The freight market outlook for Q3 remains a mixed bag, much like last quarter, with some positive indicators thrown in. We reported in April that there were hopeful signs of a freight market recession bottom based on various indicators, including a 64% gain in the Baltic Dry Index in Q1 vs. 2023. That key marker, at least, is continuing on the upswing, rising 8.9% month-over-month as of June 20.
But overall, the freight outlook for Q3 appears to be neutral to slightly down based on a variety of indices and economic signals. The Purchasing Managers Index (PMI), a key indicator of economic growth based on purchase orders, was in positive territory above 50 for March, but slid down to 48.7 for May, with the new orders index at 45. And the Cass Freight Index was down 5.8% year-over year in May, down 3.1% sequentially and off 11.1% since 2022.
The Logistics Managers Index (LMI) showed transportation prices growing faster than capacity in May, a positive sign, but a release from the group of academics was guarded. “We have seen this (same dynamic) a few times before in the past six months and it has been temporary every time. The freight recession that began in mid-2022 will not be over until transportation prices are consistently above transportation capacity.
A CNBC survey of supply chain executives on holiday freight demand said 69% of consumers will be value-driven in Q4, reflecting inflation concerns. And investors aren’t as keen on transportation stocks: the Dow Jones Transportation Index (DJTI) was down 5% year-to-date in early June, compared to a 1% rise in the overall Dow and a 9% increase in the S&P 500.
While the NRF and Hackett Associates are calling for monthly imports north of 2 million TEUs through October, based on consumer spending and retailer restocking, Michigan State supply chain professor Jason Miller begs to differ. “We will not see retailers ‘restock’ inventories in 2024 in a manner that will turn the truckload freight market,” Miller wrote in a LinkedIn post. “More generally, I’ve argued there is no such thing as ‘restocking’ on the other side of a large inventory drawdown, where ‘restocking’ would mean a disproportionate increase in physical inventories relative to sales.”
Air Freight Demand Growing As Ocean Disruption Continues
Growing e-commerce volume out of China and continued ocean freight disruptions are combining to drive optimism in global air freight demand, which rose 12% in May according to freight rate data platform Xeneta, and 9% based on estimates from DHL. Still, there are concerns about the effect of U.S. restrictions on e-commerce out of China, and how inflation and longer transit times will affect consumer demand.
“Sustained boost in air cargo demand expected as Chinese e-retailers seek US market expansion,” DHL said in its monthly air freight report. The major logistics firm also said global air cargo capacity was up 11% in May, mostly due to increases in passenger belly cargo.
Even though end-of-year forecasts called for single-digit growth in 2024, Xeneta is now projecting double-digit growth based on “quite extraordinary” year-to-date demand for regional capacity.
Global air cargo spot rates were up for the second straight month in May, rising +9% on average, Xeneta said. Breaking it down by region, spot rates were up 110% in the Middle East and Central Asia to Europe corridor; up 65% from Southeast Asia to North America; and up 34% from China to Europe.
Ocean Container Spot Rates May Top $20,000 Again
Spot rates for ocean freight containers are on a serious upswing, driven by threats of an East Coast dockworker strike this fall and continued Red Sea diversions. This has sparked concerns about container rates hitting $20,000 for a 40-foot unit, perhaps even touching the pandemic-era peak of $30,000. The average price sits at about $12,000.
According to CNBC, spot rates for 40-foot containers surged more than 30% in May, with the average for Asia to the East Coast running about $10,000, driven by concerns over a possible East Coast dockworker strike and continued Red Sea diversions. This figure is well ahead of Shanghai to the West Coast, running about $6,000, according to the Drewry World Container Index.
Speaking of East Coast negotiations, they have been temporarily suspended over an automation squabble. The International Longshore & Warehouse Union (ILU) contends that APM Terminals and ocean freight line Maersk are operating automated gate technology at multiple ports, eliminating jobs in violation of the current agreement. An APM spokesperson told Supply Chain Dive they are in compliance with the existing master contract.
Ocean carriers posted general rate increases that averaged an astounding 140% in May, according to CNBC’s Supply Chain Heat Map, which draws from Xeneta, Freightos, SONAR, and others. Overall, ocean container rates were up 40% on the East Coast, 41% on the West Coast, and 16% on the Gulf Coast, CNBC reported.
The Port of Los Angeles, the busiest in the nation, saw a 3% drop in TEU volume in May, but it remains up 18% for the year. Loaded imports were down 4.5% year-over-year and 6.3% sequentially from April, while loaded exports spiked up 24% from 2023, making it 12 straight months of gains.
Intermodal a Strong Driver in Rail Freight
Rail freight, especially intermodal, is absorbing volume from growing U.S. imports, according to the Cass Freight Index from ACT Research. The Association of American Railroads (AAR) reported that total U.S. rail traffic was up 3.4% year-over-year for the week ending June 15. This is a demonstrated turn, as year-to-date rail volume was down 4.9%. Intermodal in particular has been strong, AAR reported, up 8.9% last month and up 8.8% for the year.
