US trucking market splits as demand for essentials grows
26.03.2020
Ro-ro operators tighten belts as new demand melts away
26.03.2020

Coronavirus mitigation sparks truck rate spikes in ‘high-risk’ areas

One-third of the shipments Odyssey Logistics tracks through its new coronavirus disease 2019 (COVID-19) dashboard are originating in “high-risk” zones. Photo credit: Shutterstock.com.

Trucking rates are climbing across the United States as demand to haul essential goods skyrockets, more than outpacing any decline in freight from shippers whose customers have shut down.

But transportation economists warn the market could cool soon if non-essential retailers such as Macy’s, Bed Bath and Beyond, Havertys, and others remain closed and cancel existing orders from US suppliers or Asian factories.

For now, the frantic rush to get essential goods to grocery stores, hospitals, and other critical service providers has caused available loads to rise sharply and rates have quickly followed. Odyssey Logistics told JOC.com that freight volume was up 60 percent last week compared with the prior week, according to its new coronavirus disease 2019 (COVID-19) risk dashboard rolled out to customers. Odyssey also said one-third of the shipments it tracks through the new dashboard are originating in what it calls “high-risk” zones — i.e., areas with the highest number of reported coronavirus cases and the most stringent containment and mitigation measures.

Sarah Ruffcorn, president of Trinity Logistics, said the hardest part of serving high-risk states such as California is the military “stopping trucks asking where they’ve been and what they are picking up” and warehouses having minimal staffing to load or unload.

According to visibility provider FourKites, shipments of food and beverage products rose 17 percent and consumer packaged goods surged 38 percent last week compared with the same week in February. Food and beverage load volume spiked 26 percent during the weekend of March 14-15 compared with the same weekend a month earlier.

Kenny Lund, executive vice president of Allen Lund Co., a third-party logistics provider that specializes in the brokerage of food, perishables, and other items commonly found in supermarkets, said his company tracks capacity on a green-yellow-red scale. Green means lots of available capacity, yellow means some availability, red means a shortage of trucks.

Photo credit: Ari Ashe

“For the first time, the entire map is red,” Lund told JOC.com. “It’s not a huge shortage in any one market, but it’s a widespread shortage of capacity. In a natural disaster, capacity is usually tight in a specific location, but here capacity is tightening everywhere.”

Rates are reflecting this demand in markets across the US, according to a JOC.com analysis of instant online quotes. In a review of 100 US markets, JOC.com found pricing in nearly every market was up 5 percent. The JOC All-in Shipper Truckload Rate is $1.89 per mile nationally month-to-date as of March 25, up 6 percent from the average rate for all of February.

DAT Solutions reports the national dry van rate, which represents a wholesale rate between brokers and drivers, has risen 3.4 percent in March versus a month ago to $1.85 per mile through last week. DAT reported wholesale rates climbed in 88 out of the 100 busiest lanes when comparing last week with two weeks ago.

Inbound rates into New York are up 26 cents sequentially in March, according to the JOC.com analysis. Inbound rates to Georgia, New Jersey, Ohio, and Pennsylvania are up 24, 23, 22, and 21 cents, respectively. Rates were up 18 cents into California and Washington state this month, although the JOC analysis shows prices calmed down in the last seven days after a spike two weeks ago.

“We’ve had substantial jumps [in rates] in the last two weeks, but we are still not anywhere near 2018 levels for the spot market,” Eric Starks, CEO of transportation intelligence company FTR, said on a webinar Tuesday hosted by investment bank Stephens Inc. “We anticipate this strength to continue for the next two to three weeks, and then it will start to come back down once all of the restocking has happened on consumer products.”

Lund made it clear, however, that he sees no price gouging happening. Drivers take pride in hauling critical items such as hand sanitizer, food, or toilet paper out of a sense of duty, he said.

Shippers should expect delays at receivers

Outside a Procter & Gamble warehouse in Tunkhannock, Pa. on Mar. 12. Photo credit: Twisted Truckers/Facebook.

In addition to higher prices, shippers should expect “significant delays in loading times at suppliers of essential goods and in unloading times at major big-box retailers and grocer warehouses — at times exceeding five hours,” according to freight broker Echo Global Logistics. In a customer advisory notice last week, Echo also warned shippers of non-essential goods to expect appointments with receivers to be canceled.

Although drivers face delays loading or unloading, another time-consuming part of a normal workday has disappeared: traffic jams.

With millions of Americans teleworking amid widespread lockdowns, normally clogged highways are wide open, and trucks are getting to destinations faster. In Los Angeles, the average truck speed between 6 a.m. and 8 a.m. was 53 miles per hour (MPH) last week at the interchange of interstates 710 and 105, according to the American Transportation Research Institute, compared with a normal rush hour speed of 25 mph. At the “Spaghetti Junction,” the I-85 and I-285 convergence in Atlanta, truck speeds jumped to 53 mph versus 15 mph on a usual workday. Average speed also doubled to 43 mph at the “Byrne Interchange,” the I-290 and I-90 convergence in Chicago.

Loads sitting on boards

As during any disaster, truck drivers incur additional risk heading into a danger zone. In this case, the risk is catching coronavirus and potentially increasing its spread. There is no risk of damaging the rig as there would be from a flood, wildfire, or debris, nor are roads impassable. Trucks face delays from military or police roadblocks set up in states with shelter-at-home orders and social distancing procedures at shippers and receivers, so each type of calamity requires a driver to be extra careful on the job.

That additional risk also plays a role in pricing, said JJ Lewis, vice president of national sales for GlobalTranz, as some drivers are refusing to haul into areas with elevated coronavirus cases, and some are ill themselves. In most cases, however, truck drivers are willing to haul into a dangerous environment if they are compensated for the risk.

“This situation is fluid and changes by the day,” Lewis said. “Rates are fluctuating, as is capacity overall, on a regional level and on a lane-by-lane basis. Proactive, frequent communications are essential for ensuring our customers know the latest capacity availability and rates.”

Ruffcorn and Lund also said drivers have difficulty finding loads out of California, which makes an inbound load unappealing. If fewer drivers want to enter California, then brokers must pay more for the lack of available capacity.

Ruffcorn said a majority of shippers understand that due to the pandemic, annual contract rates agreed upon in January 2020 may no longer be sustainable.

“Most know that this couldn’t have been predicted,” she said. “We are noticing some of the same loads rolling multiple days on the spot market boards, so it seems that rates are playing a bigger factor the longer this goes [on].”

Lund agreed shippers have been amenable to raising rates during the pandemic.

“Some have said, ‘We understand this is unusual, we can bump rates up by, say, 5 percent,’ and we absorb the rest in our margin,” he said. “We have told other shippers, ‘We can honor this rate for a little bit, but if the situation stays like this, we cannot honor that rate for the whole year.’” 

Contact Ari Ashe at ari.ashe@ihsmarkit.com and follow him on Twitter: @arijashe.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.