The past three quarters have been anything but typical for the freight market and the domestic economy at-large.
It has been a tale of two extremes for much of 2020.
The arrival of COVID-19 sent freight volumes skyrocketing to keep up with panic buying at retailers nationwide. That short-lived burst was then followed by a plunge to record low freight volumes as the country was widely locked down in hopes of impeding the pandemic’s progress.
Following the short downturn, the freight market began a rapid recovery that has yet to cool off fully. Since May, we have seen freight reach all-time highs with several reliable indicators.
Tender rejections, a metric used to determine how much contracted freight is rejected and sent to the spot market, have been hovering around 25% for the past few months. This level exceeds conditions we saw in 2018—a year known for its capacity shortages.
Load volumes also continued to rise at an accelerated pace. According to data from FreightWaves, load volumes were up 35% in a year-over-year comparison during August, and outbound tender volume was up 34% over 2019 and 38% over 2018 yearly comparisons.
These exceedingly strong conditions have led many to question how long the freight market can keep up this pace.
What Is Driving the 2020 Freight Market?
Despite unemployment continuing to remain higher than its pre-pandemic levels, consumer spending was strong throughout much of the early summer.
Bolstered by direct stimulus payments to US households, consumer spending exceeding most expectations and significantly contributed to booming freight conditions.
As entertainment options and leisure activities have been limited since March, many consumers are redirecting their spending habits by opting for household items over travel, services, or dining.
Costco has reported strong sales since the spring, which currently shows no signs of slowing down.
That demand for household products at retailers, paired with a recovery in the industrial sector, has driven up freight volumes across the country.
People, by and large, have spent more money on consumables instead of services. With previous spending staples like restaurants operating with modified services, many consumers have reallocated their spending toward household items.
At Zipline Logistics, we have tracked a 1297% increase in shipping volumes for baking mixes, a 493% increase in coconut oil, and a 50% increase in snack foods for major CPG manufacturers through KanoPI, our shipper intelligence tool.
All of which require transportation from manufacturer to retail outlet.
This inflow of goods into the freight market has driven up volume and rates across the country. Since the end of April, rates have steadily climbed week over week.
According to the DAT, “Spot market rates inched higher again moving up 3% (week-over-week) to $2.22/mile, which is 43% higher than this time last year when rates were at $1.55/mile. Last week’s dry van rates are the highest recorded in the last five years.”
And spot rates have increased $.90 per mile since May and are now $0.15/mile higher than the highest recorded rate in 2018.
Imports Adding Freight to the Market
In addition to increased consumer spending that is bringing more freight volume to the market, many companies are importing products at record numbers from manufacturing hubs in China and other Asian nations.
According to an article published in Transport Topics, “The Port of Los Angeles, the nation’s busiest seaport, hit an all-time record in August, processing 12% more volume that totaled 961,833 20-foot-equivalent units (TEUs).”
This surge was driven by mostly imports, which eclipsed 500,000 TEUs for the first time. This jump in volume also marks a stark turnaround for the nation’s ports, which had been in a drastic slump for the first half of 2020.
The coronavirus shutdown in China curbed the number of imports heading to the US from the country’s consequential trading partner during the winter and spring. However, as the Asian nation’s lockdown waned, manufacturing resumed, and US companies brought in large volumes of imports.
Whether this was an attempt by US manufacturers to pull inventories forward or indicates a long-term trend, we will need to wait to see.
Regardless of the rationale, the previous month’s import boom has added substantial freight to the market and has affected port markets’ capacity. If this continues into peak season, we could see unusually tight trucking conditions.
What to Expect for 2020 Peak Season?
Retail peak season is here on the heels of a busy summer for the logistics sector. What it looks like will be is dependent on a few factors.
Typically, peak season lasts from the early fall through December. During this annual period, capacity is tighter than normal, and rates jump as a result.
However, this year has been anything but typical as we have seen the freight market hit all-time lows and highs all within a three-month period. That can make predictions, even myopic ones, difficult.
But as conditions in the freight market begin to normalize somewhat, we could see peak season have a pronounced impact on capacity and rates.
If retailer and parcel carrier behavior is any indicator, the next few months may be shaping up to one for the record books.
UPS is preparing for a particularly busy peak season. The company recently announced its plans to hire over 100,000 additional seasonal workers to fill what it believes to be greater than expected demand.
Additionally, Amazon and Target have announced similar hiring strategies. Most companies directly impacted by holiday purchasing make massive seasonal hires every year, but the newly unveiled numbers for most will exceed previous years.
If these industry leaders’ hiring strategies are any indication, we could see a peak season that outdoes its predecessors. While conditions may not meet the record-setting pace of this summer, we could very well see capacity challenges and rate increases.
Some Additional Factors Could Play a Part in Peak Season
Several other considerations could impact the shape of peak season, as some signs suggest that the economy is again decelerating, and freight could follow suit.
Consumer spending, while still increasing, slowed somewhat in August as economic stimulus talks stalled in Congress.
Whether that trend again picks back up remains to be seen, but stimulus talks have once again sputtered and may not resume prior to the presidential election.
We also have uncertainty that remains about the course of the COVID-19 pandemic and the upcoming presidential elections. Those factors can directly impact consumer spending, import volumes, and subsequentially the freight market, as we saw earlier this year.
Work with a True Logistics Partner to Navigate Peak Season
Regardless of the direction of peak season, it will continue to benefit shippers to work with a true logistics partner.
We believe in creating seamless partnerships with our customers. That means making your goals our goals and working to meet them.
Zipline proudly works alongside clients ranging from some of the world’s largest food and beverage businesses to the brightest up-and-coming CPG brands in North America. Big or small, we help our customers lock in the right capacity partners to achieve the best possible freight outcomes and uncover new savings potential.