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Preparing for 2020’s “Shipageddon”

2020 has been different from the norm in just about every single way imaginable, so it should come as no surprise that freight is going off the rails. This year we’re seeing big box retailers like Target and Walmart opening their Black Friday deals decidedly earlier than usual. Amazon, of course, has been leading the way in e-commerce sales for the better part of the year as quarantine and lock down restrictions forced many shoppers to go online, rather than in-store.

As we approach the holiday season, it is expected for cargo freight demand to rise to accommodate holiday shoppers.

As we approach the holiday season, it is expected for cargo freight demand to rise to accommodate holiday shoppers. This year, however, we’re also seeing a historic rise in import volumes measured in TEU (twenty foot equivalent unit) especially on lanes from Asia to the Pacific Coast. Containers and container spaces on ships are sold out and there is now a shortage of available containers in Asia for goods coming to the US. This leads to higher rates, longer lead times, congestion at the ports and higher rates for trucking and rail out of major port markets, especially Southern CA.

“To give you a sense of the demand right now, we are turning away  — each week  — more cargo than we are carrying,” revealed Matson CEO Matt Cox, referring to the scramble for slots on his company’s two China-U.S. services.

Holiday Cargo is Still Moving

When you have a massive amount of freight coming in by sea, it then has to be transferred over to land based carriers. Higher port congestion will create delays, bottlenecks, and an overall lag in the supply chain process. Again, this isn’t anything new for the holiday season. However, more holiday cargo is still being shipped and container and ocean freight space is still being oversold or cancelled. This situation could lead to the perfect storm scenario being dubbed “Shipageddon” in which freight doesn’t make it across the Pacific on time. Cox didn’t say anything to assuage such fears.

“What typically happens is that sort of by the end of October, most of what is going to make its way into the holiday-season shopping cycle will have arrived. That’s not what we’re seeing,” he warned.

“We’re seeing significant congestion in Asia. Although I’m not talking about Matson, we’re seeing cargo that wants to get on a ship that’s being rolled [pushed back to a subsequent sailing]. And we’re seeing the other international ocean carriers put in additional extra loaders [ships not in the normal service rotation]. This is not a typical season. There’s such demand for cargo. Many of our customers can’t keep up with the demand and cargo is back-ordered. For all of those reasons, we’re expecting to see the season extended. To when is the big question.”

Land Freight is About to be Buried

As we mentioned early, what arrives by sea must be shipped by land, be it to a retailer or a distribution center. With this massive uptick in ocean freight, we’re going to see a massive surge in truck freight for both the full truckload (FTL) and the less-than-truckload (LTL) sectors.

In addition to ocean freight space being well overbooked, there are other drivers for this potential shipping doomsday scenario.

Inventory Restocking Freight: While the holidays mean more toys, seasonal, and giftable merchandise, there are still the standard everyday items that stores need to carry for consumers. As we get closer to the holidays, retailers are hitting stockouts and empty shelves faster than ever. To complicate matters, investment bank Evercore ISI released a survey finding that shows 90 percent of respondents said their inventory levels were either “too low” or “a little too low” which suggests that the capacity shortage will continue, if not worsen, for sometime.

Higher than Average Holiday Spending: This year will also mark a potential rise in holiday spending that could range anywhere from a 1.9 percent increase in consumer spending to a 3.5 percent increase, pending the release of an effective pandemic relief bill and the release of a successful COVID-19 vaccine, according to RetailDive.

Holiday Shopping is starting Earlier and Lasting Longer: As we mentioned earlier, major retailers have begun their Black Friday deals well in advance of the typical holiday. Walmart has announced their “deals for days” holidays sales campaign, in which holiday sales will go on for the entire month of November. Target, and Amazon have also responded similarly, and it can be expected to continue right into the Holidays.

Last Mile Delivery is At Capacity: Major carriers such as UPS, FedEx, and the USPS, have had massive seasonal hiring events to try and bring in enough personnel to accommodate the influx in demand. Even with the staggering amount of seasonal workers to process, pack, and ship incoming packages, these carriers are warning consumers to shop now and ship earlier if they want to have their items arrive before the holidays. 

What Does this Mean for Shippers?

For shippers based in the United States, it’s about to be a bumpy ride. Capacity rates are going to be at a premium and even then, might not be available. To make matters worse, there is no way of telling just how long this is going to last, or how much worse it will get. It is important that shippers begin preparing immediately for what will be one of the busiest holiday seasons in memory.

