Industry update with a touch of covid, vaccines, and a strong yet abnormal holiday season.
As we reported in our previous blog post, low retail inventory was causing high truck demand and rates to skyrocket which normally balances over time as retailers regain their inventory to match demand. Fast forward to today and not much has changed as rates continue to climb. As retailers’ have struggled to gain their inventories back, they have also seen an increase in sales. In many cases, the sales increase is equal to or higher than the inventory they gained. In layman terms, retailers are selling all of their product as fast as it arrives. As long as retail demand stays high, low inventories are here to stay. This is good news for trucking because even if demand starts to slow, as some have predicted in mid 2021, trucking demand will stay strong until inventories are replenished. This is one of the reasons we aren’t seeing the typical seasonality demand swings this quarter.
Another unique piece to this puzzle that makes 2020 different than others is the reduction in available and qualified truck drivers. Driving schools are producing 70% less drivers then before the pandemic began due to closures. The Drug and Alcohol Clearinghouse has nixed about 50k drivers from the available driver pool. Applying for and getting a new CDL has become very cumbersome due to office closures and delays, and ~100,000 fewer CDLs have been issued in the 1st half of 2020. Add in the accelerated retirements due to COVID concerns along with rising insurance costs and this creates a unique environment that cannot be compared to any other year (thanks again 2020). According to a recent Freightwaves article, “We think we’re probably going to exit 2020 with about 200,000 fewer CDLs than we entered the year with…It’s a big deficit to make up and I don’t see any sort of catalyst to make that up in the near future.” There is an ongoing pilot looking at lowering the driving age & a push to get women into trucking. It is predicted that contractual rates could see high single digit to low double digit increases in 2021. Spot rates will continue to rise, potentially continuing to break records.
Vaccines are coming…
On the flip side, if we see a sequel to the Covid lockdown that we saw in April happen in early 2021, will this threaten the demand trends we are currently seeing? One thing is for certain, there is an incredible amount of containers already in route. The Port of Los Angeles has reported a 12% increase for December when compared year over year. For October, shipments of consumer electronics are up ~22% and household appliances ~72%. With long lead times, any sudden jolt in the demand from overseas products can cause havoc in the supply chain. Furthermore, US consumer confidence fell in November to a 3 month low due to the coronavirus resurgence and the unknown of another potential lockdown and the job layoffs that could follow.
Officials are expecting to be able to start to ship the Covid Vaccine within 24hours from the approval, which is expected to be on December 11th or 12th. For the past 6 months, distribution plans have been written, revised, & table top exercises as well as actual rehearsals have been conducted to ensure everyone is ready to move the vaccines from fill sites to distribution centers to actual administration sites. As taken from freightwaves article, “After the initial push, we will begin a weekly cadence of delivery of vaccine … to ensure that we rapidly expand the availability to the entire country simultaneously. A routine flow is important so that jurisdictions can plan for it and develop execution of the administration in a routine method so that the population is well informed and they know when and where to get the vaccine.” This massive distribution push will happen while Reefer capacity is already tapped out. While the vaccine might not be moved exclusively on 53ft reefer trucks, (Pfizer designed a deep freeze container that can be shipped with dry ice and shipped in non-temperature controlled transit and last up to 10 days), it will put a further strain on the available capacity on the market. Furthermore, the vaccine distribution will take priority, and attractive rates will likely be offered. Remember this is all happening during the peak of holiday season!!
As 2020 comes to a close, and a vaccine is within reach, we are all hopeful that 2021 will see the return of some sort of normalcy. When that happens, no doubt there will be a huge swing in spending in the services sector that has been dealt a crippling blow this year. Many are predicting that retail shopping might not ever be the same again; for the sake of the small businesses that are so important to our economy, let’s hope that doesn’t come true. However this turns out, trucking demand is expected to stay high while supply will be limited for the foreseeable future.
Trucking companies, shippers, brokers, and 3PL’s should take this opportunity to adapt logistics technologies such as DigCargo to satisfy customer requirements, grow partner relationships, increase operational efficiency, and be a consistent, sustained reliable partner no matter how the state of the freight market.