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Logistics Intelligence Brief
Tuesday, July 13, 2021

Trucking

State of Logistics 2021: Less than Truckload (LTL)

Logistics Management John Schulz July 12, 2021

LTL carriers are now doing lots of “middle-mile” deliveries to warehouses for those online giants. And, as a result, they have become big, reliable customers to shrewd LTL carriers. “That business was always there, but LTL carriers are now managing it differently and pricing it smarter.” Amazon and other e-commerce behemoths have become huge consumers of LTL capacity, and that has taken capacity away from LTL’s “other half”—the industrial economy. This fact has led to an economic revival of the LTL sector, where the top 25 carriers control 90% of the market. So, when will this LTL revival end? No time soon, analysts predict. “All the stars are aligned perfectly for the industry to have a good two to three years,” Jindel predicts. “And that’s a long time in today’s world.” The only thing that could spoil this party would be the carriers themselves—not so much by pricing, but by adding capacity in the form of adding new trucks. “It’s the pricing that takes away discipline,” says Jindel. In fact, LTL carriers are aggressively looking to add drivers, and that baffles Jindel. “Why would companies want to disrupt the balance between supply and demand when it’s in your favor?” he asks. “Why are you wanting to change that?” And for shippers trying to cope with ever-rising LTL freight costs, Jindel has a simple solution. “Transportation for every customer vertical is not more than 7% of cost of what they are selling,” he adds. “If transportation goes up 10%, that’s less than 1% of the cost of the product. Pass it on to the consumer.”

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Freight costs see June surge; ‘tougher comps’ coming

Freight Waves Todd Maiden July 12, 2021

Freight expenditures surged in June, according to data provided by Cass Information Systems (NASDAQ: CASS) on Monday. The expenditures component of the Cass Freight Index increased 56.4% year-over-year and was 11% higher than the May reading (9.4% higher sequentially on a seasonally adjusted basis). The month marked the fastest year-over-year growth rate on record for the subindex, besting the near-50% increase logged in May. While the comparisons are distorted by a precipitous drop in demand due to widespread COVID-related lockdowns during the same period in 2020, the latest reading on freight rates was up against “a slightly tougher comparison” than in May, Tim Denoyer of ACT Research explained. He did note that the year-over-year comps step higher moving forward.

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Cass Transportation Index Report June 2021

Cass Information Systems Tim Denoyer July 12, 2021

Cass Freight Index - Expenditures The expenditures portion of the Cass Freight Index grew at its fastest pace ever on a y/y basis again in June, up 56.4% y/y, accelerated from 49.9% y/y growth in May. This acceleration occurred even against a slightly tougher comparison, as higher rate trends outweighed the slower shipment volumes. Tougher comparisons in the coming months will naturally slow these y/y increases, but extraordinary growth rates will continue in the near term, driven by increases in both shipment volumes and freight rates. On a seasonally adjusted basis, the Cass expenditures index rose 9.4% from May, and with volumes softer m/m, the decline was more than explained by higher embedded rates, which jumped 12.3% m/m.

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US surface transport rates jump amid capacity disruption (Subscription Based)

The Journal of Commerce William B. Cassidy July 12, 2021

US transportation costs leaped 11 percent in unadjusted terms from May to June as supply chain disruptions tightened road and intermodal rail capacity, creating shortages that led to a 3 percent month-to-month drop in shipping volumes, according to the latest Cass Freight Index data, released Monday. Freight expenditures measured by the index – in which truckload rates represent about half of the dollars spent, followed by rail, LTL, and parcel – were up 56.4 percent in June year over year, a comparison with a weak month for the US economy as it began to climb out of recession in the 2020 second quarter. But even on a two-year stacked basis, shipper expenditures were up 27.9 percent in June, compared with 18.2 percent in May and 18.7 percent in April. That produces a 21.6 percent average two-year-stacked increase in shipper spending on surface transportation compared with the 2019 second quarter. “Even with material supply constraints, the freight cycle remains in high-growth mode, benefiting from a strong retail economy, tight inventories, and a persistent backlog of containerships anchored in the San Pedro Bay,” Cass said, adding that an accelerating US industrial sector supports freight growth.

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Top Tucker Worldwide exec provides detailed overview of trucking trends and themes

Logistics Management Jeff Berman July 12, 2021

“Contract pricing for longer-term contracts—between shippers and carriers and shippers and brokers—are way higher than anything we have previously seen before,” he said. “It is the same deal on the reefer (refrigerated) side, with contract pricing way higher than at any other point it has been in history, according to DAT data.” “Their [LTL carrier] systems are deluged right now and don’t have enough boxes with wheels underneath them, as well as the people that drive them and work in the distribution centers to handle the volume,” he said. “This is a significant challenge and something that all LTL carriers are dealing with. Everyone is slammed, many providers (LTL and otherwise) are instituting surcharges now. It is really everywhere you look.”

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Industry

Average Price of Diesel Nudges Up to $3.338 a Gallon

Transport Topics July 12, 2021

• Diesel has risen in price for 11 consecutive weeks, totaling 21.4 cents. • Trucking’s main fuel now costs 90 cents more than it did at this time in 2020. • Prices rose in nine of the 10 regions in EIA’s weekly survey, with the largest being 7.8 cents in the Rocky Mountain region. Diesel dropped by three-tenths of a cent in the Midwest.

