Power only and drop trailer solutions provide flexibility for CPG shippers. Class 8 truck and reefer van trailer orders have multiplied over the past several months as a result of reefer and truckload tenders being at or near all-time highs along with extremely tight capacity. These two factors have combined to push reefer spot rates to all-time highs and increase transportation costs for CPG companies.
In November, reefer trailer orders came in at 7,178 which was a 4.96% decrease on a month-over-month basis but near two-year highs. On a y/y basis, November reefer trailer orders expanded by ~248%. At FreightWaves, we believe that reefer trailer replacement levels are roughly 3,000 trailers a month.
One solution that has experienced a meteoric rise in popularity among transportation providers and shippers is power-only and drop trailer solutions.
There are clear advantages to both shippers and carriers when it comes to power-only and drop trailer solutions. For carriers, it allows them to be more efficient and productive by simply arriving at their shipper’s location and hooking up the trailer without having to wait through a lengthy live loading.
For shippers, the benefits are evident. First, it allows shippers to have much more flexibility and control over their shipping needs. The shipper will already have the trailer pre-loaded for their truck so when it arrives it the carrier only has to attach the trailer and leave which leaves much less room for congestion at their warehouse or factory. It is evident that there has been an uptick in shippers wanting these solutions from carriers.
“Customers loved it and carriers loved it, and with current market conditions, almost every shipper conversation we have touches on ‘what can you do for me in the drop space,” Lars Ward, director of sales at Swift Logistics told FreightWaves in November. “The market is definitely causing some acceleration.”
One of the ways that I believe you can analyze a trucking company to see if they’re preparing for more drop trailers solutions is to look at the company’s trailer/truck ratio. I expect that more carriers will be increasing trailers in relation to trucks in the future but one outlier so far is Marten Transport. Marten Transport’s trailer/truck ratio is roughly flat over the past five years and has slid from 1.96 in 3Q2018 to 1.61 in 3Q2020.
While an increase in tractors is a positive for overall capacity returning to the markets, strong reefer trailer growth is another way of returning capacity to the market. If there are more trailers available to be loaded, then this provides more flexibility to shippers and carriers and in turn eases capacity constraints.
CPG companies have a regular cadence of shipments, which is crucial for drop trailer programs to be able to work properly for both the shipper and carrier. One issue that shippers will be presented with is providing an accurate estimate of how many trailers they will need for future shipments. Shippers will also have to have a strategy for times where they have to find another carrier due to service issues.
Map: FreightWaves SONAR; height: reefer volumes, color: reefer outbound tender reject index.
The national reefer outbound tender reject index (ROTRI.USA) is sitting at 41.22%; more than four out of ten contracted loads are being rejected across the country. CPG companies can expect that transportation costs will rise through the next quarter to two quarters as we head into the heart of bid season.
On a spot basis, the national Truckstop.com reefer spot rate jumped 7.61% w/w last week to a new all-time high. Although reefer capacity is tight across the entire country, parts of the Southeast, Midwest and Rocky Mountain regions are experiencing the most extreme capacity constraints and it will be smart for transportation managers to increase lead times in these regions.
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