International Trade to Weaken 

International trade is forecasted to slow in 2023 with the value of U.S. imported goods declining 1.2% for the year (compared with the 16.4% increase estimated for all of 2022 and the jump of 23.4% seen in 2021). The U.S. will still run a trade deficit, but it will shrink, as exports will not slow as much as imports. The 2023 pace of goods exported is forecasted to grow 1.4%, compared with the 19.1% growth estimated for 2022.  The economies of most U.S. trade partner countries, especially in the more advanced countries, will be in recession in 2023, which typically would weaken demand for U.S. exports overall. However, U.S. energy and agriculture exporters will continue to find good opportunities in global commodity markets disrupted by the Russian invasion of Ukraine. Despite the overall weakness in global trade demand, competitive U.S.

Weak U.S. Freight Outlook

Based on the projected demand for goods and inventory levels in our recession-and-recovery baseline forecast, we expect 2023 U.S. freight volumes to start weak and end the year stronger. The duration of the painful downturn is projected to be limited, where consumption and inventory rebuilding in the second half of 2023 will lead to demand and freight growth for the year as a whole. The S&P Global Transearch baseline forecast overall is for freight tonnage to increase 1.36% for 2023. 

Not all freight modes have the same prospects, however. For rail, the range of 2023 tonnage growth is from a small 0.15% increase for rail carload tonnage up to a rebound of 2.9% for intermodal rail tonnage. The intermodal rail recovery is in comparison to 2022 when systemwide congestion and threats of a strike drove customers away. The baseline trucking demand forecast is for recovery by year-end, resulting in 2023 tonnage growth of 1.54%. Air cargo tonnage growth is forecasted slower than in recent years at 3.0% due to slowing e-commerce growth. The maritime baseline forecast includes the assumed recovery of water levels in the Mississippi River System, enabling a rebound of 1.4% in tons compared to suppressed 2022 levels. These Transearch modal freight tonnage forecasts for 2023 are summarized in Figure 1.

For supply chain managers, the baseline freight forecast implies a return towards having market power. Expect softening freight rates, tempered by continuing elevated wage levels and high diesel prices, which will both raise the floor on operating costs. However, after almost three years of running at capacity and operational limits, freight markets will see constraints ease in 2023, especially in the first half of the year. 

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The Surface Transportation Board (STB) voted unanimously to propose an update of its emergency service rules, which enable the STB to compel railroads to respond when shippers say they aren’t receiving sufficient and timely service.

Among other measures, those rules enable the board to order railroads to share tracks with competitors to get freight loads moving.

The board’s proposal would compress the existing timeline under which a shipper’s petition for relief is considered, speeding up any potential intervention by regulators. And it would create a new category of “acute service emergencies, such as those involving public health or safety issues and imminent and extended potential plant shutdowns,” in which a single board member could rule on a petition within 48 hours.

“This rule is aimed at removing some of the roadblocks that have apparently kept shippers from being able to use the rules,” STB Chairman Martin Oberman said in an interview.

The industry also says that the administration’s stated goal of injecting more competition into the rail industry, including a proposal to compel railroads to share infrastructure with competitors to allow more price competition, will cause more problems and congestion than it would solve.

Oberman has criticized what he views as the rail industry’s focus on short-term profits at the expense of robust infrastructure and labor force to withstand weather and logistics-related disruptions.  

He cited reports of ethanol manufacturers pausing operations while waiting for delivery of the empty unit trains they need to load shipments for market, and of a major fertilizer producer being asked to limit its outgoing shipments due to a lack of train capacity this spring, and major livestock operations reporting delays in delivery of animal feed.

“These shortages contribute to inflation, and you have a huge company who can’t function because the railroads can’t do their job,” Oberman said. “This is a major issue for the economy.”

Railroad industry officials have said the approach from STB and the Biden administration is misguided, and criticized proposals to more aggressively regulate the industry’s operations.  s

Truckload spot van freight hit an all-time high at $3.16 per mile as a weekly average, up 12 cents compared to the previous week. The average spot reefer rate jumped 10 cents to $3.66 per mile, also a record high seven-day average, while the average flatbed rate was unchanged at $3.13 per mile.

It’s not unusual for demand for truckload capacity to swing significantly during the final week of December, when shippers are feeling urgency to move freight before the end of the year, more carriers take time off for the holidays, and traffic and weather can be unpredictable, DAT officials said.

Source: Heavy Duty Trucking

Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, a whopping 547 percent higher than the seasonal average over the last five years, according to Drewry Shipping.

With upwards of 80 percent of all trade in goods transported by sea, freight-cost surges are threatening to boost the price of everything from toys, furniture and car parts to coffee, sugar and anchovies, compounding inflation concerns in global markets.

“In 40 years in toy retailing I have never known such challenging conditions from the point of view of pricing,” said Gary Grant, founder of the U.K. toy shop The Entertainer. He has stopped importing giant teddy bears from China because their retail price would have had to double to add in higher freight costs.

“Will this have an impact on retail prices,” he asked. “My answer has to be yes.”

A confluence of factors—soaring demand, a shortage of containers, saturated ports and too few ships and dock workers—have contributed to the squeeze on transportation capacity on every freight path. Recent COVID outbreaks in Asian export hubs like China have made matters worse. The pain is most acutely felt on longer-distance routes, making shipping from Shanghai to Rotterdam 67 percent more expensive than to the U.S. West Coast, for instance.

