Current Affairs

March 31, 2022

Looming Dock Strike

22,000 Union Workers At 29 West Coast Ports May Strike

by Tyler DurdenThursday, Mar 31, 2022 – 10:45 AM

By Dees Stribling of Bisnow National

The international supply chain crisis that has impacted U.S. logistics firms, retailers and consumers could intensify this summer.

West Coast union dockworkers may strike if they don’t come to an agreement to replace their existing contract with marine terminals. The contract is set to expire at the end of June.

Major retail chains have already ordered extra goods from Asia as insurance against a breakdown in contract talks, keeping the goods at newly developed storage yards near the twin California ports of Long Beach and Los Angeles. Such lots allow retailers to move containers more quickly, preventing them from being delayed under piles of cargo at congested ports.

Walmart alone has room for 4,000 shipping containers at the ports’ overflow yards, Pacific Terminal Services Vice President of Commercial Operations Sepehr Matinifar told The New York Times.

Space constraints in the area led to the rise of the new storage yards. By Q2 2021, industrial vacancy near the ports of Los Angeles and Long Beach was below 1%, according to CBRE.

Even with beefed-up orders kept in storage yards, a slowdown or strike by West Coast dockworkers would compound the pandemic-induced supply chain woes that have seen record backlogs of container ships off the ports of Los Angeles and Long Beach waiting to be unloaded.

The International Longshore and Warehouse Union, which represents nearly 22,000 workers at 29 ports along the West Coast, recently put together its contract negotiating team. Nearly three-quarters of those workers are employed at the ports of Long Beach and Los Angeles, the major nexus for goods shipped from Asia to North America.

In 2014, the last time the union and shipping companies negotiated a contract, a labor slowdown brought activity at Pacific ports nearly to a standstill.

https://www.zerohedge.com/economics/22000-union-workers-29-west-coast-ports-may-strike

March 24, 2022

Economic Concerns

Just three years after 2019’s trucking bloodbath, another one is on the way…

Craig Fuller, CEO at FreightWaves Follow on Twitter Thursday, March 24, 2022 4 minutes read

Is the truckload market about to suffer a major downturn? (Photo: Jim Allen/FreightWaves)
Is the truckload market about to suffer a major downturn? (Photo: Jim Allen/FreightWaves)

Listen to this article 0:00 / 5:40 BeyondWords

After two years of COVID-induced havoc in global freight markets, volatility has started to abate. FreightWaves’ view of the market has become clearer, and the picture isn’t pretty. We think another sharp, painful downturn in the U.S. truckload market is imminent, and it could be as bad as 2019.

March has been unusually soft in the truckload freight market, according to the SONAR Outbound Tender Volume Index (OTVI). Because this index measures actual truckload tenders in the contract market, it provides a very reliable indicator of market direction. 

March is typically a strong month for trucking, as shippers start to stock their shelves in preparation for summer. And late March normally gets a reliable end-of-quarter boost in volumes as shippers pump sales and reduce inventories. This year, we are not seeing that surge. In fact, March volumes are softer than at any point in 2021 (other than holidays). 

The OTVI (in blue) is currently sitting at 13,571. It was 15,531 at the end of January and 15,859 a year ago. The orange line is 2021. 

What is causing soft truckload volumes? 

More than likely, the lower volumes are due to a major consumer slowdown. Inflation that began in 2020, combined with the surge in fuel prices related to increased inflation and the Russian invasion of Ukraine, have made consumers move to the sidelines. In addition to monitoring SONAR data, FreightWaves analysts also conduct channel checks through our network. Market participants are confirming what FreightWaves analysts are seeing in the data. Spot rates are falling fast and volumes are dropping. 

What does this mean for the rest of 2022? 

There are many reasons to believe that the freight market slowdown will continue, and that an oversupply of trucking capacity – particularly in the spot market – will pull rates even lower.

