Chart of the Week: Tender Lead Time – USA SONAR: OTLT.USA
Tender lead times—the amount of time between the load request submission and requested pickup date—have increased almost 17% y/y with 40% of the increase occurring since the start of April. While most of the increasing lead times occurred prior to the COVID-19 pandemic taking hold in the U.S., the rate of increase over the past two weeks has been much higher. There are several possibilities as to why this is occurring—one of them being related to the e-commerce behemoth, Amazon.
Tender lead times measure shipper urgency to an extent. With the rise of e-commerce, shippers are expected to turn orders around much faster than they were 10 years ago. Increasing competition in the transportation space has made service a big differentiation among carriers.
Shippers are pressed to fulfill orders as fast as possible or they may lose the sale. Many times, this means they receive an order and need to send it out on the same day, which means the carriers need to respond quickly to get the load. Amazon’s Prime service has made the two-day shipping guarantee the standard expectation for many consumers which puts subsequent pressure on businesses.
In late March, Amazon announced it would no longer guarantee two-day deliveries on what was deemed to be non-essential goods to better service the demand for medical equipment and supplies. This occurred as the demand for consumer products was peaking in the U.S. A week later, lead times on freight orders began to rise.
This could be a case of mere coincidence as freight demand subsequently plummeted at a record pace after March 23 according to the Outbound Tender Volume Index (OTVI), but there was no compression in lead times as volumes were spiking—something to be expected if the converse is true.
It is nearly impossible to tell if Amazon’s relaxing of standards for non-essential goods is the main driver of national lead time increase or not, but the shipping giant spent nearly $28 billion last year in shipping costs, a significant enough amount to have an influence over industry service expectations. Making a case that their behavior can influence shipping behavior across the country is not a big stretch.
Other reasons for lead time increases could be the simple case that shippers are not pressed for order fulfillment as they were prior to COVID-19. The work-at-home lifestyle has potentially slowed the pace of operating while companies and consumers pull back to more essential activities that do not require the same level of urgency. Less complexity in their daily lives leads to increased focus on fewer items. In other words, people are more on top of things than they were before the pandemic, leading to less “last minute” actions.
Increasing lead times are concerning for the Less-than-Truckload (LTL) carriers as shippers have more time to consolidate their orders into truckloads, which is a cost saver for shippers who have the volume. If shippers can afford to sit on their orders for an extra half day that gives them more opportunity to aggregate their shipments into larger pieces by compiling more orders into a single shipment.
Whatever the reason for increasing lead times may be, the transportation landscape is changing rapidly. There will be many unforeseen consequences of the COVID-19 economy that will persist for months to come.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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