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K-Ratio Markets Newsletter | April 2020

Welcome back to marKets, K-Ratio’s monthly, “State of Freight”, newsletter. K-Ratio provides market research, pricing, business intelligence, and risk management services inside of the freight industry. In last month’s edition, we tried to extrapolate January’s conditions into a longer view of the industry. If you did not receive last month’s marKets update or would like more information regarding K-Ratio, please reach out to your main point of contact. This month, we’ll use this typically sleepy time of year to offer up some friendly advice

If there is one common theme at K-Ratio, it’s that all of our research papers, outlooks, and newsletters are framed from a view of what’s to come rather than what’s already happened. We care about the future and preparing our clients for it; you can read about the past everywhere, including our Mid-March Update, so we’ll leave it at that. Besides, where we go from here is far more interesting.

We laid out three phases of the fallout from Covid-19 in our special report; from the national volume drop-off, to the volume surge as a result of panic buying, and finally the volume freefall as nationwide shelter in-place orders became widespread. We are now past each of these phases and entering a new shift in the supply chain pattern. It’s now time to restock the warehouses and distribution centers.

This puts areas with production facilities of basic consumer necessities front and center, provided those facilities remain open. With several industries essentially shutdown completely, capacity for this increased demand of consumer staples would seem abundant but that isn’t always the case. The abnormalities and aberrations along the supply chain have caused disruptions in routing guides from coast to coast. If a truck has a triangle pattern it runs on a weekly basis and the second load picks in a facility that was closed, that truck might not be able to find a new spot load to make it to the origin of pickup number three. If indeed it can, the new rate for that spot load likely isn’t at the same level of the contract rate, which tempts the truck to take a different, higher paying load destined somewhere else. This is how a ripple effect of tender rejections can spread throughout the country if the locations or loads that were canceled are big enough, and your company isn’t immune to this even if your locations are still open for business.

This unfortunate scenario will continue to play out, though less so now that an initial baseline wave of goods was purchased. The longer Americans are forced indoors, however, the longer this persists and likely in a compounding effect. Businesses with temporary closures may become permanent closures, which stresses the disruptions inside freight networks even further. Adding to all of this instability is the fact that import volumes at West Coast ports are set to resume historical norms, though what demand for these goods exists, if any, remains to be seen. Regardless, that freight cannot sit on the ships, it must head somewhere.

Regarding rates per mile, it is possible that reductions in truck capacity occur within the next month, but that would be the result of diminished volumes, therefore maintaining the equilibrium. The imbalances in price over the next month or so will be the result of sporadic periods in unforeseen locales of either abundance or scarcity in both capacity and volumes.

What’s really next? Close your eyes and imagine a scenario, it’s quite possible these days. The only guarantee will be uncertainty and unpredictability, that is assured. The only redeeming aspect in all of this chaos is that we are all truly in this together. Let’s all keep that in mind when your expected load isn’t tendered, when one sent over gets canceled, or when the truck breaks down; and if you’re in one those situations, let it be known as soon as possible so they can get to Plan C. Be mindful of your counterpart, they’re just trying to do the best they can right now, too.

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