CRU: Supply Chain Stress—Outlook for Truck Freight is Not Good!

Since the Global Financial Crisis, the primary aluminum market has been in perpetual surplus, which allowed a considerable degree of “forgiveness” when transportation problems emerged. There has been plenty of aluminum around to compensate for shortages of trucks, delayed rail shipments, bottlenecked imports and production outages.

In aluminum, the luxury of excess supply is now gone. CRU now estimates that the primary aluminum market will reach a deficit of 1.2 million tons in 2021 and will experience a deficit of over 1 million tons in 2022.

These deficits have now “unmasked” very serious cracks in our seaborne and land transportation networks.

I want to focus my comments on just the truck markets this week, as it’s a transportation mode that’s common to both domestic and import supply in steel and aluminum.

I recently had the pleasure of hosting a supply chain panel at the CRU-U.S. Aluminum Association Executive Insight Series in Louisville, Ky. Dan Titus, president of Page Trucking, shared some eye-opening comments about the state of modern trucking. Dan’s firm operates 350 trucks, 10 regional terminals, numerous aluminum material processing centers and is a major carrier for aluminum scrap, molten metal and finished aluminum products.

When asked about the state of trucking, Dan offered up a stark warning that things will get worse before they get better:

Since the COVID-19 pandemic has started, 65,000 truckers have left the industry. Most of these were the long-time veterans, or as he put it, “the studs of the industry,” people willing to leave home on Sunday to get loads to customers on Monday; get home late Friday or even Saturday; plus pull special runs for expedited freight and the like.

These departures were driven by 1) frustration with the treatment of drivers, 2) increased drug testing scrutiny through the national clearinghouse that resulted in more drivers unable to pass screening, and 3) congestion on the roads reducing drivers’ mileage during their mandated 11 hour/days under Hours of Service. 

Replacing these older drivers is getting harder. Nationally mandated formal training courses mean traditional sources of new drivers coming up from farm backgrounds or other off-road experience does not work. Everyone must go through these formal courses, which are not cheap, and that’s acting as a deterrent for some prospective applicants. 

From a carrier perspective, insurance is getting harder to get and much more expensive. This is a function of the loss of experience for many insurance companies. The damage awards for commercial trucks involved with passenger vehicles and light trucks continues to mushroom. Insurance companies are pricing that into their rates or simply refusing to underwrite many carriers. Dan believes that many small carriers are simply not able to afford the same comprehensive insurance coverage that they did even five years ago.

Congestion on the roads is killing productivity. This is especially severe in the Northeast and California.

Industries are still not doing a good job of making their locations “friendly.” Delays in loading and unloading freight burn into those Hours of Service.  Live loading and unloading may become a thing of the past as carriers demand “drop and hook” locations to keep drivers moving.

The bottom line from Dan’s perspective is that truck freight is going to get more expensive, and carriers are going to be extremely selective with whom they trade.

The days of industry employing electronic tender rolls and having carriers accept 90+% of tendered loads are gone. Now, the markets have completely inverted, with carrier acceptance of tender rolls perhaps as low as 10%.

Industries that cannot turn trucks quickly will simply not be serviced, or they will be surcharged to compensate for delays.

What Does This Mean to Steel and Aluminum?

Freight for too many years has been treated as an afterthought in some commercial quarters. Every time a sales representative took an order on a delivered basis to a customer, they made a statement on freight…effectively going “short” freight. For many years, this was not a problem as freight costs were relatively stable and the market was very forgiving. The latter half of 2020 and 2021 has made selling anything on a delivered basis a very slippery slope. Many industries have been badly burned by having to absorb truck rates that were two to five times higher than assumptions.

Looking ahead to 2022, the caveat will be you can’t be too conservative on the cost of truck freight. Freight surcharges will undoubtedly become more prevalent across many sectors and freight costs will exert a major inflationary impact on steel and aluminum product prices.

Greg Wittbecker joined CRU in January 2018 after retiring from Alcoa, where he was Vice President of Industry Analysis and Managing Director of Alcoa Beijing Trading, based in Shanghai, China. His career spans 35 years in the aluminum industry, having also held senior commercial and management roles at Cargill, Wise Metals and Koch Supply and Trading. Greg brings perspective on the entire aluminum supply chain from bauxite to aluminum finished products and will be a regular contributor to SMU going forward. He can be reached at gregory.wittbecker@crugroup.com

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