As the COVID-19 pandemic continues to disrupt supply chains across the globe, shippers are keeping a close eye on the latest headlines to gauge the pandemic’s impact on freight.
Red Kite Freight Solutions is actively monitoring COVID-19 news to keep shippers informed on how capacity or freight rates could be impacted. Here are the top trends our team is currently watching that all shippers need to be aware of.
Trucking Volume, Capacity on the Decline After Peaking in March
When COVID-19 cases started increasing in North America during March, we saw trucking volume spike due to the increased demand and manufacturing of essential goods, such as paper products and medical supplies. However, as manufacturing activity and consumer buying patterns begin to slow, we see that trucking volume is on the decline.
According to data from FTR, trucking volume for reefer, dry van and flatbed services fell in late March and early April. In particular, we saw a sharp decline in flatbed volume as manufacturers who use these services slowed production in response to economic impacts of COVID-19. A survey conducted by CCJ also found that 55% of carriers reported seeing declines in freight volume over the last month. At Red Kite, we closely watch trucking volume because the number of loads shipped impacts freight capacity, and therefore the ability for shippers to find load coverage.
We have seen declining load-to-truck capacity as a result of falling trucking volume as well. Capacity data form DAT – shown in the chart below – found that load-to-truck capacity steadily declined for flatbed services from mid-March to early April. Even though we saw load-to-truck capacity for dry van and reefer services increase in late March as demand for essential goods skyrocketed, capacity levels are now beginning to fall.
Monitoring freight capacity is important because capacity influences the direction of spot rates. If there are more loads than trucks available, rates will rise, and if there are fewer loads than trucks available, rates will fall. With truck-to-load capacity beginning to decrease, shippers can expect freight rates to drop.
Freight Rates Continue to be Volatile, but Show Signs of Stabilizing
We watched freight rates fall and rise in March as freight demand and capacity rapidly changed. When COVID-19 cases began spreading across the US in early March, we saw demand for dry van and reefer services increase as consumers stocked up on essential goods like paper products, tightening capacity and driving freight rates up.
After this initial increase in demand, we watched freight rates drop before rising again in mid-to-late March as states began announcing stay-at-home orders in response to COVID-19. This created a spike in consumer demand for essential goods and shipper demand for freight services that transport these goods.
The chart below shows the national average rates for each of these services so far this year, as calculated by DAT. Rates have a major impact on the freight decisions shippers make – such as whether to use spot freight or contract freight – which is why Red Kite keeps a close eye on the current market rates.
Even though freight rates were volatile in March, industry experts believe we can expect to see spot rates begin to stabilize. After the initial slowdown of manufacturing activity and consumer purchases steadied, experts say we can expect to see rates hold at a consistent level over the next couple of months.
Oil Price Feud, COVID-19 Create Volatile Fuel Prices
Starting in early March, we watched crude oil prices across the globe begin falling as an oil price war broke out between Russia and Saudi Arabia. Lower crude oil demand due to the COVID-19 pandemic also contributed to falling diesel fuel prices, which decreased nearly 30 cents per gallon from early March to early April, according to the U.S. Energy Information Administration.
While diesel prices are expected to remain relatively low amid soft demand, we could see prices go back up as the crude oil pricing feud ends. On April 9, Saudi Arabia and Russia reached a tentative deal to decrease oil output to about 8.5 million barrels per day, following the path of other OPEC members who announced production decreases.
Factors that influence diesel fuel pricing are important to monitor because the cost carriers pay for fuel is often passed along to shippers in the form of a fuel surcharge. With fuel prices predicted to remain low over the next couple of months, we can expect shippers to see lower fuel surcharges.
Monitoring Shipping Market News and Trends
COVID-19 can create rapidly changing shipping conditions, and it is important for shippers to stay on top of the current news and trends that could impact freight rates or capacity, as these trends could impact their shipping strategy.
To make it easy for shippers to monitor these indicators, Red Kite publishes a monthly Shipping Market Report to keep readers informed about the factors shaping freight rates and capacity. Sign up below to receive future reports.