Who Benefits From the Package Traffic Jam?
Are you wondering where that package is that you ordered last week? In a world where most consumers are accustomed to 2-day shipping, waiting a week for a package can feel like an eternity.
I had this exasperation today. I ordered a needed kitchen gadget from a well-known home goods retailer and eagerly awaited its arrival. Two, three, four, even five days passed without a brown box on my doorstep.
I was certain there was some problem. An unpredicted snowstorm garbling midwest air travel perhaps? A sold-out item maybe?
Alas, when I tracked the package online, all was going according to plan. The retailer expected a 7-10 day delivery window. This used to be the norm for shipping times. But the popularity of Amazon Prime, which promises 2-day delivery, has shrunk the acceptable waiting times to a very tiny window.
This is changing.
You may not have heard about it on the evening news but you’re likely to start noticing it in your everyday life. There is a major shipping crunch happening in the U.S. and your packages will take longer to arrive.
A concurrence of events is causing this squeeze. The demand side of the equation is rising due to the continued secular growth of e-commerce and the cyclical growth of the economy.
The supply side is being hit due to a shortage of drivers and available space on trucks.
Any economist can tell you, rising demand coincident with declining supply can only mean one thing- higher prices.
Rigorous New Driver Regulations:
One month ago the ELD or the electronic logging device regulation took effect. This mandate requires truck drivers to electronically log the number of hours they have driven. This government rule has a number of restrictions.
It limits the number of consecutive hours a truck driver can drive, the cumulative number of hours allowed driven over a longer time period and the amount of time required for breaks between drives.
There have always been rules limiting long driver hours. However, they were tracked via a manual logbook. Manually entering starting and stopping times allowed for some wiggle room when making trips.
But the arrival of GPS put the kibosh on any fuzzy numbers. Start and stop times are specific and fines for breaking drive limits are onerous.
While proponents of the rule argued the rule would remove the hassle of manual logs, the lost driving time is wreaking havoc on trucker productivity.
Demand – up, up, up
The Cass Freight Index, which measures the monthly volume of freight and the money spent to ship it in the U.S. is flying high.
The January numbers, just released this week, are skyrocketing. Shipments are up 12.5% and dollars spent up 14%. These are some of the biggest year-over-year increases recorded since the index began in 1999.
The combination of higher prices and higher volumes is good news for shippers. Many consumer products companies are complaining that their earnings were clipped due to higher freight charges. And most warned investors that higher freight expenses will continue for the rest of the year, at least.
What is one company’s problem is another’s opportunity. Higher expenses for manufacturers equals higher revenue for the truckers.
Trucking companies reported stellar revenue trends for the fourth quarter. Revenue rose in the high double-digits for most. The higher wages necessary to increase the number of drivers to compensate for hourly driving restrictions ate up some of those increases but not all.
In a surprising case of “sell on the news” many trucking stocks fell despite strong earnings. Since then they’ve been getting up to speed. I have several stocks that I’ve recommended for my Profit Catalyst Alert portfolio that should benefit from these trends. I expect investors will become more bullish on this group as they recognize that the trends supporting higher rates aren’t disappearing with the next cycle.