Chemical shippers face puzzling trucking market in 2020

Experts at FreightWaves, which supplies North American freight market participants with analytics, have found that spot prices as of early 2020 have considerably eased since the middle of 2019.

Petrochemical companies looking for road shipping options are likely to find both adequate capacity and pricing in early 2020, according to FreighWaves. Photo courtesy of HombreCamion/Pixabay

Petrochemical companies should have a much easier time finding competitive shipping rates in early 2020 compared with last year.

The improvement for shippers occurred in spite of bankruptcies by trucking companies linked to rising insurance costs and driver shortages. 

Petrochemical companies are “not likely to have a problem securing capacity” in the current market, John Kingston, editor at large at FreightWaves, told Petrochemical Update.

In 2018 nearly 970 million tons of products were transported for the American chemical industry, making it one of the largest shippers. Products are moved by rail, truck as well as waterborne and through pipelines, according to the American Chemistry Council.

Over-the-road transportation can in some cases offer lower costs than other modes, and more flexibility because unlike rail shipping there aren't constraints like fixed schedules. Unlike rail, which operates largely as an oligopoly and leaves little if any negotiation room, market conditions set trucking rates.

Chemical companies either own their fleet of trucks, or use for-hire carriers, the ACC said.

Trucking is the best option for shorter distances, like from warehouses to ports. For higher value chemicals that rely more on marketing, it helps to offer differentiation through greater distribution efficiencies.

Trucking is most widely used for packaged chemical products, the ACC said. It is also used for industrial gases and is increasingly tapped for bulk shipments of intermediate chemicals, it added.

Spot trucking prices have plunged since June

“While it is true that you can't simply take all of the conditions of the truckload business and transfer it right on to the market for haulers of products like petrochemicals, the two ultimately will be linked to a large degree by the fact that some drivers can move from one side of the business to another,” Kingston said.

The truckload business shows truckload capacity has greatly increased in recent months.

“Our proprietary index for measuring capacity is called the Outbound Tender Rejection Index. It takes a data flow of tenders put out by companies seeking to move something by truck and measures what percentage of drivers reject that offer until they find a driver. The lower the number, the more capacity there is out there,” Kingston said.

“Right now, the OTRI, which updates daily, is measuring 5.6%. This is down toward some of the lowest numbers since the start of 2019,” he added.

“In June-July 2018, generally viewed as the strongest freight market in recent memory, the OTRI at times was running above 25%,” Kingston said.

“You can see just how much weaker the market is now,” Kingston said in comments provided during the third week of February.

Puzzling market conditions

The cost of insurance “has been a major problem for truck drivers and it has caused many companies to close up shop,” Kingston said.

“Freight rates as measured by the FreightWaves national truckload spot rate on the freight futures contract are now down below $1.40/mile, the lowest it's been since June,” Kingston said.

“All of these conditions should be taking lots of capacity off the market and the number of companies reportedly closing their doors is high," he added.

Yet, the barometers like the OTRI or the freight rates "aren't moving any higher. A lot of people are puzzled by that,” Kingston said.

Drivers unlikely to get more compensation

Drivers may demand higher compensation “but they aren't likely to get it in this market. Companies that hire drivers and have them on the payroll will always be reactive to what spot rates are doing,” he said.

Trucking companies know that independent owner operators who get those spot rates can't do much better, Kingston added.

“In 2018, you had this odd phenomenon where not only were companies raising the base pay of drivers, they were announcing it to the public as well. They aren't increasing those pay rates anymore, I can assure you,” he added.

At the same time, spending on new trucks with newer technology like video capacity has not led to any price increase.

“Sales of new vehicles in 2018 and most of 2019 were at record levels. They all came equipped with the latest technology. New orders have plummeted since then,” Kingston said.

Sales of new trucks may not recover soon, and the higher ticket price for incorporating newer technologies has not been passed on to the market.

Truck buyers can find “plenty of second-hand capacity available from companies that went out of business. Given the order rates of 2018 and early 2019, a lot of drivers are already sitting in those high-tech trucks. But it hasn't boosted rates yet,” Kingston said.

Pressures for faster truck loading ease

Driver delays at customer facilities that result from inefficiencies of some shippers showed up in the latest annual report by the American Transportation Research Institute in October as one of the main concerns.

“Back in 2018 when drivers were in such huge demand and rates were strong, they were in position, if they were independents, to turn down loads to shippers that had the reputation of being bad for detention. It forced a lot of shippers to clean up their act,” Kingston said.

“But now, with drivers on the defensive because of a weak market, that need for shippers to become more efficient to keep the drivers coming through their doors has become a bit less pressing,” he added.

By Renzo Pipoli