China’s Drought Intensifies, Rekindles Global Supply Chain Uncertainty
RedStone Resource
September 2, 2022
Inside This Edition
Cass Freight Shipments Index Shows Mixed Conditions in July
The Cass Freight Shipments Index showed some mild deceleration in July, slipping by 1.7% month-over-month. However, it was still trending just slightly higher on a year-over-year basis rising by 0.4%
Drug and Alcohol Clearinghouse Show 129,829 Driver Drug Failures Since 2020
The National Drug and Alcohol Clearinghouse is showing nearly 130,000 drivers with at least one drug failure violation. This is approximately 10% of the national for-hire driver pool. Of those, approximately 97,000 have gone into prohibited status and less than 25% have successfully gone through the process of returning to work.
FTR Shipper Conditions Index Improves Slightly
After being weighted heavily toward carriers for the past year and a half, the index has begun to slide slightly closer to “balanced”. The index was still showing a reading of -4.0 in June (latest available) from -6.2 points in May.
ECONOMIC BRIEFING
Hurricane Ian Could Have Damaged More Than a Million Homes
Many global situations are temporary and those affecting global supply chain issues typically have a defined start and a predictable end. But the situation with drought in China and Germany is difficult to forecast. Both the Yangtze River in China and Rhine River in Germany (among many others) are experiencing water levels that are low enough that it is affecting hydroelectric power production and navigation of freight up and down the waterways.
The Yangtze River feeds electricity and water to many of the largest manufacturing production zones in southern China. Multinational plants ranging from Tesla and Volkswagen to Foxconn have experienced intermittent delays because of electricity shortages, despite efforts by the Chinese Government to find alternative energy sources. The problem with this scenario is that the drought plaguing central and southern China has been years in the making and even a heavy winter of precipitation will not allow it to quickly snap back to normal operating levels. This condition will continue to create intermittent disruptions in supply chain activity. Europe is in a similar situation, and it will also take time before the disruptions in activity are fixed.
Cass Freight Shipments Index Shows Mixed Conditions in July
The Cass Freight Shipments Index showed some mild deceleration in July, slipping by 1.7% month-over-month. However, it was still trending just slightly higher on a year-over-year basis rising by 0.4%. But the expenditures index showed continued pressure in the pricing side of the industry. The index was still 28.2% higher year-over-year despite some slight deceleration as it slipped 3.6% month-over-month.
This tracks closely with what the producer price indexes (PPI) were showing in July as well, the LTL PPI was down 1% month-over-month but was 23% higher year-over-year. Truckload prices were down 1% month-over-month as well but were still 25.9% higher year-over-year. Contract rates remain higher as shippers work to guarantee capacity this fall (many assuming that some scrambling to find capacity could still be a factor in some markets), spot rates are adjusting slightly faster.
TRANSPORTATION BRIEFING
Drug and Alcohol Clearinghouse Show 129,829 Driver Drug Failures Since 2020
The National Drug and Alcohol Clearinghouse is showing nearly 130,000 drivers with at least one drug failure violation. This is approximately 10% of the national for-hire driver pool. Of those, approximately 97,000 have gone into prohibited status and less than 25% have successfully gone through the process of returning to work.
A Gallup Poll conducted recently showed that 1 in 6 Americans use marijuana, which is up from 1 in 8 last year. With more states legalizing marijuana (which constitutes approximately 56% of all positive drug tests), the problem is obvious. Approximately 5,000 drivers are testing positive for the first time each month and the country will continue to see driver pools reduced if this pace is continued.
FTR Shipper Conditions Index Improves Slightly
The Shipper Conditions Index shows whether the industry is balanced or weighted toward carriers (which generally leads to higher prices). After being weighted heavily toward carriers for the past year and a half, the index has begun to slide slightly closer to “balanced”. The index was still showing a reading of -4.0 in June (latest available) from -6.2 points in May.
Other measures show similar deceleration in current conditions, but they continue to show supply chain conditions that remain historically elevated. For instance, the Global Supply Chain Pressures Index shows that supply chain conditions are improving, but they remain at a historically high level. The trend is positive, but the current conditions continue to look more like 2018 and 2019 levels of activity, which were still robust. This was also before the full impacts of supply chain disruptions in Germany and China started to hit the global market.