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Volvo Trucks Aims to Reopen Factory After Third Contract Rejection (Subscription Based)

The Wall Street Journal Jennifer Smith July 12, 2021

“We need to safeguard our future, and start building trucks for the many customers and dealers whose businesses and livelihoods depend on our products,” Franky Marchand, vice president and general manager of the plant, said in a statement Sunday. The company said it would implement the terms of the contract that management and the UAW negotiators agreed to on July 1, the third agreement that negotiators have reached that rank-and-file workers have rejected in recent months. The company said any employee who returned to work on July 12 or after would receive the wage increases and benefits outlined in the July 1 agreement, except for ratification bonuses. A UAW spokesman said the strike is continuing, and that the union is evaluating Volvo’s position and the union’s legal options. “A new vote is scheduled Wednesday for the bargaining unit members on the company’s last, best and final offer,” he said.

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Shippers/3PLs

Levi’s diverts freight to East Coast amid ‘challenge in Long Beach’

Supply Chain Dive Edwin Lopez July 12, 2021

Levi Strauss is now shipping most of its product through the U.S. East Coast amid a continued "challenge in Long Beach," CEO Chip Bergh said in an earnings call last week. Delays have been built into lead times for the 20% of products the brand still ships through the West Coast, Bergh said, who is also the company's president and director. Levi's declined to comment on this story. Supply chain issues cost Levi's "half a point of growth" or "in the range of $7 million to $8 million in the quarter," according to Bergh. "Our expectation for the second half is there will continue to be challenges, but we're going to be airfreighting more."

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Government/Safety/Sustainability

FMC, DOJ agree to cooperate on antitrust issues (Subscription Based)

The Journal of Commerce William B. Cassidy July 12, 2021

Following Friday’s executive order, US federal maritime regulators and the US Department of Justice (DOJ) on Monday agreed to increase cooperation between the agencies on antitrust issues, sending a warning to container lines of increased scrutiny. According to the first memorandum of understanding (MOU) between the Federal Maritime Commission (FMC) and the DOJ, the agencies will hold regular discussions and review enforcement activities and the work of regulatory agencies. The agreement creates a framework for DOJ and FMC officials to share information and expertise when relevant and useful to monitoring and enforcing shipping law. As part of a broader effort to inject more competition into the US economy, President Joe Biden on Friday signed an executive order urging the FMC to crack down on unfair carrier practices, particularly unreasonable detention and demurrage, and to work with the DOJ.

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Biden order charges STB to examine rail competition

Freight Waves Joanna Marsh July 12, 2021

Defining what it means to provide rail shippers with robust competitive options could be the lens that the Surface Transportation Board uses as it responds to an order from President Joe Biden aimed at promoting competition within the freight railroad and maritime industries. But it remains to be seen how exactly the STB, the independent federal regulatory agency responsible for handling rail rate and service matters, will balance shipper concerns with ensuring that the freight railroads can maintain and invest in their infrastructure and compete with other transportation modes. “At a time when the rails need volume growth to drive earnings for the first time in years, this would be an unwelcome development,” said Morgan Stanley (NYSE: MS) transportation analyst Ravi Shanker in a research note last Thursday on Biden’s efforts. “After years of cutting costs faster than their volumes have been declining under the PSR [precision scheduled railroading] umbrella, the U.S. rails are now at a point where they need to actually grow volumes and revenue to drive growth because they have likely hit a wall on how much cost/resources they can cut.”

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Executive Order on Competition Mostly Praised in Shipping Community

Transport Topics Dan Ronan July 12, 2021

“We’re especially pleased to see the administration’s calls for vigorous enforcement toward ending unfair detention and demurrage practices that are crippling the maritime supply chain,” NITL Executive Director Jennifer Hedrick said. The executive order is not receiving universal praise. The Association of American Railroads, which represents all of the major freight carriers in the U.S., Mexico and Canada, called parts of the order “misguided.” “Competition is alive and well in the rapidly changing freight transportation market, with nearly three-quarters of all U.S. freight shipments moving by a mode of transportation besides rail,” AAR President Ian Jefferies said. “With the logistics chain already challenged by the recovery from COVID, this executive order throws an unnecessary wrench into freight rail’s critical role in providing the service that American families and businesses rely on every day.” AAR said specifically it objects to what the Surface Transportation Board is considering, called a forced switching rule. AAR said corporations are pushing the plan to force railroads to turn over their traffic to competing railroads at potentially below-market rates because the corporate customers are looking for cheaper ways to ship their products.

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TRB Panelists Talk Automated Trucking’s Implications on Driver Shortage, Safety

Transport Topics Eleanor Lamb July 12, 2021

They addressed the Transportation Research Board’s Automated Road Transportation Symposium on July 12, following brief remarks from Federal Motor Carrier Safety Administration Deputy Administrator Meera Joshi who called highways “the perfect runways” for automated trucks. From a federal perspective, Joshi said FMCSA will be pursuing the formulation of a safety regulatory framework for “an AV world” that will cover complex issues such as handling roadside inspections. Joshi also emphasized the importance of training drivers on how to use vehicles equipped with advanced driver assistance systems. “It’s this incremental shift, both in AV technology and in training, that allows us to prepare for the workforce of tomorrow without leaving anyone behind,” Joshi said.

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