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USA LOGISTICS MARKET ANALYSIS 11/14/2021


Over the past week, rejection rates for both dry van and reefer equipment increased, halting downward trends that began in early November. Market conditions have tightened in many markets across the nation, forcing shippers to increase tender lead times to help open capacity options to move their freight before the holidays begin. Dry van rejection rates have climbed back to 18.70%, and reefer rejection rates have increased to 38.59%.


Shippers should prepare for tight capacity for the rest of the year as the holiday shipping season ramps up. Keep tender lead times extended, and pressure your contracted carriers to accept your freight. Volatility will increase in spot rates for on-demand capacity as carriers try to take advantage of shippers that are in dire need to get their freight moved. Secure capacity as early as possible, especially if you are shipping freight from the West Coast. Shippers in Southern California will continue to experience capacity shortages, which could drive spot rates up to historic highs over the next month.


SONAR Ticker: VOTRI.USA, VOTLT.USA/ROTRI.USA, ROTLT.USA


Truckload capacity showed little change this past week with national rejection rates bouncing off an annual low of 19.25% before moving back towards 20% by week’s end. Shippers are already sensing the need to get in front of the holiday pressure by increasing lead times once again. Lead times averaged higher in October than September and appeared to help their cause for increasing compliance. Spot rates continued to fall in most lanes last week, but there is still significant tightness for loads coming out of Southern California. The increase in lead times could be a sign that shippers are about to push as much as they can in front of Thanksgiving, which could mean rejection and subsequently spot rates will be on their way higher this week, especially in lanes with strong imbalance. Expect peak season to start in earnest this week, setting the tone for the coming month.


SONAR Ticker: OTRI.USA, OTLT.USA


As intermodal shippers consider their 2022 budgets, I encourage them to use the SONAR charts below. The chart on the right below uses data aggregated across a wide range of lanes and does not include fuel surcharges. It shows that intermodal contract rates are up more than 10% from where they were one year ago, including another meaningful step-up in the fourth quarter from the third. Meanwhile, intermodal spot rates (see tree map on the left below) are higher year-over-year (y/y in 10 of the 11 densest domestic intermodal lanes; L.A. to Atlanta is the lone exception, which was already at a high ($4/mile+) level one year ago. While only a small minority of intermodal volume moves on the spot market, intermodal spot rates are still worth tracking for contract shippers as they should give a “directionally correct” forward-look at intermodal contract rates. Based on SONAR data, it appears that intermodal contract rates are likely to again be repriced meaningfully higher in 2022 with the main question being one of magnitude.


one of magnitude. SONAR: INTRM Tree map, IMCSI1.USA


For the week ahead, expect more pressure on U.S. surface transportation providers. This will be one of the last weeks for many importers to ensure that they have their inventory prepped and ready for “Black Friday.” However, it is likely that many will not have made their deadlines already, so we could very well be looking at a “glut” of products here in the U.S. that could largely be considered losses. With the number of vessels still on the water waiting for a berth, we could be looking at millions of containers that are already being considered as canceled orders, missed deadlines, or have passed their expiration date. We are already seeing volumes from China to the U.S. turning negative on a month-over-month (m/m) and y/y basis. However, while these are still elevated volume levels relative to years past, the front-loading of inventories between May and August (that have been delivered) coupled with the tapering (or canceling) of new orders could be larger than expected. We are obviously still in uncharted territory, so it remains unclear exactly what will happen financially over the next few months and how that will impact future container volumes. Nonetheless, it is safe to say that we are now on the backside of the steepest peak ever ascended for ocean container volumes departing from origin. Understanding the potential stagflationary and/or deflationary pressures in the market will be important. The speed at which volumes and rates have climbed could be twice as fast on the way down.


SONAR Tickers: IOSI.CHNUSA, CSTM.CHNUSA


Inflationary pressures are persisting and will remain present well into 2022. Consumer sentiment reflected that in the latest print, showing a 10-year low reading with concerns over inflation. However, actions by Americans are saying the opposite. The quit rate for Americans increased 4.4 million in September; further, job openings remained elevated at 10.4 million. Wages are going up but not keeping pace with inflation; this will likely cause some easing in spending on goods and services in the coming months but will not derail overall demand. Volumes will continue to remain elevated as the supply chain plays catch-up during this peak season.


Retail sales will be updated in the coming week, along with industrial production and housing starts. Industrial production will ease in 2022 and growth will likely moderate in the coming months. Housing starts are facing headwinds with prices and completion times increasing. Both housing starts and industrial production will remain positive overall despite the expectation of easing in 2022. These segments will keep flatbed activity high.


SONAR Ticker: FOTRI.USA, IPROG.USA

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