Consumer spending is shifting away from physical goods 

Freight is all about the movement of physical goods. Travel and entertainment do not drive (much) freight, so any dollars spent on “experiences” means money isn’t spent on cargo. 

After two years of massive consumption of physical goods, consumers are pausing their spending. The COVID surge is largely behind us and people are starting to shift their spending away from physical goods to travel and entertainment, which will take a much larger percentage of disposable spending than we have seen over the past two years.

The trend toward intensive goods spending has taken longer than many initially expected to reverse itself, but consumer spending data confirms that a material shift is taking place. February retail sales were nearly flat at 0.3%, missing expectations.

Inflation and high fuel prices will keep consumers on the sidelines 

If traffic is any indication, consumers are on the move right now and this requires fuel. Except for the 3% of the U.S. population that have electric cars, any money spent on filling up the gas tank will mean less money going toward discretionary spending. 

Everything is more expensive than it used to be and consumers are starting to be more cautious about the future. High fuel prices and runaway inflation sap consumer confidence and will be a drag on discretionary purchases. 

Inventories

Over the past two years, shippers were short of inventory. In an attempt to prevent stock outages, they ordered more than they needed and now are faced with a hangover from ordering too much. Key transshipment infrastructure like ports, warehouses, transloading facilities, and intermodal ramps were clogged, slowing freight velocity, reducing sales, and increasing inventory levels. FreightWaves’ view is that shippers will compensate by slowing their purchasing and working off inventory when opportunities with acceptable margins arise.

Truckload spot rates are falling – fast 

Trucking spot rates are under massive pressure, caused by too many trucks and not enough freight. Truckstop.com’s truckload spot rates peaked at $3.83 per mile in January and are now down to $3.42 per mile. Spot rates will fall further and could hit $2.50 per mile by mid-year. 

A rash of trucking bankruptcies are on the way and it will be Bloodbath 2.0

Trucking has enjoyed the largest number of new entrants in its history over the past two years. New fleet registrations were up to 20,166 last month alone. This is unprecedented. The last peak was in August 2019; there were 9,511 new trucking fleets and that was in the middle of one of the weakest freight markets in history. New trucking registrations tend to lag market conditions, so we can expect new fleets to continue to enter the market, even after things soften. This will make the downturn that much worse. 

Many of the operators are unseasoned and inexperienced. They are unlikely to have ever seen a market downturn, much less run a business in the middle of one. They also bought their trucks and hired their drivers at the top of the market. 

These same drivers that were chasing high spot volumes will find fewer and fewer opportunities in the market. They will either leave the trucking market or move to trucking companies that have more consistent freight, leaving those trucks unseated. 

With falling spot rates, declining volumes, surging fuel prices and inflation across the board, it will get ugly, very quickly for many of these operators. Back in 2019, FreightWaves reporters wrote about trucking bankruptcies almost every day. I expect this will become reality for us once again.

https://www.freightwaves.com/news/just-three-years-after-2019s-trucking-bloodbath-another-one-is-on-the-way?utm_source=sfmc&utm_medium=email&utm_campaign=FW_Daily_3_24_22&utm_term=Just+three+years+after+2019%e2%80%99s+trucking+bloodbath%2c+another+one+is+on+the+way%e2%80%a6&utm_id=127068&sfmc_id=63552105

March 24, 2022

Economic Concerns

Just three years after 2019’s trucking bloodbath, another one is on the way…

Craig Fuller, CEO at FreightWaves Follow on Twitter Thursday, March 24, 2022 4 minutes read

Is the truckload market about to suffer a major downturn? (Photo: Jim Allen/FreightWaves)
Is the truckload market about to suffer a major downturn? (Photo: Jim Allen/FreightWaves)

Listen to this article 0:00 / 5:40 BeyondWords

After two years of COVID-induced havoc in global freight markets, volatility has started to abate. FreightWaves’ view of the market has become clearer, and the picture isn’t pretty. We think another sharp, painful downturn in the U.S. truckload market is imminent, and it could be as bad as 2019.