On the West Coast, three inland intermodal facilities (subscription required) have been created this year, to ferry freight to and from West coast ports via drayage. The latest one is near Reno, NV, to transport freight back and forth from the Port of Oakland. In February, Union-Pacific launched a service running from Phoenix to the Ports of Los Angeles and Long Beach, while one from the Tri-Cities in eastern Washington handles freight running to the Ports of Seattle-Tacoma.
Pricing Pressure Continues in TL, LTL Rebounding
Derek Leathers, chairman and CEO of carrier Werner Enterprises, told attendees at the Wells Fargo Industrials Conference that despite continued rate pressure, he sees a turn in fortunes for the truckload sector. Leathers said the company has been holding firm on rates in negotiations, having little margin left to spare based on cost increases, and sees rate increases in the near future.
C.H. Robinson told CNBC that 79% of its freight orders are for goods in the middle price point range. A slight uptick in freight orders is expected to boost 2024 profits, executives said.
The less-than-truckload (LTL) sector appears to be rebounding, based on recent results from top carriers Saia and Old Dominion (Journal of Commerce, subscription required). Saia reported its average daily shipment count was up 18.6% year-over-year in May, after rising 18% the prior month.
Old Dominion’s results weren’t as spectacular. Average daily shipping was up 2.3% in May from the prior year, driving a 5.6% increase in LTL revenue per day. The company’s LTL services revenue was up 1.6% in the most recent quarter, while revenue from other services fell nearly 25%. Both firms are benefiting from volume picked up after the 2023 collapse of Yellow Freight.
Breaking Down Industry-Specific Logistics Trends
Shifting from overall trends across modes and geographies, we’ll take a brief look at trends in three specific industries, and what is shaping them.
Cargo Theft Continues to Plague Food & Beverage Industry
The trend in cargo theft impacting the food & beverage industry continued in Q1 2024 from the prior quarter. Overall U.S. cargo theft rose 10% sequentially from Q4 – when it was up 68% – and 43% than a year earlier, freight security firm CargoNet reported.
Food & beverages and household goods are perennial favorites of cargo thieves, CargoNet noted, because they’re in high demand, relatively easy to sell, and practically untraceable.
In a related finding, 73% of respondents to an annual survey on supply chain risk conducted by food & beverage risk management firm WTW said supply chain losses were higher or much higher than expected over the last two years.
Freight Shifting to Intermodal in Oil & Gas Sector
The global oil & gas logistics market is projected to grow at a compound annual growth rate (CAGR) of 5.17% between 2024 and 2028, according to research firm Technavio.
A shift in freight operations from trucking to intermodal is a primary driver of market growth, Technavio said, as well as the replacement of coal-fired power plants with natural gas. “However, logistics planning and supply chain-related issues for fuel pose a challenge,” the company said.
On another positive note, while the PMI new orders index was in contraction territory in May, at 45.4 (noted above), petroleum and coal were among four industries that showed growth, along with printing, miscellaneous manufacturing, and chemical products.
Also helping fuel sector growth: the continuing decline in demand for electric vehicles, despite a huge push from the federal government and the automotive industry. The share of EV sales in the U.S. was 7.3% in Q1, according to data from Kelley Blue Book, down from Q4 2023. Sales of EVs in Q1 were up 2.6% from 2023, but down 15.2% from Q4 – itself a decrease from the previous two years.
Manufacturing Still Contracting, Order Backlog Shrinking
Manufacturing activity was in contraction mode in May for the second straight month, and the 18th time in the last 19 months, based on a survey of supply executives in ISM’s PMI index. March was an anomaly in that regard, when the index showed growth for the first time in 16 months. One telling statistic: the backlog of manufacturing orders has been in negative territory for 20 months, dropping two points from April to 42.4.
In May, the chairman of the House Ways and Means Trade Subcommittee put forward a bill that would renew the Miscellaneous Tariff Bill, which lapsed in December 2020. A boon to manufacturers, it would temporarily remove or reduce tariffs on products not available in the U.S. Since MTB expired, the National Association of Manufacturers estimates U.S. businesses have spent more than $1.3 million a day to get parts they’re unable to source domestically.
Reshoring and nearshoring are continuing as businesses look to de-risk their dependence on China and save on supply chain costs, although not at the pace that some had predicted. According to the Reshoring Institute, 200,000 jobs are being brought back here annually, although that’s down from 360,000 in 2022 and 300,000 in 2023. A lack of infrastructure in Mexico as compared to China is cited most often as a downside of nearshoring.
A Reliable Logistics Partner = A Good Port in a Storm
We seem to be shy by a few of the “million points of light,” to quote President George H.W. Bush (aka 41), regarding the logistics and transportation sector in Q3. While shippers are benefiting from pricing pressure in trucking (for the time being), ocean spot rates are skyrocketing, and more businesses are seeking higher-ticket air freight as a relative safe haven.
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