Increasing lead times could be the new “Amazon effect” and potentially a problematic sign for LTL

Chart of the Week:  Tender Lead Time – USA SONAR: OTLT.USA

Tender lead times—the amount of time between the load request submission and requested pickup date—have increased almost 17% y/y with 40% of the increase occurring since the start of April. While most of the increasing lead times occurred prior to the COVID-19 pandemic taking hold in the U.S., the rate of increase over the past two weeks has been much higher. There are several possibilities as to why this is occurring—one of them being related to the e-commerce behemoth, Amazon.

Tender lead times measure shipper urgency to an extent. With the rise of e-commerce, shippers are expected to turn orders around much faster than they were 10 years ago. Increasing competition in the transportation space has made service a big differentiation among carriers.

Shippers are pressed to fulfill orders as fast as possible
or they may lose the sale. Many times, this means they receive an order and
need to send it out on the same day, which means the carriers need to respond quickly
to get the load. Amazon’s Prime service has made the two-day shipping guarantee
the standard expectation for many consumers which puts subsequent pressure on

In late March, Amazon announced it would no longer guarantee
two-day deliveries on what was deemed to be non-essential goods to better
service the demand for medical equipment and supplies. This occurred as the
demand for consumer products was peaking in the U.S. A week later, lead times
on freight orders began to rise.

This could be a case of mere coincidence as freight demand
subsequently plummeted at a record pace after March 23 according to the Outbound
Tender Volume Index (OTVI), but there was no compression in lead times as
volumes were spiking—something to be expected if the converse is

It is nearly impossible to tell if Amazon’s relaxing of standards for non-essential goods is the main driver of national lead time increase or not, but the shipping giant spent nearly $28 billion last year in shipping costs, a significant enough amount to have an influence over industry service expectations. Making a case that their behavior can influence shipping behavior across the country is not a big stretch.

Other reasons for lead time increases could be the simple
case that shippers are not pressed for order fulfillment as they were prior to COVID-19.
The work-at-home lifestyle has potentially slowed the pace of operating while
companies and consumers pull back to more essential activities that do not
require the same level of urgency. Less complexity in their daily lives leads
to increased focus on fewer items. In other words, people are more on top of
things than they were before the pandemic, leading to less “last minute”

Increasing lead times are concerning for the
Less-than-Truckload (LTL) carriers as shippers have more time to consolidate
their orders into truckloads, which is a cost saver for shippers who have the
volume. If shippers can afford to sit on their orders for an extra half day
that gives them more opportunity to aggregate their shipments into larger
pieces by compiling more orders into a single shipment.

Whatever the reason for increasing lead times may be, the transportation landscape is changing rapidly. There will be many unforeseen consequences of the COVID-19 economy that will persist for months to come.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new data sets each week and enhancing the client experience.

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