March has been unusually soft in the truckload freight market, according to the SONAR Outbound Tender Volume Index (OTVI). Because this index measures actual truckload tenders in the contract market, it provides a very reliable indicator of market direction. 

March is typically a strong month for trucking, as shippers start to stock their shelves in preparation for summer. And late March normally gets a reliable end-of-quarter boost in volumes as shippers pump sales and reduce inventories. This year, we are not seeing that surge. In fact, March volumes are softer than at any point in 2021 (other than holidays). 

The OTVI (in blue) is currently sitting at 13,571. It was 15,531 at the end of January and 15,859 a year ago. The orange line is 2021. 

What is causing soft truckload volumes? 

More than likely, the lower volumes are due to a major consumer slowdown. Inflation that began in 2020, combined with the surge in fuel prices related to increased inflation and the Russian invasion of Ukraine, have made consumers move to the sidelines. In addition to monitoring SONAR data, FreightWaves analysts also conduct channel checks through our network. Market participants are confirming what FreightWaves analysts are seeing in the data. Spot rates are falling fast and volumes are dropping. 

What does this mean for the rest of 2022? 

There are many reasons to believe that the freight market slowdown will continue, and that an oversupply of trucking capacity – particularly in the spot market – will pull rates even lower.

Consumer spending is shifting away from physical goods 

Freight is all about the movement of physical goods. Travel and entertainment do not drive (much) freight, so any dollars spent on “experiences” means money isn’t spent on cargo. 

After two years of massive consumption of physical goods, consumers are pausing their spending. The COVID surge is largely behind us and people are starting to shift their spending away from physical goods to travel and entertainment, which will take a much larger percentage of disposable spending than we have seen over the past two years.

The trend toward intensive goods spending has taken longer than many initially expected to reverse itself, but consumer spending data confirms that a material shift is taking place. February retail sales were nearly flat at 0.3%, missing expectations.

Inflation and high fuel prices will keep consumers on the sidelines 

If traffic is any indication, consumers are on the move right now and this requires fuel. Except for the 3% of the U.S. population that have electric cars, any money spent on filling up the gas tank will mean less money going toward discretionary spending. 

Everything is more expensive than it used to be and consumers are starting to be more cautious about the future. High fuel prices and runaway inflation sap consumer confidence and will be a drag on discretionary purchases. 

Inventories

Over the past two years, shippers were short of inventory. In an attempt to prevent stock outages, they ordered more than they needed and now are faced with a hangover from ordering too much. Key transshipment infrastructure like ports, warehouses, transloading facilities, and intermodal ramps were clogged, slowing freight velocity, reducing sales, and increasing inventory levels. FreightWaves’ view is that shippers will compensate by slowing their purchasing and working off inventory when opportunities with acceptable margins arise.

Truckload spot rates are falling – fast 

Trucking spot rates are under massive pressure, caused by too many trucks and not enough freight. Truckstop.com’s truckload spot rates peaked at $3.83 per mile in January and are now down to $3.42 per mile. Spot rates will fall further and could hit $2.50 per mile by mid-year. 

A rash of trucking bankruptcies are on the way and it will be Bloodbath 2.0

Trucking has enjoyed the largest number of new entrants in its history over the past two years. New fleet registrations were up to 20,166 last month alone. This is unprecedented. The last peak was in August 2019; there were 9,511 new trucking fleets and that was in the middle of one of the weakest freight markets in history. New trucking registrations tend to lag market conditions, so we can expect new fleets to continue to enter the market, even after things soften. This will make the downturn that much worse. 

Many of the operators are unseasoned and inexperienced. They are unlikely to have ever seen a market downturn, much less run a business in the middle of one. They also bought their trucks and hired their drivers at the top of the market. 

These same drivers that were chasing high spot volumes will find fewer and fewer opportunities in the market. They will either leave the trucking market or move to trucking companies that have more consistent freight, leaving those trucks unseated. 

