Retail industry expectations for peak truck and intermodal rail seasons are elevated slightly compared to last year but hardly soaring, thanks to a slowly recovering U.S. economy and better managed supply chains.
Transportation executives are expecting zero to low single-digit year-over-year growth in surface freight traffic in the period ahead of the winter holidays. Dampening their expectations are stubbornly high national unemployment rates, the lingering effects of the federal sequestration, and weakness in European and Asian economies.
“We don’t have a peak season. We have hill season,” said Adriene Bailey, vice president of strategic development at Yusen Logistics (Americas) “I don’t see the consumer strength that could cause retailers to dramatically increase their orders.”
U.S. consumer spending inched up 0.3 percent year-over-year in May, after falling 0.3 percent the previous month, according to the Commerce Department. Still, the uptick in spending comes as the unemployment rate is well above 7 percent. And, although the sequestration hasn’t crippled economic growth as some feared when the year began, the $85 billion in budget cuts have hurt industries tied to federal programs and dealt psychological damage to consumers and businesses.
For this peak season, whether shippers can find surface capacity is just as important as how much they will move. The biggest concern is on the trucking side, as new federal regulations likely to cut the number of hours many truck drivers can work took effect on July 1. The hours of service rules are expected to reduce industry productivity by 1.5 to 4 percent.
Derek Leathers, president and chief operating officer of truckload operator, doesn’t expect to see much capacity tightening this month, as July trucking traffic tends to be soft, partly because a slowdown in domestic auto production. But he expects the impact of the new HOS rules to become visible in September and October. That’s when most transportation executives and analysts anticipate the surface peak season will begin, with the intermodal surge preceding a truck freight rush by several weeks.
Averitt Express’s healthy increase in business in June and July points to industrywide truck capacity crunch later in the year, said Danny Crooks, vice president of corporate transportation. Although the Cookeville, Tenn.-based company hauls a limited amount of peak-season retail freight, it has seen strong demand from the beverage, packing and automobile industries, boding well for consumer confidence.
“If the momentum in June and July continues, it will definitely get very tight in terms of (truck) capacity,” he said. “It won’t take a lot (of freight growth) to have it show up across the modes.”
Not everyone is seeing the same signs of tightening truck capacity, however. Truck demand is still on the soft side, and “there are pockets of capacity tightness but nothing across-the-board,” said Mark Yeager, president and chief operating officer at intermodal marketing company Hub Group. There hasn’t been a lot of load-board activity recently, but if there is, that suggests there is plenty of truck spillover freight that major trucking companies aren’t locking down, said Yeager, vice chair of the University of Denver’s Intermodal Transportation Institute.
What could be different this year compared to 2012 is that shippers might have to use expedited services more, because there are five fewer days between Thanksgiving and Christmas, Leathers said. There also likely will be a second phase of the peak season in early 2014, as retailers restock from online sales and gift card shopping, he said.
Although concerns about finding space on the railroads pales in comparison to truckload capacity worries, there still could be 53-foot shortages in some areas. Bailey, who is also chair of the ITI, thinks there could be intermodal equipment shortages in the Midwest, particularly Chicago.
Shippers, Yeager warned, could have trouble securing EMP containers, which are provided through the interline services run by Union Pacific Railroad and Norfolk Southern Railway. The nearly 23,000 53-foot container fleet only grew by about 1,000 containers this year, and EMP “seems to be among the non-asset guys the box of choice,” he said.
Spikes in intermodal spot pricing, a result of tightening capacity, are likely in Southern California, the Southeast and on U.S.-Mexico routes, as the United States’ southern neighbor delivers more flat-screen TVs and white goods to American consumers, said Jim Filter, senior vice president of intermodal commercial management at truckload operator and logistics provider Schneider National. The company expects intermodal demand during this peak season to be about 6 to 8 percent higher than the rest of the year.
As shippers run leaner inventories, they’re demanding the same visibility from intermodal rail they get from truckload carriers. Schneider plans to install tracking technology and provide shippers with real-time information about the location and load status of their goods on all of its 15,000 53-foot containers by the end of September. The technology, which also will be installed on van trailers, has helped retailers better manage their inventory, possibly leveling off the historically steep peak season.
Gauging how much of improved supply chain management has shorn off the peak season is difficult when overall freight demand is so modest, said Jeff Elliott, a partner in the surface transportation practice at New York-based consulting firm Oliver Wyman. Separating out better logistics planning from demand amid the peak season won’t be possible until there are several years of post-recovery periods to compare.
“I think there will always be some type of peak,” Leathers said. “The physical reality is that shippers need to get more goods to stores by Black Friday.”
The question is how long it will take the economy to rev up so the peak period resembles more of a mountain than a series of rolling hills.