The impact of Hurricane Season on the global supply chain

Aaron Terrazas, Convoy Director of Economic Research joins the Yahoo Finance Live panel to discuss supply chain prep for hurricane season 2021 and the trucking industry.

Video Transcript

AKIKO FUJITA: Well, companies are bracing for yet another summer of supply chain disruptions after a record hurricane season last year. New numbers out from Colorado State University pointing to 2021's Atlantic hurricane season with 17 named storms, eight hurricanes. That exceeds the forecast that we saw last year, preceding the record-breaking year. Let's bring in Aaron Terrazas. He's Convoy's director of economic research. Aaron, we saw what happened last year. This certainly doesn't sound promising. But how significant are the disruptions likely to be? And to what extent have a lot of these firms learned from the lessons of years past because this feels like a new normal now.

AARON TERRAZAS: You know, every year brings its own kind of set of natural disasters. They are becoming more and more common, more and more devastating each passing year. So to some degree, there is preparation. If you have a facility in the Gulf Coast or in the southeast, you know you're going to be hit by a hurricane at some point, you know, in August, September. But you don't know quite what week, what facility and planning for that is, is always a headache for supply chain managers.


ZACK GUZMAN: Yeah, it's difficult to plan around all that stuff, but it's also difficult to find the bodies who want to drive in all of this, too. And we've talked about a trucker shortage already before you factor in weather or other factors as well. But talk to me about what the trucking industry right now is doing to fix that problem because we talk so much about self-driving trucks. But even then, the last mile is always difficult. So what does that look like now here as we move into the middle half of 2021?

AARON TERRAZAS: That's completely right. So the trucking market is facing tight supply right now. It's a combination of very strong consumer demand, very strong demand from all the shippers that need to move goods. But you're right. Kind of the number of truck drivers has not bounced back, as we would expect it might have, given the general state of the labor market. I think the obvious answer for a lot of shippers is, you know, until self-driving trucks are more of a phenomenon, look for efficiencies where you can find them.

So, reducing the number of empty miles that truckers drive between loads that they pick up and drop off, you know, making more-- better use of their time. There's a shift in the industry away from live loading of trailers to just dropping a trailer and having, you know, the cab, the tractor connect to various different trailers over the course of the day. All that enhances efficiency, productivity gains for the sector.

AKIKO FUJITA: Aaron, I want to get back to what we're talking about with the supply chain disruptions that are expected. You know, what are you seeing right now in terms of a ramp-up in fortifying to make sure that they can withstand this hurricane season? I mean, what are some areas that you think are particularly vulnerable as we look ahead to the summer months?

AARON TERRAZAS: Yeah, and planning is everything, you know, ensuring that they have capacity lined up. You know, typically, shippers plan not only for one carrier, but a scenario in case that carrier fails, is unable to show up for whatever reason. So they have options and make sure that they line up those options throughout the year. But, you know, I think another important thing is positioning kind of goods in nearby distribution centers well in advance. If you're the type of customer or shipper that doesn't need to move goods in August and September, you know, doing whatever you can to avoid that market is wise.

And we're talking about hurricane season. It's not only hurricane season, unfortunately. It also coincides with the wildfire season in the west. And that also is shaping up to be a record year, record drought conditions across much of the western United States. 70% of California is in drought right now. That is also another factor that could lead to surge freight demand.

AKIKO FUJITA: What does that mean from a cost perspective? We're already talking about a big bump in food prices. There's concerns about inflationary pressures building up as well. You add the extreme weather elements into the mix. It certainly doesn't look good. What did you find in your study about how significant the surge is likely to be?

AARON TERRAZAS: Yeah, so truck prices are holding pretty steady, around multi-year highs right now. So the cost to move goods is higher than it's been in a long time. You look at producer price inflation, the kind of the back end inflation that's running 12%. Take out a few months around 2008. That's basically the highest it's been since 1981. So whether or not those producer prices get passed along to consumers, I think depends on whether or not this situation in the free market persists. Any of these individual weather events can lead to a nationwide spike of 5% to 10%. Particular markets, truck prices can get upward of 50% of their normal levels for very severe weather events.

ZACK GUZMAN: Aaron Terraza, Convoy director of economic research, appreciate you joining us to break all that down. Obviously, a very interesting time in the trucking space.