Market Overview

A Hazy Shade Of Winter Settles In

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A Hazy Shade Of Winter Settles In

In some parts of the U.S., people often say, "If you don't like the weather, just wait five minutes." The weather changes so much in some regions during certain times of the year it can be hard to keep up with it – not just for everyday people wanting to know whether they should grab an umbrella or their snowshoes on a given day, but for everyone involved in the business of moving freight across the country.

Major weather events such as hurricanes and historic flooding can produce immediate volatility, but their impacts on supply chains are usually longer-lasting compared to winter weather; and winter storms produce some of the worst conditions for drivers.

Besides the safety aspects, winter weather events such as heavy snowfall, blizzards and ice storms can produce immediate and frequent disruptions in supply chains and freight markets because the same areas can be hit over and over during the season. The level of impact often depends on the location, duration and intensity of each event. Disruptions can range from fairly short-term road, business and government/municipal office closures – say, six to 12 hours – to long-term troubles lasting days or weeks due to damaged electrical grids and lingering ice/snowpack on highways. Whichever is the case, there are bound to be effects on supply and demand. These result in shifting freight rates, keeping shippers and brokers, as well as carriers and their drivers, on their toes.

For a recent survey by the FreightWaves Passport Research team, carriers across the lower 48 states were asked which of the four seasons posed the most challenging weather for them in terms of on-time service and miles driven. Of the 68 carriers who responded, all but one picked winter.

The Cold Facts

As temperatures drop in a given region during the winter, shippers that would normally ship freight in dry vans request more and more refrigerated trailers, or "reefers." They do this in order to keep temperature-sensitive freight, such as cosmetics, chemicals, water and beer, from freezing. This is known as "protect from freeze," or PFF. Reefers are climate-controlled trailers that allow drivers to set a desired temperature for the inside of the trailer. However, it's estimated only 10-15% of trailers in the U.S. are reefers.

When outside air temperatures get cold – especially well below freezing – and reefer demand increases, carriers reject more reefer loads due to greater demand from shippers. In the process, capacity tightens. When the weather warms up, demand for reefers typically decreases as shippers move their dry freight back to the dry van market, resulting in reefer rejection rates falling.

FreightWaves SONAR
Several cold snaps (along with snowstorms) hit the Pacific Northwest (PNW) during the first five weeks of 2020. The SONAR chart directly above shows the reefer outbound tender rejections in the PNW compared to actual daily average temperatures for King County, Washington, which includes the Snoqualmie area on Interstate 90 and Stevens Pass on US-2 – areas where cold weather and heavy snowfall are common. This example illustrates the pretty reliable inverse relationship between temperature and refrigerated outbound tender rejection rates.

FreightWaves SONAR

In addition, both inbound and outbound reefer rejections for the PNW peaked at 36% and 32%, respectively, in mid-January. As of last week, they remained above 20%, each nearly double its national average. FreightWaves considers rejection rates above 10% quite high, often signaling market instability and tightening capacity.

Another example was a major cold snap that hit parts of the Midwest about a year ago. Subfreezing and even sub-zero temperatures persisted across the Midwest-Great Lakes throughout the last week of January 2019 until early February 2019. New record lows in the 20s below zero chilled Chicago, and daily average temperatures were 40 degrees below normal.

FreightWaves SONAR

Shortly after the cold snap began in Chicago, outbound volumes of reefers increased until the weather warmed up on Feb. 2. This is evident in the SONAR chart directly above. This was likely due to shippers realizing how long the frigid weather would last. Eventually, capacity tightened, resulting in a rise in reefer tender rejections of 300 basis points during the same period.

"The Economy, Stupid!"

James Carville's 1992 quote headlining this section has become a snowclone in American political culture, no pun intended. But it's spot on for describing the connection between winter weather and freight market economics.

The winter of 2018-2019 was rather flat in regard to snowstorms and blizzards with extreme impacts on freight flows. However, the previous winter packed a serious punch when four nor'easters produced incredible amounts of snow and wind damage in the Northeast in March 2018 – three of them in a two-week period.

These storms dumped feet of heavy, wet snow that caused serious power outages across the region. Interstate highways were closed and many towns closed schools and banned travel so plows could move the mountains of snow. Local dump truck operators stayed busy hauling salt for road treatment and were hauling away snow well into April.

Disruption to regional and long-haul trucking was significant as well, causing capacity to decrease because trucks were not able to get into and out of the region. The Massachusetts inbound and outbound tender rejections in SONAR show the full effect of each storm. In the days leading up to the first storm on March 1, carriers started to reject more outbound loads as shippers attempted to move freight ahead of the storm. By the time the first storm hit, capacity was decreasing with tender rejections jumping 50%. A week later it increased an additional 11% when the second storm arrived, and then a further 12% by the time the third storm hit.