With falling spot rates, declining volumes, surging fuel prices and inflation across the board, it will get ugly, very quickly for many of these operators. Back in 2019, FreightWaves reporters wrote about trucking bankruptcies almost every day. I expect this will become reality for us once again.

https://www.freightwaves.com/news/just-three-years-after-2019s-trucking-bloodbath-another-one-is-on-the-way?utm_source=sfmc&utm_medium=email&utm_campaign=FW_Daily_3_24_22&utm_term=Just+three+years+after+2019%e2%80%99s+trucking+bloodbath%2c+another+one+is+on+the+way%e2%80%a6&utm_id=127068&sfmc_id=63552105

March 21, 2022

Inventories

Inventory growth hits all-time high as warehouse prices soar in latest LMI

Zach Strickland, FW Market Expert & Market Analyst Follow on Twitter Saturday, March 19, 2022 3 minutes read Listen to this article 0:00 / 4:28 BeyondWords

Chart of the Week: Logistics Managers’ Index – Inventory Levels, Inventory Costs, SONAR: LMI.INVL, LMI.INVC

The February Logistics Managers’ Index (LMI), which measures directional changes in transportation and warehousing activity, showed inventories growing at the fastest pace since the index was created in 2016 with a monthly value of 80.16. With companies finally making significant headway in restocking, orders may begin to slow, which may allow for supply chains to stabilize.  

Companies have been struggling to replenish depleted inventory levels for the past 18 months thanks in large part to unprecedented surges in demand and production disruptions resulting from the pandemic. Inventory-to-sales ratios have been averaging about 12% lower than pre-pandemic levels over the past year with no sign of improvement, according to the Census Bureau. 

After about a month of sheltering at home in April 2020, consumers got busy ordering items online and revamping their houses. This activity was completely unexpected as many companies stopped ordering goods due to the uncertainty of what was to happen next. The result was a rapid depletion of existing inventory that pushed truckload tender volumes to record levels. 

The Outbound Tender Volume Index (OTVI), which measures total truckload tenders from shippers requesting capacity, increased by 70% from May to September as inventory levels plummeted. 

With inventories beginning to recover at a much faster pace in January and February, trucking demand appears to be showing early signs of waning in March with the OTVI falling 7.5% through the first three weeks of March — hitting its lowest non-holiday point since February 2021. 

On this week’s Freightonomics episode, Zac Rogers, a main contributor to the LMI from Colorado State University, discussed how many large retailers like Amazon and Walmart are holding inventory upstream in the supply chain as demand has waned slightly from peak levels. 

It is no secret that inflation is thought to be the primary culprit of eroding demand as the CPI is up nearly 8% over the past year with gas (up 38%) and food being heavy contributors. Consumer debt for credit cards has also rebounded as savings rates have dropped, indicating consumers may not have the discretionary income for goods that they had in 2021. 

Rogers states that some demand-side erosion is probably a good thing as the current level of chaos is unsustainable and unhealthy in the long run. The Fed increased interest rates a quarter point this week because it also knows this is true. The main concern is over the “bullwhip effect” to the economy as prices inflate too rapidly leading to a sudden drop in demand — potentially creating a recession. 

There is no sign of a recession at this point as there is still plenty of growth arising from a lagging industrial sector, a white-hot construction environment and consumers still spending well beyond pre-pandemic levels on retail goods. Services have also made a comeback. 

Rogers used the analogy that a 65-degree day in June feels a lot cooler than a 65-degree day in February, basically stating any cooling of an overheated environment feels substantial even though it is still overheated. 

The logistics environment remains unstable regardless of the inventory build. Warehouse vacancies are at or near all-time lows, according to ProLogis, while imports are still flowing into the country. These goods have to go somewhere and inventory and supply chain managers still have a long way to go before they can relax. 

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 FreightWaves.com 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 datasets each week and enhancing the client experience.