Often dismissed as having an insignificant impact on inflation because they were a tiny part of the overall expense, rising shipping costs are now forcing some economists to pay more attention. Although still a relatively minor input, HSBC Holdings Plc estimates that a 205 percent increase in container shipping costs over the past year could raise euro-area producer prices by as much as 2 percent.

Few industry observers expect container rates to retreat any time soon. Lars Jensen, CEO of Vespucci Maritime in Copenhagen, said last week that there’s “zero slack in the system.”

French shipping company CMA CGM SA, which raked in net income of $2.1 billion in the first quarter compared with $48 million in the year-ago period, indicated recently that it expects “sustained demand for the transportation of consumer goods” to continue throughout the year.

Companies are desperately trying to work around the higher costs. Some have stopped exporting to certain locations while others are looking for goods or raw materials from nearer locations, according to Philip Damas with Drewry Supply Chain Advisors.

“The longer these extreme shipping freight rates last, the more companies will take structural measures to shorten their supply chains,” Damas said. “Few companies can absorb a 15 percent increase in total delivered costs for internationally traded products.”

Source: Bloomberg

With more trucks on the road this year, their challenge will turn to finding drivers.

Freight carriers, like every industry, seek each year to balance the need for growth vs. cost control. If trucking companies extend their fleet beyond demand, they have to drop prices to keep rolling. If their fleets cannot meet demand, they leave money on the table.

What they know with relative certainty this year is that spot rates have expanded too much and sustained for too long not to see growth in capacity. The question is not “if” but “when.”

Employment levels in the trucking industry have fallen from 15.3 million in November 2019 to 14.8 million in the same month in 2020. While trucking companies have not restored their ranks to pre-pandemic levels, freight volumes have expanded beyond where they were when the pandemic began.

The result has been unprecedented growth in spot market rates in the second half of 2020.

Carriers that have been reluctant to invest in growth after being hit hard by low volumes in April and burned by oversupply in 2019 have begun to show a renewed willingness to invest.

A recent surge in Class 8 truck orders—the over 33,000-pound category—signals a wave of capacity coming online in the second half of 2021, some of which will be replacement buying.

Still, expect more trucks, and with that increased capacity, expect the industry to struggle to find drivers. Driver schools have been operating well below capacity, and the Drug and Alcohol Clearinghouse, which required compliance beginning a year ago, has removed thousands of driver candidates from the pool.

Source: Freight Waves

At the same time, COVID-19 changed hiring and employment practices at fleets and compelled carriers to rethink recruiting and onboarding.

Kendra Patton, director of recruiting at U.S. Xpress, said the fleet was able to hire and continues to hire drivers that have been furloughed, specifically within its over-the-road and dedicated divisions, to meet increased demand in the grocery, retail and consumer goods sectors.

This situation is similar to the 2008-2009 recession, said Jeremy Reymer with DriverReach, a recruiting company.

“In many cases, there were a lot of really good drivers available as a result of that. Through no fault of their own, they were out of work,” he said, adding that it was the same earlier this year.

Many fleets have experienced improved driver retention throughout the pandemic. Dave Osiecki, CEO of Scopelitis Transportation Consulting, said that is a natural outcome when the job market is uncertain.

Tim Chrulski, operations director for Garner Trucking, based in Ohio, said the carrier didn’t have to furlough any drivers. Still, the company relaxed its recruiting.

“From April through mid-May, we just wanted to make sure we kept everyone whole and busy and maintain our current employment,” he said.
While COVID has created challenges, Chrulski said the pandemic has made picking up and delivering freight easier.

“Drivers are picking things up, and the paperwork is already in the back of the trailer, and they’re not waiting in line,” he said. “As a result of this, we figured out a way to keep the driver as safe as we possibly can and, at the same time, make their life more efficient.”

Source: Transportation Topics

“The year 2019 probably ended with close to 800 closings in the truckload industry,” YRC Worldwide President and CEO Darren Hawkins said. “That lessens capacity. Plus, the driver shortage, increased alcohol and drug screenings, the insurance market, all those things will impact capacity. The truckload market is (nearly) 10 times the size of the LTL market. But a ripple in truckload can create a tidal wave in LTL,” Hawkins added.

At least one analyst agrees. Satish Jindel with SJ Consulting said he believed LTL contract rates for shippers would rise at a higher rate than TL rates in 2020.

“One reason LTL will perform better is retailers are converting TL shipments to LTL because of e-commerce demand,” Jindel said. “LTL carriers are handling more retail shipments than ever before. That will continue. The caveat is the LTL industry must learn how to handle those shipments.”

As far as shippers are concerned, Hawkins said rates will continue to track internal operational costs—led by soaring insurance rates and equipment prices—that continue to rise in the “mid-single digits.”

Going forward, Hawkins said, YRC will have fewer physical locations but the same geographic service areas.

“We expect this will increase density, reduce mileage, facilities and equipment and better serve our customers,” he said.

YRC, which is an Association partner, consolidated 25 terminals last year. YRC Worldwide, parent of the fourth- and seventh-largest groups of LTL carriers, lost $104 million last year, compared with $20.2 million net profit in 2018.

YRC’s total revenue for last year fell 3.4 percent.

Hawkins said YRC’s full-year results from 2019 are hurt by comparisons with 2018, which was a boom year for trucking. Last year’s results, he said, were hurt by a slump in U.S. manufacturing.

Source: Logistics Management