SONAR sightings for Dec. 6: Shipper playbook, trucking capacity, more

Quarter-to-date, intermodal contract rates took another 6% step up quarter-over-quarter (in their initial reporting, which shows a 2-week lag) to an average base rate of $1.82 a mile, not including fuel surcharges. That’s up from $1.71 a mile in the third quarter 2021 (also not including fuel surcharges). Relative to the fourth quarter of 2020, SONAR intermodal contract rates are 14% higher quarter-to-date, reflecting the double-digit rate increases in intermodal contract rates that took hold as they were repriced earlier this year. 

Consistent with that rising trend, Hub Group CEO Dave Yeager shared his views on domestic intermodal pricing in 2022 on a recent industry webinar. He said that intermodal shippers that last repriced their contracts in early 2021 should expect about a 20% rate increase.  In addition, he noted that shippers that last repriced their intermodal contracts relatively late in 2021 should still expect to see a double-digit contract rate increase next year.

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Watch: Supply Chain Update

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As we approach the end of 2021, we can expect that vessel congestion at major U.S. ports will persist and continue to put even more pressure on an ocean container industry that is already stretched incredibly thin. The vessel congestion is likely to worsen off the southern California coast near Los Angeles and Long Beach; the worst will likely occur in the next two weeks. Once these volumes truly miss their delivery deadlines and have no chance whatsoever of making it on the shelves for the 2021 holiday season, there will likely be a huge surge in containers that no longer have the same urgency to get delivered that they once had. Also, you have the problem of empty containers being returned to the port that are now taking valuable space that could be utilized for incoming containers from the vessels stuck waiting to unload. In order for international containers to be offloaded from the vessels and into the port, there has to be available space for them.

So, if containers are not moved from ports to their end destination, then there could be an additional strain on the supply side that may keep rates elevated until the backlog works its way through the system. For these reasons, you can expect upward pressure to continue on rates for all inland and surface-side transportation. However, for ocean container rates, it is important to note that there is actually growing downward pressure on major import tradelines. Since the latter half of September we have seen a steady decline in TEU volumes that have been reporting negative year-over-year (y/y) changes for about the last 5-7 weeks. Currently, SONAR’s Inbound Ocean Volumes Index from China to the United States is forecasting that in the next 14 days volumes will be reporting a 15-20% y/y decline in daily TEU volumes leaving Chinese ports bound for the U.S.

Overall, the week was positive for consumer trends although initial jobless claims increased to 222,000. The increase was expected as seasonal distortion took claims down to 194,000, a record low not seen since the 1960s. The ADP employment report showed a gain of 534,00, the unemployment rate dropped to 4.2% and the nonfarm payrolls increased by 210,000, less than half of the previous month.However, the details of the report are not overtly negative. Leisure and hospitality was a significant “down” portion of the overall report, and the segment is still down 1.3 million employees since February 2020. There were gains for transportation, warehousing, construction and manufacturing. Consumers are still in a good position, but inflation is not easing and will start to impact spending habits after the holiday season. Consumer demand and spending will be a significant contributor to freight volumes but demand will likely wane in the coming months through at least the first quarter of 2022. 

More downstream indices will be updated in the coming week, including job openings and job quits. Consumer confidence and sentiment have been dropping month after month but job quits are another barometer to take into consideration when gauging consumer confidence. Consumers don’t typically leave jobs when they are uncertain about economic conditions and outlook. However, inflation concerns plaguing consumers are well-founded and feed into expectations of a slight easing in consumer spending in 2022 as inflation continues to outpace wage increases. Volumes and supply chain constraints will continue to be elevated as backlogs are worked through, especially with upstream demand for manufacturers.