COVID vaccine distribution is likely to put a floor in reefer spot rates. Truckstop.com average national reefer spot rates fell 7.25% to $3.20 per mile over the past week. This decline was the largest drop in the reefer spot rate since the collapse in economic activity in April.
Consumer packaged goods (CPG) companies rely on refrigerated carriers due to the temperature sensitive nature of the majority of items that they will ship. While spot rates slid over the past week and relative reefer capacity has loosened significantly over the past three weeks, I don’t expect this to lead to drastically lower transportation costs due to incoming demand for vaccine transportation.
The first loads of Pfizer’s coronavirus vaccine were shipped on Sunday highlighting the hard work and determination of the scientists that have been working on this vaccine for months along with representing the hope of a future without the coronavirus.
The vaccine rollout is undoubtedly exciting for everyone in the United States, but it is unlikely to make supply chain coordinators’ jobs any easier. Although Pfizer’s vaccine needs to be kept at -70 degrees Celsius or colder, Moderna’s vaccine, slated for approval this week, can be transported by conventional reefer trailers.
Pfizer’s vaccine needs to be stored at temperatures that reefer trailers are not able to reach but that doesn’t mean that they are not going to be used for transportation. I believe that reefer trailers will be used for long-hauls to ‘reduce the delta’ between the ambient temperature and the dry ice to help preserve the shipping environment for longer time periods. This will likely not impact reefer capacity to a great degree, but the rollout of Moderna’s vaccine will likely crunch capacity even further since reefer trailer usage will be widespread for distribution.
Relative and absolute capacity for reefer vans is extraordinarily tight with over 40% of reefer loads currently being rejected. To put this into perspective, FreightWaves views a tender rejection rate above 7-10% as inflationary for spot rates and shippers can expect that their transportation costs are going to increase.
“There’s no redundant capacity waiting for work out there,” Unitrans President Andrew Schadegg said in an interview with FreightWaves regarding reefer capacity across the country. “Everything is pretty full.”
I don’t expect that the drop in reefer spot rates over the past week will continue through the end of the year and that shippers should expect inflated rates and plan for additional costs in their supply chains.
Reefer carriers have an abundance of spot freight to maximize yield while balancing their networks. Reefer carriers currently enjoy a favorable business environment, which I expect to continue for the foreseeable future as the economy reopens and multiple vaccines need to be distributed to the population.
More snacks and more customization, please! This year, customers are not only eating more snacks but also demanding more customization in how they receive it. I have written about the effect that Direct-to-Consumer has had on the supply chain and this trend is not letting up.
Last Thursday, December 10, Frito-Lay announced that it was responding to customers’ demands and that from now on the consumer would be able to customize which goods they receive in their Frito-Lay Variety Pack. The consumer will now be able to pick from more than 100 different items for their pack.
This new buying experience is available on Snack.com, the DTC site Frito-Lay built in-house and launched in May 2020.
“Our ability to own the end-to-end value chain enables us to deliver customized offerings like ‘Make Your Own Variety Pack’ to create a more personalized snacking experience,” said Michael Lindsey, chief transformation and strategy officer, Frito-Lay North America.
Interestingly, Frito-Lay found that two-thirds of Americans would be more likely to buy a variety pack if they were allowed to customize it. I expect that large companies will roll out an increasing number of DTC initiatives as they try to combat new and upcoming brands.
East Coast port volumes post stronger y/y growth than the West Coast. It is apparent that the West Coast has been slammed with imports for the past several months, causing companies to warn customers to anticipate delays for their goods. These headaches could soon be headed to the East Coast ports.
Over the past month, Asian imports (TEUs) soared into the East Coast by 30.1% year-over-year (y/y) compared to 22.9% y/y on the West Coast. Last week I wrote about how the CEO of Hasbro announced that Hasbro was shifting some imports to the East Coast from the West Coast to avoid port congestion.
If these trends continue, this could lead to logjams in the East Coast ports and delay CPG goods such as toys and various foods from getting to stores and consumers. Two prominent CPG companies that utilize East Coast ports are Anheuser Busch and Chiquita. Over the past 30 days, 29.13% of Anheuser Busch’s total TEUs went through the Port of New York/New Jersey whereas 66.67% of Chiquita’s TEUs passed through the Port of Wilmington.