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COULD WE LOSE CARRIER CAPACITY….WITHOUT LOSING ACTUAL CAPACITY?

Certainly, this question could cause one to scratch his head. If we don’t have a decline in the number of operating authorities, or available trucks, then how could we lose capacity? 

Well, technically, the answer is you would not be physically losing trucks. However, an impact could be felt from recent events with regards to container shipping that would make it feel like less trucks are available. With recent geo-political events, and events at home, shipping to the West Coast has become more feasible than it was a year, certainly two years, ago. As ocean carriers are mindful of events in the Red Sea, combined with an easing of labor tensions at the West Coast ports, freight that in prior years was diverted to the East Coast is now heading back to the left coast of our country.  

As you can see in Figure 1.1, container costs from Asia to Los Angeles are over $1700 cheaper than freight bound for an East Coast port, such as New York. Figure 2.1 shows outbound freight volume for the last year in the Los Angeles market, currently seven percent higher than this time last year.  

So how could this impact capacity? When freight hits the East Coast ports, it’s typically consumed close to the port or at the very least, the coast itself. This means more regional runs. When freight hits the West Coast, typically that freight is destined for locations such as Dallas, TX or Chicago, IL, so taking freight up and down the East Coast may be a one-day run. Freight out of the Los Angeles market, heading to further destinations would take a day and a half, two days.  

Same freight, same one-truck move, but now it occupies that truck for twice as long. Additionally, this could necessitate a shifting of fleet resources from one coast to the other, potentially creating an over-capacity on one side of the U.S. while the other coast is more desperate for trucks.

SPRING IN 6 WEEKS?

Will that rodent in Pennsylvania be right this year, and will freight volumes accelerate quicker as a result? First of all, ‘ol Punxsutawney Phil is batting less than 50 percent for his career and the last 10 years he’s only been accurate three times.  

A better canary in the cave would be how the rejection rate index ebbs and flows. As you can see in Figure 3.1, van rejection rates have been pretty stagnant for the past year. Flatbed has remained relatively high and reefer rejection rates have trended up the last five months. If Phil is a soothsayer this year, we expect flatbed rejection rates to continue rising. If produce season also starts earlier than most, reefer rejection rates will then follow. 

As reminder, with increases in rejection rates, shippers typically see transportation costs increase on the spot market.  

Stay tuned for next month’s update to see if an early spring is a turning of the tide for the freight market.

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