Fortunately, you don’t have to do it alone. We here at BlueGrace are also making preparations for the holiday season and are ready to help you connect with carriers to ensure your freight gets to where it needs to be. Find out more about what BlueGrace can do for you and your supply chain today!

Will Q4 of 2020 Change the Way We Look at Bid Season?

If it were a normal year, the fourth quarter would bring a steady increase in trucking rates. However, 2020 has been anything but normal, so what does that mean for Q4?

Given that everything this year has been so drastically different from what we would expect, 2020 has been guided at best by short term predictions. It was predicted that Q2 would have lower rates due to lockdown, and while they were low, they still exceeded predictions. During Q3 we saw a surge in trucking rates, likely triggered by the e-commerce boom, and it’s expected to continue throughout the year. All signs are pointing to a prolonged trucking rally, despite the pandemic and political uncertainty in the U.S.

Ultimately, we’re in for something completely different for the fourth quarter than we’ve ever seen before.

Ultimately, we’re in for something completely different for the fourth quarter than we’ve ever seen before. All historical data is essentially being tossed out the window as 2020 has been unprecedented in so many ways. With bid season fast approaching for shippers, understanding what Q4 has in store will have a tremendous impact on how you go about your bidding process for 2021. 

High Q3 Rates Will Lead to Even Higher Rates in Q4

The pandemic has caused a shift in consumer spending due to social distancing measures and the lockdown period across the United States which has caused a spike in trucking demand. Despite the economic strains and widespread job loss that was experienced by many consumers, retail sales haven’t weakened. Instead of eliminating non essential spending, consumers have shifted their purchasing habits away from services and over to material goods, especially through e-commerce platforms.  

This means that retailers have been seeing peak volumes well in advance of the holiday spending season, causing them to struggle to keep stocks replenished. The demand has been reducing inventory levels, while sales remain strong (and continue to grow) leaving no buffer period before sales really start to climb in November and December as consumers begin their holiday shopping.

These two factors combined can result in elevated truckload spot rates and capacity shortages through the end of 2020 and potentially continue well into 2021.

With reduced inventory, a rise in demand for consumer products such as retail and grocery, and the continued recovery of industrial production will continue to push growth in truckload demand. However, challenges in the U.S. with the dwindling pool of truck drivers will continue to result in capacity shortages throughout several industries. These two factors combined can result in elevated truckload spot rates and capacity shortages through the end of 2020 and potentially continue well into 2021.

To add to the logistic nightmare, consumers now have an inherent expectation for fast shipping from e-commerce sites as well as a wider availability of pickup options which means that retailers are pressured to offer competitive shipping times or else lose out on sales to companies like Amazon.

Even with the current unemployment rate, the housing market is growing and consumer spending remains high.

The United States continues a strong economic climate despite, or perhaps in spite of, the uncertainties 2020 has given us; from social unrest due to the presidential election, to the ongoing struggle with COVID-19. The stock market is high and there is a growing optimism for an economic upswing ahead. Even with the current unemployment rate, the housing market is growing and consumer spending remains high. However, the economy could still be vulnerable, especially if the stock market is responding primarily to low interest rates and has an underlying weakness to its overall stability.

What can shippers do to manage current market volatility?

If we’ve learned anything from 2020 is that historical data is all but useless, as everything is different from the years we’ve seen prior. With bidding season on the horizon for 2021, it’s important to make sure that your organization has a clear direction on how to manage its bids to avoid redlining your freight budget.

An important place to start for your business in 2021 is with your routing guide procedure. Take another look at this document, make sure it’s up to date. Make sure you adjust for current rates and that it contains all your current requirements. It might be necessary to rebid for the short-term when the truck capacity is tight. Perform detailed research on market conditions and decide how long this customized “mini-bid contract” will last. As always, utilize freight forecasting and reporting to help manage your spot bids and awards.

How BlueGrace Can Help You Get the Most Out of Your Bid Season

In this year, more than ever, we need to think outside the box. In a constrained and uncertain market, this creates challenges for shippers. Last year, when demand was low and supply was outpacing demand, shippers had easy RFP cycles with carriers and brokers undercutting each other for rates. Programs like our Low Volume Aggregation program are attractive in the current market and can help shippers make sustainable bids for the upcoming year that will help them thrive during the uncertainties ahead.

Read more about our LVAP program here, or contact us using the for below to see how we can help your company succeed.