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USA LOGISTICS MARKET ANALYSIS 10/31/21


Dry van and reefer rejection rates continued to trend downward during the last week of October as spot rates eased, helping push carriers back into compliance. Spot rates still remain elevated for on-demand capacity, and will start to trend upward if the demand for trucks starts to increase.


Shippers should expect capacity to tighten this week as the holiday shipping season starts to ramp up. Historically, dry van rejection rates have increased 3%-4% during the month of November for dry van equipment, and 6%-7% for reefer equipment, indicating that carriers will be starting to increase spot rates for on-demand capacity over the next few weeks. Expect the volatility in spot rates to increase as carriers try to take advantage of shippers that are in need of same-day capacity in tight markets. Continue to secure capacity as early as possible, adjust tender lead times as markets shift, and avoid the high costs of on-demand capacity. Keep pressure on carriers that have agreed to short-term contracts over the next two months.


Last week national rejection rates fell below 20% for the first time since July 31, 2020. Unlike the mid-year decline in the index, growth in short-haul load tenders is not driving the decline. Long-haul rejection rates have fallen dramatically over the last two weeks as southern California compliance has hit an annual high. Many of the nation’s largest outbound markets have seen declines in outbound rejection rates as well, but the two Los Angeles markets account for roughly 9% of the nation’s total long-haul tender volumes. Spot rates have nearly tripled over the past two years out of the area, meaning contracts have probably moved significantly higher as well. With prices being so high out of some of these freight centers, carriers are able to reposition more effectively. While this means improved compliance, cost inflation is still in place and 19% rejection rates are still historically high. Breaking the 20% threshold suggests capacity is improving in the long-run, but serious nearterm seasonal hurdles still exist and should start to impact the market soon.



On their respective earnings conference calls, domestic truckload-based intermodal companies Schneider National and Hub Group both said that railroad fluidity has improved. Hub Group drew a distinction on the West Coast between international intermodal (green line below – a market that it does not compete in) and domestic intermodal (blue line below – its core intermodal market). The congestion at the ports of L.A. and Long Beach is primarily impairing international intermodal volume, which has fallen sharply in October, as seen in the chart below. Interestingly, Hub Group said that the congestion is actually helping its own domestic intermodal volume that originates on the West Coast because it has created more capacity on the trains for domestic intermodal containers. That is consistent with the SONAR chart below, which shows L.A. outbound domestic intermodal volume (blue line below) at its highest level of the past six months.



For the week ahead, we can expect the inland congestion at major U.S. ports to get worse. Unfortunately, for importers trying to move containers inland from U.S. ports a lack of chassis will be one of the biggest challenges. This has been caused largely by the massive amount of containerized imports that have already arrived.Now it is difficult to return empty containers, even though the chassis that these empties are sitting on are needed more than ever. We could be looking at a scenario in which import volumes coming off newly arrived ships cannot move from the ports as these volumes are held up waiting on drayage capacity.


While container volumes from China to the U.S. briefly turned back positive on a year-over-year basis, they are forecasted to fall about 10-15% over the next 14 days. So, while container rates from China to North America saw a small increase over the last week, they are likely to begin falling again over the next 14 days. This expected drop in loaded container volumes leaving origin will put significant downward pressure on container rates, and could also be a signal that demand is taking a significant hit from companies now waiting to place new orders, or canceling existing orders because they will be unable to make it to the U.S. in time for the holidays.


The advance report for nondefense capital goods new orders increased 0.8% in September, showing that business-to-business activity remained strong in the fourth quarter in the midst of inflationary pressures. Conversely, durable goods orders as a whole declined 0.4% over the same period. Flatbed capacity will remain tight as backlogs are fulfilled, but there will likely be an imminent peak in the rate of growth for business-tobusiness activity. The peak does not mean overt contraction but slower growth. Volumes will remain elevated throughout the moderation in 2022. Gross domestic product (GDP) increased by 2.0% in the third quarter. Consumer spending eased during the third quarter as concerns over the delta variant, fewer stimulus dollars and supply shortages gripped the country. The ease in GDP growth will not directly correlate with current freight conditions. There will likely be a tick upward in the fourth quarter GDP with COVID cases retreating and more consumers returning to work, but supply shortages and inflationary pressures will still be significant headwinds.


The coming week will be full of releases. The Institute for Supply Management will update its Purchasing Managers Index and the New Orders component will be watched closely for signs of shifting momentum upstream. The revised report for durable goods will get released as well, along with construction spending and updates for the unemployment rate. The initial jobless claims are coming back down to pre-pandemic levels and are a welcomed sign. The bulk of the releases next week will have implications for flatbed volumes, however, the downstream impacts for consumer spending on durable goods will feed into dry van volumes as well.




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