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Monthly Forecast

Using last year as a model for projecting the current year is becoming increasingly less reliable due to the coronavirus threat to the global economy. The last two months have been relatively similar to historical patterns in terms of truckload volume, but they are also two of the more consistent months of the year. March, on the other hand, can have wild variances from year-to-year due to reasons such as end-of-quarter pressure and warmer weather hitting parts of the country. It is also not uncommon to see some of the year’s most dramatic winter weather events restricting capacity. 

In addition to normal volatility, we are in the midst of a potential economic black swan event that could turn the freight market in either direction. Removing the unknown impact of the coronavirusimports do not have a large impact on national freight volumes in March. Outside of some port markets, we are expecting a slight tightening of capacity this March. This did not occur last year, mainly due to the difference in the supply side conditions with carriers not adding capacity at the same rate. Also, trucking has already reached something of an equilibrium. Whereas this time last year, it was still cooling from a very heated 2018. We cannot ignore the coronavirus’ potential disruption entirely, and a large portion of the forecast depends on how the virus spreads throughout the United States. See the targeted segment section for deeper analysis.

Monthly Recap

February fell in line with expectations, almost mirroring 2019 exactly in terms of domestic truckload volumes. Capacity was not an exact replica of the previous year as the percent of loads rejected by carriers was roughly 150 basis points lower on average year-over-year. The main difference between February 2019 and February 2020 was the trajectory of that capacity, however. National tender rejection rates fell from 7.8% to 7.28% in February of last year while they climbed from 5.4% to 5.7% this year. While neither move was significant, the direction in what is traditionally a slower month with plentiful capacity is an interesting development as many in the transportation sector are predicting a tighter market than the previous year. 

There were intermittent pockets of tightness throughout the U.S. that kept the rejection rates higher. Most of the larger markets, like Chicago and Los Angeles remained quiet while further east and south the Philadelphia and Atlanta markets exhibited signs of tightening. Nothing materialized, at least in the trucking numbers, that showed any anomalies related to the coronavirus with volumes increasing as expected at the end of the month, including the import heavy Southern California markets.

Business Intelligence Insight

March usually comes with an uptick in activity in the domestic transportation market. The impact of the coronavirus on the global supply chain has not yet shown up in the data, but we are absolutely expecting an impact to be felt and seen in March. The West Coast and all port cities across the country will see decreases in outbound volumes. This means those markets will be less desirable for carriers, and rates inbound will reflect that. We expect rates on lanes outbound from the port city markets to dip until volumes return to normal. Domestic demand for truckload capacity typically increases in March, and we have no reason to expect anything different this year. 

At this point, it is hard to know exactly how things will play out. Best case/worst case scenario management is critical to ensuring success; no matter what conditions arise in the coming weeks and months. We are optimistic that the outbreak can be contained, and things can get back on track in 3-4 weeks as import volumes pick back up. We are encouraging all of our shipper partners to prepare for all eventualities moving forward.

Macroeconomics

Housing starts hit a 13-year high in November and fell only slightly in December, supporting the idea that the construction and housing sector are as strong as they have been since prior to the housing market crisis that kicked off the last economic recession in 2008-2009. In December, building permits also hit their highest mark since 2007, further supporting the construction sector’s growth. Housing starts may be a bit lagging in the raw materials department, but they do lead increased furniture and appliance shipments. Building permits do not always translate exactly to new construction, but the trendline is undeniable. We are not even at the peak of the building season so this is a strong sign that this portion of the economy is doing well while the industrial and manufacturing side continue to be depressed.

Targeted Segments

As mentioned previously, the near-term impact of the coronavirus may not be felt in the next month, at least on the imports side. Looking at last year’s data, declining import volumes entering the U.S. in March, as a result of the Chinese New Year, did not hit the truckload freight market immediately—volumes actually increased. Imports have already fallen dramatically versus last year as shippers moved sourcing and shifted supply chains in response to the trade war with China, a conflict that appeared to be easing earlier this year. Much of the volume has already dissipated off the West Coast in response to this with load volumes averaging almost 20% lower this February out of Los Angeles. Some of that volume has shifted to the East Coast ports, but overall imports are trending down year-over-year.. 

There are a couple of theories as to the shape of the coronavirus impact on freight markets. The “v-shaped” recovery theory posits that we will have a dramatically soft initial period followed by a strong recovery where volumes spike and capacity tightens rapidly. The virus hit at the time of Chinese New Year, and many shippers had already prepared for a dead period in terms of imports which will make the initial impact less apparent. The real test will be if Chinese factories and facilities take longer to reach full capacity which could lead to a surge of production during the peak maritime shipping season in August and September as shippers sprint to replenish low inventories prior to the holidays. All of this is, of course, dependent on how the virus spreads domestically. If the American economy slows due to portions of the country shutting down, the situation changes from how fast can China recover to how resilient the American consumer will be in pandemic conditions.

Strategic Partners Insights From The Source

When I think about the coronavirus and its impact on global trade and domestic transportation, I see the potential for U.S. ports to get backed up during produce season when factories in China resume production and ship more to increase U.S. inventories. It is still too early to tell, but that is what I will be keeping my eye on.”

Dave Reiss, Senior Vice President, Strategic Partnerships

A Message From Matt

Arrive Logistics is focused on raising the standard of what it means to be a modern freight brokerage. That is why I am thrilled to provide our customer base with exclusive market data on a monthly basis. On April 30 at 2pm ET, join us for a one-hour webinar Supply Chain Masterclass, sponsored by FreightWaves, featuring members of the Strategic Partners Division offering their insights on today’s supply chain trends and challenges. To register, please click here.

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Thank you,

Matt Pyatt, Co-Founder & CEO

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