February Market Update 2022
The ongoing “peak-season” continues into 2022 with a 7.7% increase in freight volumes over January and February 2021, and a 56.6% increase over February 2020. Shipping is still so active that the seasonality we were used to has become muted and we still remain in one long “peak-season” that has continued for over a year and a half.
Tender rejection rates are still at 20%, meaning that one in five truckloads that are electronically ready and tendered are not picked up within 24 hours. Tender rejection rates have been this high for this long mostly due to lack of equipment instead of being rejected to seek higher-paying loads, which is still a factor but not the number one reason for rejection in today’s shipping climate. Orders are still at an all-time high keeping a lot of pressure on capacity.
When will the market loosen up?
There may be some temporary loosening late summer, but the consensus from senior executives and economists at a Supply Chain Conference we attended in January aligns with what our internal research team is finding: Assuming there is some Covid stability, the market will stay this way for 12-18 months. Severe labor shortages across all sectors of the supply chain is the underlying cause of this volatile market and not one that has a quick fix.
The labor shortage is so extreme due to several factors: more people took an early retirement than ever before in US history; there have been (and still are) Covid labor business restrictions; people have moved on to new jobs in the “GIG Economy”; some are still unable to return to work due to child care and school restrictions; and Covid shut down many trade schools or caused them to operate only at a fraction of their capacity, further slowing the addition of more drivers into the industry. The labor shortage, partnered with an equipment shortage for the trucking industry, makes it impossible to keep up with 60% more shipments that there are on the road now than there were pre-pandemic.
The industry is still seeing significant expansion according to the Logistics Managers Index (LMI). January’s Inventory Levels came in at 71.1 – the highest rate of growth since early 2018. The LMI score is a combination of eight unique components that make up the logistics industry, including: inventory levels and costs, warehousing capacity, utilization, and prices, and transportation capacity, utilization, and prices. Not only does this mean continued low capacity and high costs, it also means that there will be considerable, prolonged stress put on the overall supply chain to avoid these shortages.
The Industrial Production index chart also shows we are still producing more than this time in 2021. This indicates that warehousing space will be an additional pain point in 2022. Especially when we take into account the backlog at the ports, which has inventory arriving late and out of season (for example, Halloween costumes, holiday decor, seasonal clothing items) that will need to be stored until next year.
To keep up with spot rates, contract rates continue to rise, which will be a trend we will see throughout 2022 as the industry tries to catch up, and as contract rates have to compete with the higher paying spot loads. We still remain in an “inverted market” where spot rates out-perform contract rates, which aids the upward trend in shipping costs. Both contract and spot rates are more than 15% higher than they were a year ago. However, the good news is that the gap is narrower than the 20% year-over-year increases experienced in recent months.
Continued Port Congestion
Maritime shipments continue to arrive in abundance. The dip reflected in blue (current 12 months) is due to the Lunar New Year. The TEU index’s forecast shows that we will reach the highest level of volumes since the beginning of the pandemic which is very concerning due to lack of warehouse space and capacity. This sector of the supply chain isn’t expected to see relief until 2023.
Freedom Convoy in Canada
Disruption to the Canadian supply chain is occurring due to the Freedom Convoy which was organized to protest the vaccine mandate. A lot of truckers are either participating in or supporting the protest. The media has stated that there are 50,000 trucks in the convoy. However, if this was the case it would be bumper-to-bumper for 715 miles which is not what is occurring. It appears that there are somewhere between 1,000 to 2,000 trucks in the convoy, still putting a strain on capacity and pricing shipping into, out of, or within Canada.
As always, MegaCorp is here to help. You can rely on us in any market and trust that we will deliver.
Load to truck ratio from 2/4/2021.
The charts below are load to shipment ratios. For example, red indicates one truck for every 45+ shipments.
About MegaCorp Logistics
MegaCorp Logistics, founded by Denise and Ryan Legg in 2009, specializes in full truckload shipments (dry van, refrigerated, flatbed, etc), less-than-truckload, and intermodal shipments throughout the US, Canada, and Mexico. MegaCorp is committed to creating long-term, strategic partnerships with our clients who range from Fortune 100 companies to regional manufacturers and distributors. We serve all business sectors of the US economy including (but not limited to) food, retail, government, textiles, and metals/building materials. We strive to offer the best to our clients, transportation partners, and employees– It’s the Mega Way! You can trust that we will deliver.
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