In all, outbound tender rejections jumped 85% over the two-week period for the first three storms – capacity had vanished and shippers were having a hard time getting anything moved. The effect of the fourth storm was not as noticeable because it had the lightest snowfall and winds were weaker than prior storms. As a result, outbound rejections only moved up 6% for the last of the four record-setting storms.

On the inbound side, carriers were increasingly rejecting more freight into the region once the full effect of the first three storms became evident. Inbound rejections into the Massachusetts market increased 57% by the time the fourth storm arrived.

FreightWaves SONAR

Large fluctuations in rejection rates, supply and demand, and capacity can send rates into a frenzy. The general rule of thumb is this – when rejection rates reach or exceed 10%, spot rates that carriers charge shippers can well surpass contract rates. This also gets brokers excited because it's an opportunity to increase their margins.

This rapid succession of snowstorms is an extreme case. But even when there is recuperation time between winter storms, the weather can still throw freight markets out of whack for a brief time, and carriers could still miss pickups.

This can be especially problematic if a one-day storm hits on a Friday, because many receivers are closed on weekends. This gives brokers a chance to find shippers who may be willing to pay higher rates to carriers who are positioned to grab the delayed loads as soon as the storm clears and roads are safer.

A little more than half of the carriers in the FreightWaves survey said pursuing missed pickups after a winter storm was "somewhat profitable"; just over 20% said they were "not very profitable"; and 13% or less said they were either "not profitable at all" or "very profitable."

Safety First

According to the latest numbers from the Federal Motor Carrier Safety Administration (FMCSA), fatal crashes involving large trucks in snowy conditions dropped from 2015 to 2016 but went back up in 2017, the year with the most recent statistics. This was the highest number of deaths among all winter weather categories, although the majority of the accidents were not caused by the truck drivers. The FMCSA defines a large truck as one with a gross vehicle weight rating (GVWR) greater than 10,000 pounds.

Fatalities due to severe crosswinds doubled from eight in 2016 to 16 in 2017; deaths from freezing rain/drizzle doubled from two to four; and those related to blowing snow tripled from two to six.

Source: FMCSA
Putting the numbers in perspective, fatalities related to the aforementioned winter weather categories accounted for only 2.2% of all weather-related fatalities in 2017 – slightly higher than 2016, but the same as 2015. Overall, large spikes in winter-weather fatalities have been avoided as trucks have become safer, due in part to more advanced traction control and collision avoidance technology.

The FMCSA database doesn't assign fault or identify where accidents happen to help locate known trouble spots, but trucking companies typically know that roads are cleared quickly in regions where snow is a way of life in winter. Studies have shown that experienced drivers in the Midwest and Northeast regions who have years of winter driving experience, for example, may not run into as many problems compared with drivers unfamiliar with the area they're driving in. Most weather-related accidents occur when inexperienced drivers are operating at speeds inappropriate for the conditions or operating equipment not suitable for the road surface, such as using summer tires in the snow.
Jonathan Hunter, Weather Department manager at Covenant Transport Services Group (NYSE: CVTI), told FreightWaves last December that the company's weather program started in 2003. The program is part of Covenant's Risk Management department, and its goal is simply to minimize, as much as possible, the number of winter weather-related accidents involving its drivers.

Covenant's weather program has around 18 staff members, working in shifts 24 hours a day, constantly communicating with their drivers in order to get ground truth about road conditions. The drivers use hands-free technology to talk on their cell phones. If enough drivers are uncomfortable with a situation – very icy highways, for example – a message will be sent over OmniTRAX to all drivers in that area telling them to pull off the road and stop until further notice. These mandatory shutdowns started in 2004.

Hunter said the weather program has been very successful at reducing accidents. He added that before the program began, winter weather accidents were costing Covenant $5 million to $10 million in annual equipment repairs and replacements. Since the program started, the costs have been whittled down to $1.5 million to $2 million annually.

FreightWaves was curious about the cost of winter weather to other carriers. We asked them this question in our survey: On average, how much does adverse winter weather cost you in truck damage and maintenance per truck per year? The answer with the most responses (25%) was $2,499-$5,000; around 23% said they spent $0-$1,000; an additional 23% said they spent $1,001-$2,500; around 10% said they spent $5,001-$10,000; and around 19% said they spent $10,000 or more.

Besides watching weather forecasts and communicating with drivers, the nearly 60 carriers that responded to the survey said they do many other things to increase driver safety, as well as minimize lost revenue and equipment damage due to winter storms. These are only a few of the actions they take:

  • Driver awareness and training
  • Add transit time to plan
  • Leave drivers home/in hotels, stress not driving if they feel unsafe, no driving on ice or snow unless they feel safe
  • Winter maintenance
  • Stay out of bad weather altogether
  • Make sure the driver knows he or she has the authority to park the truck at any time. A delayed or late delivery is better than an accident. Usually no one is at the customer's to unload in bad weather.

When it comes to freight movement during winter weather, it always pays to stay ahead of the storms, and FreightWaves is dedicated to providing real-time weather commentary and analysis.

Image by Anviere from Pixabay

 

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