To request a SONAR demo, click here.

https://www.freightwaves.com/news/inventory-growth-hits-all-time-high-as-warehouse-prices-soar-in-latest-lmi?utm_source=sfmc&utm_medium=email&utm_campaign=FW_Daily_3_21_22&utm_term=Inventory+growth+hits+all-time+high+as+warehouse+prices+soar+in+latest+LMI&utm_id=125673&sfmc_id=63552105

March 21, 2022

Inventories

Inventory growth hits all-time high as warehouse prices soar in latest LMI

Zach Strickland, FW Market Expert & Market Analyst Follow on Twitter Saturday, March 19, 2022 3 minutes read Listen to this article 0:00 / 4:28 BeyondWords

Chart of the Week: Logistics Managers’ Index – Inventory Levels, Inventory Costs, SONAR: LMI.INVL, LMI.INVC

The February Logistics Managers’ Index (LMI), which measures directional changes in transportation and warehousing activity, showed inventories growing at the fastest pace since the index was created in 2016 with a monthly value of 80.16. With companies finally making significant headway in restocking, orders may begin to slow, which may allow for supply chains to stabilize.  

Companies have been struggling to replenish depleted inventory levels for the past 18 months thanks in large part to unprecedented surges in demand and production disruptions resulting from the pandemic. Inventory-to-sales ratios have been averaging about 12% lower than pre-pandemic levels over the past year with no sign of improvement, according to the Census Bureau. 

After about a month of sheltering at home in April 2020, consumers got busy ordering items online and revamping their houses. This activity was completely unexpected as many companies stopped ordering goods due to the uncertainty of what was to happen next. The result was a rapid depletion of existing inventory that pushed truckload tender volumes to record levels. 

The Outbound Tender Volume Index (OTVI), which measures total truckload tenders from shippers requesting capacity, increased by 70% from May to September as inventory levels plummeted. 

With inventories beginning to recover at a much faster pace in January and February, trucking demand appears to be showing early signs of waning in March with the OTVI falling 7.5% through the first three weeks of March — hitting its lowest non-holiday point since February 2021. 

On this week’s Freightonomics episode, Zac Rogers, a main contributor to the LMI from Colorado State University, discussed how many large retailers like Amazon and Walmart are holding inventory upstream in the supply chain as demand has waned slightly from peak levels. 

It is no secret that inflation is thought to be the primary culprit of eroding demand as the CPI is up nearly 8% over the past year with gas (up 38%) and food being heavy contributors. Consumer debt for credit cards has also rebounded as savings rates have dropped, indicating consumers may not have the discretionary income for goods that they had in 2021. 

Rogers states that some demand-side erosion is probably a good thing as the current level of chaos is unsustainable and unhealthy in the long run. The Fed increased interest rates a quarter point this week because it also knows this is true. The main concern is over the “bullwhip effect” to the economy as prices inflate too rapidly leading to a sudden drop in demand — potentially creating a recession. 

There is no sign of a recession at this point as there is still plenty of growth arising from a lagging industrial sector, a white-hot construction environment and consumers still spending well beyond pre-pandemic levels on retail goods. Services have also made a comeback. 

Rogers used the analogy that a 65-degree day in June feels a lot cooler than a 65-degree day in February, basically stating any cooling of an overheated environment feels substantial even though it is still overheated. 

The logistics environment remains unstable regardless of the inventory build. Warehouse vacancies are at or near all-time lows, according to ProLogis, while imports are still flowing into the country. These goods have to go somewhere and inventory and supply chain managers still have a long way to go before they can relax. 

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 FreightWaves.com 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 datasets each week and enhancing the client experience.

To request a SONAR demo, click here.

https://www.freightwaves.com/news/inventory-growth-hits-all-time-high-as-warehouse-prices-soar-in-latest-lmi?utm_source=sfmc&utm_medium=email&utm_campaign=FW_Daily_3_21_22&utm_term=Inventory+growth+hits+all-time+high+as+warehouse+prices+soar+in+latest+LMI&utm_id=125673&sfmc_id=63552105