According to the National Truckload Index (NTI), national truckload spot rates climbed by 1.5% over the last week as the first hurricane to make landfall in the United States this year slammed the southwest coast of Florida. Similarly, national tender rejection rates seemed unaltered, showing that transportation managers have little to fear regarding national capacity availability.
Natural disasters such as Hurricane Ian can send transportation markets into a tailspin, even in locations with lots of capacity. Relief supplies such as bottled water, food, and generators are shipped into disaster areas, consuming truckload capacity. These loads tend to pay a premium and divert trucks from traditional routes, but carriers should do their homework before taking on this unique and respectable endeavor.
Production in disaster zones might slow, and thoroughfares can become obstructed, contributing to backlogs and congestion.
Every hurricane and its aftermath contains nuances. Ian lacks a few crucial components needed to pose a substantial threat to transportation capacity.
Three primary elements indicate whether a hurricane or other natural disaster will have a significant national impact on domestic transportation:
- Timing/market conditions — is the market stable/transitioning and tight/loose?
- Location — urban areas are at risk for more damage, but is the location also a primary hub for production or transportation?
- Amount of damage — this has more of a long-term impact and is less impactful to transportation at the time of the event.
Almost everything is dependent on timing.
Market circumstances are likely the most underrated of all significant factors influencing whether a disaster disrupts supply chains by impeding freight flow. Whether a market has a buffer of capacity or not makes no difference.
Truckload demand has declined since February, so spot rates have plummeted from record highs. The NTI, which gauges dry van truckload spot rates, has fallen 24% since January 13, with most of that reduction coming between March and May. Consumption declines and inventory glutes caused by over-ordering are mostly to blame.
When supply exceeds demand, spot rates fall. The extent of this year’s fall implies that capacity supply is much-exceeding demand, implying that many trucks are looking for anything to move right now.
National tender rejection rates (OTRI), a measure of carrier willingness and availability to fund contract freight, are at 5.25% after an average of more than 20% until 2021. In other words, carriers accept 95% of all capacity requests, the greatest acceptance rate since April 2020. The freight market is not just slack but also transitioning from its previous tightness.
Location
Hurricane Harvey struck as a Category 4 hurricane like Ian just over five years ago, right to the south of Houston, one of the country’s busiest outbound freight markets. Harvey is regarded as the second most expensive hurricane in history, contributing to one of the most congested freight markets in modern history.
Hurricane Irma made landfall in Florida as a Category 3 storm a few weeks after Harvey, but it did not have the same impact on freight traffic in the United States because it hit what was and is essentially an island for people and manufacturing. Ian made landfall just a few miles north of where Irma did.
Since 2017, the Houston market has accounted for around 2.5% of overall truckload demand in the United States. The Miami market, where Irma and Ian made landfall, is three times less expensive. South Florida is not a heavy manufacturing area located far from any main truck routes.
Sticker awe
The entire cost receives the most attention, yet it is difficult to link the total economic damage caused by a storm to transportation markets. Much of the damage is not fixed immediately, and recovery can take years. Looking at Google maps of the Lake Charles, Louisiana, vicinity, you can still see blue tarps on properties from Laura in 2020 that have yet to be repaired.
Dollar values serve as a barometer for prospective disruption rather than actual disruption since the impact can be spread over a longer time frame.
In the aftermath of Hurricane Harvey, shipping operations were halted for many days, while flooding hampered output. Freezing weather had a similar effect in 2021 when the Texas power grid failed, and infrastructure froze.
When you look at the Cass Truckload Linehaul Index, which monitors base truckload cost swings on a monthly cycle, you can see how timing is one of the most important factors in disasters that have a large impact. A few catastrophic incidents occurred during a period of market cooling, making Ian a somewhat unique case study.
Harvey struck during a period of prolonged softness in the trucking market, cutting capacity and making it more vulnerable to demand shocks. Ian is entering the market early enough in the downturn to provide a supply cushion. It also strikes an area with minimal production and is located away from heavy traffic.
According to FreightWaves TRAC, spot rates from Atlanta to Orlando, Florida, have risen 2.6% in the last week, causing some regional disruption. However, rates of migrating away from Atlanta have not shown any substantial movement.
While the overall damage to Ian will not be known for months, it will certainly be included on the list above. For the time being, it appears that this market can absorb Ian’s opening strikes.
It should be mentioned that the goal of this article is not to diminish the effects of these storms on the individuals affected but rather to show how storms and disasters affect transportation. Anyone who has been through a catastrophe recovery knows that money amounts are useless when viewed through the eyes of those who have been the most severely affected. Our thoughts and prayers go out to everyone affected by Ian this week.
