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Market Overview

East Coast Freight Markets Distorted By Dorian Response

East Coast Freight Markets Distorted By Dorian Response

The response to the threat posed by Hurricane Dorian to the southeast coast of the United States has soaked up trucking capacity and affected spot rates to and from relevant freight markets.

The Federal Emergency Management Agency (FEMA) and large retail shippers, including Home Depot (NYSE: HD) and Walmart Inc (NYSE: WMT), pre-positioned loads of bottled water, blankets, generators, and nonperishable food at strategic locations in the region from Lakeland, Florida, to Maxwell Air Force Base in Montgomery, Alabama.

An executive at Swift Logistics, a brokerage division of Knight-Swift (NYSE: KNX), said Tuesday, September 3, that activity has slowed while government officials and shippers wait to see if and where Dorian will make landfall in the continental United States. 

"Right now, shippers are generally in a holding pattern," the broker said.

Trailers staged at Maxwell Air Force Base, Montgomery, AL. (Photo: FreightWaves)

FEMA has not cancelled many shipments moving supplies into markets adjacent to the expected areas of storm impact, a brokerage executive handling multiple FEMA projects told FreightWaves. Indeed, three markets in north Florida and south Georgia are experiencing elevated inbound volumes compared to a week ago. Tifton, Georgia is up 22.6 percent compared to the prior week (ITVIW.TMA); Tallahassee is up 18.8 percent compared to last week (ITVIW.THL); and Jacksonville is up 9.57 percent over the prior week (ITVIW.JAX).  

But freight brokers are still contending with a distorted freight market that has elevated volumes into the region and a relative lack of capacity. It's taking longer to find trucks to cover loads and brokers have to pay more for trucks to drive into the Southeast.

"Anything going into the Southeast, be it from the Midwest, West, or elsewhere is pricier than expected due to the storm," said Michael Feig, chief operating officer of White Plains, New York-based Capital Logistics. Feig estimated that spot rates heading into the Southeast were about 20 percent higher than normal, while rates outbound from the same region were 15 percent below normal as carriers seek loads that will take them away from the weather.

A broker at Schneider National (NYSE: SNDR) said that offers were lighter after the holiday weekend as customers waited to see how big an impact the storm would have on coastal markets.

A Chicago-based broker with exposure to refrigerated markets said, "we are seeing a lot of spot [freight] from food and beverage shippers. Rates are getting high, and there is a ton of uncertainty about where, when and how bad the storm impact will be."

Compared to 30 days ago, the Trucking Freight Futures market has become more bullish on the national average for trucking spot rates (FWD.VNU) and rates outbound from Atlanta to Philadelphia (FWD.VAP).

(Chart: FreightWaves SONAR)

While most of the curve moved slightly down as futures market participants tempered their expectations, bids for September contracts saw a nice pop. That effect was even more apparent on the Atlanta to Philadelphia September contract, which is the most precise way the futures market can isolate any price risk due to Dorian. 

(Chart: FreightWaves SONAR)

Those price movements were anticipated by rising inbound tender rejection rates going into key Dorian-affected markets. Inbound tender rejections in Montgomery, Alabama (ITRI.MGM), where FEMA sent numerous projects, spiked to 10.73 percent, more than twice the national average. Meanwhile, 10.31 percent of tendered loads into Mobile, Alabama (ITRI.MOB) were rejected by carriers and brokers. In the Birmingham market, 9.9 percent of all inbound loads were rejected by transportation providers (ITRI.BHM).

While Hurricane Dorian will have come and gone by the time container ships leaving China make it to the Atlantic Ocean, there are other developing weather events to keep in mind. A tropical storm is developing in the Gulf of Mexico northeast of Tampico, Mexico, but is expected to blow into Mexico on a northwesterly course, roughly in the direction of Monterrey. Another area of concern off the coast of Africa is likely to organize over the next 48 hours, but most models have it blowing harmlessly northward into the mid-Atlantic.

On the ocean, steamship lines hiked rates for 40-foot containers from China to the West Coast of North America (FBXD.CNAW) by more than $300 to $1,616 per box. Rates to transit the Panama Canal went up, too, but not by as much – it now costs $2,861 to send a container from China to the East Coast of North America. That compressed the Panama spread (the difference between the two rates) to $1,244 (FBXD.PANA). 

Intermodal rates went up from Los Angeles to Chicago to $1.16/mile and down from Atlanta to Chicago to $1.21/mile ($2,337 and $868, respectively). 

The movements in ocean and intermodal rates make the cost of importing from China to the Midwest through ports on the West and East Coasts roughly equivalent. Of course, several East Coast ports, including Jacksonville and Savannah, will be shuttered over the next few days as Dorian makes its way up the coast.

Image Sourced from Pixabay


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Posted-In: Freight Freightwaves Hurricane Dorian Logistics truckingNews Markets General