Shippers throughout North America are trying to cope with the tight freight capacity that has been driven by Covid-19, truck and driver shortages, freight embargoes and the surge in eCommerce activity. While many manufacturers and distributors conduct annual and bi-annual freight bids, this methodology is proving to be too static and rigid for shippers experiencing truck capacity shortages on certain corridors. Companies that rely on the spot market for carriers are likely experiencing rate spikes and inconsistent truck availability on an ongoing basis.

There are several solutions to address this problem. First, it is important for shippers to lock in capacity, market pricing and service commitments as part of their annual bidding process. As I have mentioned in prior blogs, these are opportunities to have “heart to heart” discussions with one’s core carriers. Certain carriers may be willing to sign multi-year agreements that provide their customers with “peace of mind” on key traffic lanes.

Second, despite these assurances, some carriers will not provide the expected capacity. They may not be able to retain or hire enough drivers to meet their commitments. In other cases, carriers will identify higher paying freight and divert their capacity to other customers. In other cases, they may wish to allocate some capacity to high-paying spot market loads. In these cases, shippers should have a mini bid methodology which they can quickly deploy to find replacement carriers.

In order to expeditiously go to market, companies should:

Truck capacity remains tight during this peak season and this is expected to continue into 2021 as inventories are replenished. We are seeing all-time highs in the number of loads in the spot market. Despite the impact of Covid-19, capacity has been reduced by a decrease in the truck driver workforce that occurred during the pandemic. This resulted from some carriers going out of business, some selling excess equipment, an increase in insurance rates, and some drivers receiving sufficient income from COVID-related government aid to stay out of the workforce and/or refusing to work to prevent themselves from being infected.

Although many businesses slowed or paused their operations at the onset of the pandemic, there was an influx of shipments as North American markets began to reopen. It should also be noted that since freight transportation is deemed an essential service, cross-border shipping has remained open. While some sectors of the economy (i.e. travel, restaurants etc.) remain depressed, the surge in freight demand has continued as companies seek to return to their usual operations and recoup lost profits. U.S. Xpress (NYSE: USX) noted in a late-September publication that rate increases in 2021 needed to be in the 10%-plus range to recoup the impact of the last two negative bid cycles and two years’ worth of cost inflation.

As a result of this shortage of drivers and the high demand for freight transportation, carriers are being more selective with the allocation of their assets and are raising rates. This fall we are hearing of freight embargoes as certain carriers restrict the availability of their assets to their highest yielding customers and lanes.

There has also been tight capacity across intermodal rail. Due to the influx of freight that followed the initial downturn at the start of the pandemic, there has been a shortage of available equipment, including containers and chassis, at railroad terminals and ramps across all major metropolitan areas. The congestion from this abundance of freight has led to frequent delays ranging from 24-72 hours in key markets. There is also a shortage of draymen due to organizational restructuring at various drayage companies, including layoffs, furloughs, leave of absences, etc.

A couple of weeks ago I received a copy of a fascinating new book entitled The Future of Buildings, Transportation and Power, written by Roger Duncan and Michael E. Webber and published by DW Books. I was particularly struck by the chapters on the Future of the Freight Transportation Industry.

They identify “three major areas of change underway in our transportation sector. First, there is the cultural change in the way we own or use vehicles daily. Second, there are fundamental shifts in transportation technology. And finally, alternative fuels are capturing the fuel market.” Below please find some of their thoughts on Transportation Technology.

Electric Vehicles

Messrs. Duncan and Webber conclude that “the resurgence of the electric vehicle (EV) is strong today and electric cars seem destined to dominate our local transportation . . . A global coalition of countries has the aspirational goal of electric vehicles taking 30 percent of the market share by 2030. . . Cars, sedans, vans, and most trucks will be electrified in the coming decades . . . At the core of this transition is the relative efficiency of electric motors compared with internal combustion engines.”

There is considerable euphoria in the trucking industry these days. The July 2020 issue of Broughton Capital Truck Freight Barometers® is entitled “Fasten Your Seatbelts! The Economy & Truck Marketplace are Poised to Surprise to the Upside.” The issue contains the following thoughts.

“In all three modes, the Broughton Capital Truck Freight Barometers® are reflecting an environment in which demand exceeds capacity by a significant margin . . . the underlying fundamentals have never improved this dramatically in such a short period of time. The rapid, intense improvement runs counter to typical seasonality, making the gains even more impressive. Normally, July demand is softer than June . . . This year's Q3 trends, however, are shaping up to be exceptional in every way.” The report goes on to say the following.

“Consistent with our very bullish outlook for the U.S. domestic economy, the demand side of the equation is expanding robustly. Meanwhile, the capacity side of the equation has been constrained, which magnifies the imbalance and contributes to an extraordinary surge in spot rates. Today's spot rate levels are poised to exceed contract rates. As spot rates had fallen in April to record low levels, both nominally and in terms of the gap between spot and contract rates, the meteoric rise in spot rates over the last 13 weeks has been even more spectacular.”

Similarly, the Morgan Stanley Freight (MSFI) Index “has improved sequentially and outperformed seasonality for the 7th time in a row . . . On absolute terms, the index now sits at the highest level for mid-August in over a decade . . . Our straight-line forecast now projects 2020 ending the year nearly on par with 2017 levels, the highest YE level on record.” There is encouraging news on the Covid-19 front. This week reported new cases of the virus in the United States have dropped into the 30,000 to 40,000 range and reported deaths have dropped into the 400 to 500 range. Do these numbers signal a strong fall and winter season for the North American freight transportation industry? Here are a few thoughts to consider.

On July 7, 2020, Freightera (https://www.freightera.com/), North America's rapidly growing online freight marketplace, announced the enhancement of its popular free platform with value-added paid memberships and a rewards program. Freightera’s customers can now subscribe to a range of Membership Plans that provide enhanced freight transportation services, tailored to their unique requirements.

Freightera is one of the top growth companies in the North American freight transportation industry, having increased revenues 240% per year since 2015, making it the third fastest-growing company in British Columbia (source: Business in Vancouver 2019 report). Frost & Sullivan identified Freightera as one of the top five "automated on-demand" freight platforms in North America and the only system that offers fixed-cost, all-inclusive quotes direct from transport companies of all sizes and modes.

Overview of Membership Plans