Hurricane Harvey and the damage it is inflicting in southeast Texas will crimp trucking industry capacity, alter the country’s freight flow and likely push rates upward in the coming weeks and months, said pricing and supply chain experts Mark Montague and Eileen Hart of loadboard and data firm DAT Solutions.
Houston is one of the country’s most prominent freight hubs, says Montague, ranking as one of the top inbound and outbound freight hubs, particularly for van and reefer segments. It’s also a key transfer point for freight incoming from Mexico and houses a large and active deep water port.
Given the damage wrought by Harvey and its historic rainfall and flooding, the supply chain will need to compensate, and freight flow patterns nationwide will be altered, says Montague. Such changes in freight patterns would alone tighten trucking industry capacity, he adds, but there will also be an influx of inbound relief loads from FEMA and others, which will pull trucks out of circulation and thus tighten capacity further, he says.
As industry capacity tightens, rates will likely climb.
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“Houston is such an important location” for the supply chain, says DAT’s Hart. “That’s what’s different about this event. It’s so critical in terms of its location.”
The storm’s ultimate impact on key trucking market conditions is yet unknown, as the storm itself has yet to subside, says Montague.
Port freight will likely be rerouted to major southern California ports or ports up the East Coast, he says. Freight from Mexico will be rerouted to other areas of Texas or other border states. And consumables usually shipped on a Houston-bound lane will shift to other cities within the region, such as Oklahoma City, Dallas or Memphis.
“It will in effect tighten the truck supply. And what we know about tightening supply is that it drives up rates,” Montague says.
DAT maintains a seven-day rolling average of freight volume data. Volumes as of Monday — just one day of data into the storm’s effects — showed inbound and outbound freight volume for Houston already down 10-15 percent, says Montague. He expects that number to hit 75 or 80 percent in the coming days.
Trucking research firm FTR predicts similar industry-wide effects and increases in rates. FTR says an obvious immediate disruption to industry capacity is that of trucks waiting for the storm to pass to resume operation. Other effects to capacity include the stream of relief loads and construction supplies, the extra shipments and reduced productivity due to freight shifts and greater congestion at loading docks caused by the supply chain disruptions.
“Look for spot prices to jump over the next several weeks with very strong effects in Texas and the South Central region,” says Noël Perry, an economist at FTR. “Spot pricing was already up strong, in double-digit territory. Market participants could easily add 5 percentage points to those numbers.”
FTR noted in a report released Monday that rates gained 7 percentage points on an annualized basis in the five months after Hurricane Katrina in 2005. Likewise, spot market rates jumped 22 percent in the weeks following 2014’s massive snowstorm.