Beyond almost every prediction, COVID cases continue to rise as we enter late November, further hindering the economic recovery and reprieve that the logistics industry desperately needs. Even though the economy is trending upward, most companies are still reeling from supply chain disruptions. The coming of Peak Season likely brings a demand increase as much as 50% compared to 2019, which will result in increased rates and transit.
Shippers continue to look to the spot market in order to move their products, causing a subsequent shift in overall freight rates, specifically Dry Van and Refrigerated. The only mode of freight transportation that hasn’t experienced a spike in rates entering Peak Season is the flatbed segment of the Truckload market. As COVID continues to affect the lives and behaviors of consumers via more in-home and online shopping, the demand curve continues to rise. This steep demand spike has become hard to navigate for some shipping companies that continue to deal with the aftermath of higher rates and longer shipping times.
According to the DAT, the demand for trucks is over 100% higher than this time last year. Additionally, the spot rate per mile is up almost a dollar from earlier this year and that number has seen a steady increase over the last 6 months. Spot rates are higher than they have been in the last 4 years, up almost $0.75 cents per mile from 2016 (based on national averages – some regions are experiencing even higher increases). It is clear from these trends that the 2020 Peak Season is going to be more costly for shippers and consumers alike.
The fear of another lockdown is still at the forefront in the minds of many corporate executives. With the current volatility of the market, company leaders continue to alter their historical inventory and supply chain practices to prepare their companies for possible disruption. Adding to this, many companies are already well into their Peak Season shipping plans. With most retail stores cancelling Black Friday and offering discounts for the entire month of November or even through the first half of December, online demand has grown substantially. Online demand means more shipments for the freight companies that are already at max capacity. Even the e-commerce giants such as Amazon and Wal-Mart are expecting deliveries to be delayed in record numbers. In previous Peak Season runs, it was prudent to add a day or maybe two to the expected transit time, this year many shippers are preparing to pad their transit times by as much as 10 days. Guaranteed Service Refunds are on pause from large carriers such as UPS and FedEx and with the two-fold demand increase of COVID and Peak Season coupled with the supply limitations already stressed by COVID, the most likely outcome is to assume rate and transit increases yet again.
As Peak Season begins, we realize that it is going to be vastly different than years prior. Companies big and small have made strategic changes to their financial and logistical plans for these last two months of the year. With demand and rates at an all-time high, there is some good news on the consumer side. Many major retailers have been working to stockpile inventory which should lessen the burden on a strained shipping network during this Peak Season. Despite all of the challenges, some analysts still think that most retailers and Holiday consumers will be able to ship and receive goods in time for the Holidays as long as consumers temper their expectations and don’t wait until the last minute.
One Final Thought…
There is one more point to consider that will likely have a marked and unpredictable effect on capacity, transit, and rates. Each day brings us more good news that a COVID vaccine is nearly ready for distribution to the public sector. With this news, we must consider the ripple effect that a time critical distribution plan of this magnitude will have on our supply chain. There will likely be 100’s of millions of doses that need to be shipped as soon as they are available and with the fastest possible transit times. There is plenty of discussion about the logistics plans of the government and the subsequent contract negotiations that are likely underway with multiple national carriers. Regardless of how much the government is involved with distribution, they will have to rely on the capabilities of the private sector, be that FedEx, UPS, etc. When these vaccines are ready and distribution begins; it’s likely that most shippers will experience a heightened strain as networks devote capacity to moving vaccines and the needed supplies that will be necessary to administer them to the millions of waiting Americans and citizens abroad. While it’s clear that COVID and Peak Season are impacting our shipping equilibrium, shippers must also plan for further uncertainty once a vaccine is staged for release.