Q&A – Preparing for 2021

By | January 29, 2021

Following the January 2021 State of Freight Webinar, Preparing for 2021, the FTR Experts sat down to answer listener questions beyond what was covered during the Q&A within the presentation.

You can view the full replay and download the presentation from this webinar at www.FTRintel.com/2021.


Table of Contents:

  • Q1: What potential regulations could have a negative effect on the stock market, general economy, and the transportation industry?
  • Q2: Will the carrier preorder/overbuy of trucks and trailers outpace the demand for drivers in 2021 and hurt capacity?
  • Q3: With supply chains shifting to the current buying and service patterns, will a shift back to more services create another March/April like disruption event?
  • Q4: What makes you think that most Americans will be vaccinated by the end of the second quarter? Based on the current pace of vaccinations, wouldn’t the end of the fourth quarter be more realistic?
  • Q5: How do you see the supply chain issues and commodity prices impacting the recovery?
  • Q6: Volumes are higher than you’re suggesting and there are bottlenecks (Currently, there are 40 container ships anchored of the WC). Can you provide clarity?
  • Q7: How much has Jim Vena’s UP Embargo/Surcharge policy at LA Longbeach vs the loose Foote policy at CSX impacted those Intermodal imbalances at the ports?
  • Q8: Is there a concern the strong tractor and trailer orders may be hindered by a lack of parts to build them?
  • Q9: What are the railroads doing to increase carload freight?

Question 1: What potential regulations could have a negative effect on the stock market, general economy, and the transportation industry?

FTR Expert Response: We do not expect dramatic effects on the economy or transportation in either direction from legislation and regulations, at least not in the near term. The margins in the Senate remain too tight for huge legislative changes, and most of the effects from regulation are either longer-term (as with environmental regulation) or merely accelerating changes already underway (such as challenges to the classification of workers as independent contractors). A tougher regulatory stance regarding financial institutions potentially could temper an exuberant stock market, but we aren’t necessarily predicting that. In fact, one of the potential outcomes from continued stimulus is that the wealthier recipients might invest much of the funds.

Question 2: Will the carrier preorder/overbuy of trucks and trailers outpace the demand for drivers in 2021 and hurt capacity?

FTR Expert Response: As of now, that appears to be what is happening. However, if capacity utilization remains as strong as we are forecasting well into 2022, this will not necessarily be a problem. If fleets cannot fill all the seats intended for expansion, we believe they will just accelerate replacement. We would anticipate small carriers to purchase the excess if the spot market remains strong.

Question 3: With supply chains shifting to the current buying and service patterns, will a shift back to more services create another March/April like disruption event?

FTR Expert Response: We don’t see any economic shifts like that resulting in a repeat of the March/April contraction. We would have to see widespread mandates of business closures in order to see that type of contraction again. With the change in presidential administration, this dynamic is possible if the pandemic were to escalate further. However, we don’t have any insights into what specific set of conditions might trigger that.

Question 4: What makes you think that most Americans will be vaccinated by the end of Q2? Based on the current pace of vaccinations, wouldn’t the end of Q4 be more realistic?

FTR Expert Response: We are not suggesting that most Americans will be vaccinated by the end of Q2. We are suggesting that most Americans who want to be vaccinated will have had the opportunity to have been vaccinated by the end the end of June. There is a portion of the population that does not want to be vaccinated and a portion of the population that will want to be vaccinated, but only after watching to make sure the vaccine is safe in their personal opinion. Neither of these groups will sway communities or states to shut down if they get sick. The social justifications for shutting down a community, region, state, or nation are rooted in protecting the health and well being of a vulnerable population. Once everyone has had the opportunity to be vaccinated that wishes to be vaccinated, then an economic shut down will be off the table.

Question 5: How do you see the supply chain issues and commodity prices impacting the recovery?

FTR Expert Response: The current supply chain issues have been sustained long enough to have risen to the level of being expected in the economy. Even though they are expected, they will still pose a limitation or throttle on recovery. Strategic businesses that can overcome the supply chain issues by changing suppliers, diversifying, reshoring, or nearshoring may use this situation as cover to iron out existing supply chain issues and be stronger in the long term. Commodity prices, outside of energy, are not posed to have a large impact on recovery. The Federal Reserve Bank is forecasting limited inflation and plans no new interest rate hikes in the near future.

Question 6: Volumes are higher than you’re suggesting and there are bottlenecks (Currently, there are 40 container ships anchored of the WC). Can you provide clarity?

FTR Expert Response: You make a great point. We agree that LA/Long Beach is hot right now and demand is crazy. What we are seeing is that throughput at the port is still not at record levels as we have seen at other ports around the country. We do know that many shippers want to come into LA/LB due to its proximity to transloading facilities. LA/LB is clearly having problems due to many port workers and others around LA getting COVID-19 and hurting productivity throughout the supply chain.

Question 7: How much has Jim Vena’s UP Embargo/Surcharge policy at LA Longbeach vs the loose Foote policy at CSX impacted those Intermodal imbalances at the ports?

FTR Expert Response: In a lot of ways, the surcharges haven’t been all that effective with LA/LB still up 27% year over year in November. The surcharges certainly encourage shippers with alternatives to look at them (and we’ve seen evidence of this with the PNW’s results and Western Canada up 30%y/y), but some shippers because of transloading and other factors, will have to use LA/LB. I think the port imbalances initially were about the need for speed and since then, have been about finding capacity wherever they can get it, whether that be on the east coast or west coast and less about particular carrier policies.

Question 8: Is there a concern the strong tractor and trailer orders may be hindered by a lack of parts to build them?

FTR Expert Response: There is definitely concern that this could occur but we are not seeing anything cropping up yet that is curtailing production. The one area we are paying close attention to is metal demand. Pricing is going through the roof but has not materially impacted getting product to the suppliers and OEMs. We are concerned that as demand continues to increase throughout all supply chains it could hurt the ability to get metal products in a timely fashion. It could have an impact in late Q1 and Q2, but we do not have anything built into our forecast for this to happen. As of now, we will “wait and see” how things develop over the next month.

Question 9: What are the railroads doing to increase carload freight?

FTR Expert Response: The short answer is not much. The longer answer is that carriers have talked a lot about increasing the amount of “loose car freight” on their networks over the last decade but looking at the carload numbers, they don’t have too much to show for those efforts. PSR was supposed to create a more efficient experience for the manifest shipper, but at best, the jury is still out on that and at worst. shippers haven’t seen the promised benefits. At the moment, carriers are focused on coping with a surge of intermodal freight volume, while waiting to see what the new normal turns out to be in the carload space.

View the full replay and download the webinar presentation:

www.FTRintel.com/2021

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