Falling reefer spot rates are positive for CPG shippers but do not necessarily translate to lower transportation costs for companies. The majority of truckload freight is moved on a contract basis; those agreements are being repriced and awarded now at rates that are high single digits to low double digits higher year-over-year.
The good news for reefer carriers is that capacity remains very tight with roughly 41% of loads being rejected, which indicates to me that there are still plenty of opportunities in the spot market. The region where reefer capacity is the tightest is the Great Plains. Carriers are rejecting 65% of loads out of the Omaha, Nebraska, market and 61% out of the Fargo, North Dakota, market. Nebraska has the second-highest amount of cattle among states, whereas North Dakota is another major beef-producing state, which is likely leading to capacity being tight in those two markets.
Recalls reemerge at multiple CPG companies. I have previously written about recalls and their effect on supply chains, ranging from production delays to equipment repairs to sourcing new suppliers (i.e., Chipotle in 2015).
Over the past few weeks, three large CPG companies dealt with the fallout of a recall: Frito-Lay, Bob Evans and Nestlé.
Frito-Lay issued a voluntary recall of its party-size Ruffles Original Potato Chips due to the possibility that some bags contained undisclosed milk products. The bags in question were shipped to six different states. Fortunately, there haven’t been any known allergic reactions to the chips.
Secondly, Bob Evans Farms is recalling 4,200 pounds of sausage after the product was found to include blue rubber. The sausage was shipped to five Midwest states. Lastly, Nestlé is recalling 762,615 pounds of pepperoni pizza Hot Pockets after worries that there were plastic shards or glass included in the food. These concerns led the USDA to classify this recall as a Class 1, the most serious designation.
Some easy and effective ways for CPG companies to help alleviate concerns surrounding recalls are incorporating regular equipment checks and providing employees with adequate job training so they can quickly identify problems arising in the manufacturing plant.
More complex and costly — but potentially more robust — solutions include installing vision inspection systems (VIS) and warehouse execution systems (WES). A VIS allows robots to “see” and make sure that the correct labels and due dates are on products. A WES tracks products and aids companies by having the information to know exactly which products need to be recalled and can help prevent contaminated products from ever leaving the manufacturing facility. A WES can also provide visibility from origin to point of sale.