May Freight Market Update

05/14/2021

May Freight Market Update

Stay up to date on the latest conditions impacting the freight market, curated by Trinity Logistics.  

Import volumes expected to rise 

The U.S. continues to see record volumes, mainly coming from Asia, inundating the ports. As you can see from the SONAR data below (Figure 1.1), comparing current volumes to this time last year, imports are running well above volume levels seen in 2020. Even looking at the surge of imports the U.S. experienced after the initial slowdown in China in March of 2020, as delayed sailings began arriving, we still are above that peak level. Inventories continue their restocking efforts, with inventory-to-sales ratios hitting their second-lowest recorded level ever in February of this year. It is anticipated that trend will continue when the Census Bureau releases 2Q21 inventory numbers in mid-May. Through July, it is expected that YoY numbers will show strong gains for two reasons – 1) restocking shows no sign of slowing down, and 2) May through July of 2020 was lackluster for imports. 

Figure 1.1 

Domestic Outlook 

The traditional ups and downs in the freight cycle are still occurring, albeit at a greater velocity. As illustrated by Figure 2.1, the volume index has remained in the 15000+ range for the past several months, and this elevated state is forecasted through the summer months. 

Buying trends for the second quarter continue to take shape. Typically, spending on services accounts for 2/3 of GDP. However, for the past 14 months, the spending on goods has outpaced services as Americans opt to spend their money on “things” versus going to restaurants, sporting events, concerts, or other related service industries. While we anticipate purchases of goods to continue, the pace is anticipated to decline. As Americans become vaccinated, as warmer weather prompts people to be out and about and, in general, look for something to stave off cabin fever, the outlay of dollars will shift towards services. Will that shift be 50/50? 60/40 (in favor of services)?  The outcome is to be seen.  

As we monitor rejection rates of contracted freight, particularly by equipment type (Figure 3.1), we see several trends evolve. Temperature-controlled shipments will continue to lead the way, although the 50%+ rejection rates have eased, down about 15% from where they were just a few months ago. Van shipments continue to be rejected at a clip of almost one in every four, but the trend has also been downward. We do feel this can be related to 1) carriers realizing new contract rates, 2) the ability of carriers to re-position assets, and 3) import freight being redirected to less congested ports, all of which provide a better supply and demand balance. We started alerting everyone to keep an eye on flatbeds, as the lull that was felt in the early part of the year, when rejections were in the mid-teens, that as industrial production and manufacturing bounced back, combined with a new housing market that continues full steam ahead, capacity would tighten. And it has. Flatbed rejection rates have surpassed van rejection rates, and of the three, are the only one trending up. 

Figure 2.1 

Figure 3.1 

AB5 – Court Decision Reversal 

On April 28, 2021, the U.S. Court of Appeals for the Ninth Circuit reversed a California district court’s decision to prevent enforcement of California Assembly Bill AB5 concerning motor carriers operating in California. This bill involves the classification of independent contractors as employees when they meet certain criteria. Companies like Uber and Lyft were subject to this ruling, as are truck drivers. 

This means an owner-operator may now be considered an employee of the company they run under, including workers comp, unemployment, paid sick and family leave, health insurance, and other employee benefits. Motor carriers operating in California may need to re-evaluate their business models. 

The preliminary injunction preventing enforcement of AB5 against motor carriers will not be lifted immediately, but enforcement of AB5 against motor carriers could begin sometime in May 2021. 

Owner-operators may, in an attempt to skirt the AB5 regs, establish a brokerage services business to claim most of the business is brokerage and not asset-based services. Therefore, they could continue to be hired as independent contractors performing motor carrier services. Some may set up broker services without true legal authority. In this case, there is an added urgency to beware of double brokering.  

Trinity is certainly keeping an eye on the impact of this court decision. However it plays out, we do feel this will have an impact on capacity on the west coast, an area that is already feeling the strain. No doubt, we will take the steps necessary to ensure the needs of our customers continue to be met through this transition. 

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