Rates for air, ocean and ground continue to be soft, with some signs of rebounding on increased demand for air freight.
Blank sailings have increased dramatically, as carriers reduce capacity to compensate for a soft “Peak Season”.
Yellow Freight bankruptcy reduces LTL capacity and increases pressure on domestic trucking rates.
Ocean shippers begin to get much needed relief from detention charges
Strong U.S. dollar continues to weaken export demand.
With many parts of the USA finally getting their first taste of fall weather, after a summer-like September, it is an opportune time for a fall 2023 Market Update.
In this update, we take a quick look at the current market trends for air, ocean and ground shipping in key trade lanes worldwide. We also offer up our best guess as to what 2024 holds in store, given the current strength of the dollar, the ongoing geopolitical turmoil, and overall market uncertainty.
Ocean Freight Trends
Rates Trend Downward
Some of the most welcome news for shippers is that ocean rates continue to drop for both full and partial containers. That is true of both the key trans-Pacific and trans-Atlantic lanes, with the latter having taken longer to finally come down. However, there are some signs that the market may have reached a bottom, with several steamship lines announcing a possible rate increase (GRI) for the second half of October. Hard to say if the GRI it will stick.
Blank Sailings Creating Reduced Capacity
Thus far, the traditional “Peak Season Surcharge” (PSS) seen every fall, has failed to materialize, leaving many steamship lines with excess capacity and falling revenue. This, after record 2022 bookings. In response, carriers have moved quickly to constrain capacity in an attempt to stem the further erosion of rates. Consequently, we are seeing a huge increase in blank (i.e., cancelled) sailings to/from both Asia and Europe. In addition, many carriers are substituting smaller vessels to reduce operating costs. If you have holiday freight to move via ocean, it will be very important to book it 2-3 weeks in advance. Space remains very tight, despite falling rates.
Over the course of 2023 there has been a growing trend by steamship lines to offer reduced-length contracts of 6-9 months, versus the traditional one-year contract. They are simply hedging their bets and wagering that 2024 rates will increase, thus allowing them to re-negotiate rate increases sooner.
Relief From Detention Charges
In the past three to six months, shippers have finally begun to see relief from the onerous detention charges that the steamship lines pressed so aggressively in 2022-2023. It was not uncommon for shippers to unexpectedly receive six-figure invoices for detention charges, resulting from rolled bookings, harbor congestion and equipment shortages, over which they had no control. Intense lobbying by the shipping industry has resulted in intense scrutiny from Washington and much needed relief for shippers in this area.
Air Freight Trends
First Signs of a Recovery?
In September, global air cargo tonnage increased by nearly 3%, marking the first month-over-month increase in many months. It seems that airlines are finally starting to see a modest rebound in demand as the holidays draw nearer. Earlier in the year, many shipper’s warehouses were full to capacity and the need for expedited movement by air was simply not there.
Rates Remain Stable
Despite the uptick in demand referenced above, rates for both domestic and international air freight remain very stable. Many air carriers continue to offer aggressive pricing for export bookings in heavily contested trade lanes to both Europe and Asia. Import rates, while greatly decreased over 2023 still remain above historical averages, in part due to compensation for the strong dollar.
Capacity Tight In Many Markets
Just as with ocean freight, capacity remains tight in many key trade lanes, with backlogs increasingly common. That is somewhat counter-intuitive, given the pricing weakness described above. However, like their ocean counterparts, many carriers have decreased the number of cargo flights they operate, and opted for smaller, more economical aircraft. The result is artificially constrained capacity, especially for all-cargo “freighter” aircraft.
Ground Freight Trends
Yellow Freight Bankruptcy Reduces Capacity
The big story in the U.S. ground freight market over the past 90 days has been the demise of 99-year old Yellow Freight in August, following unsuccessful contract negotiations with the teamsters union, and a mounting debt load. In addition to idling 30,000 workers nationwide, their closure has resulted in a significant decrease in LTL trucking capacity nationwide.
LTL Rates Increase
Partially as a result of Yellow Freight’s demise, there has been a strong uptick in LTL rates in the past 90 days. As their former competition scrambles to absorb the volume previously handled by Yellow, it has put significant upward pressure on LTL rates. Yellow had historically been a low-price leader, offering rock-bottom pricing in return for sometimes less-than-stellar service. Many shippers are now experiencing sticker shock as they are forced to move their freight with alternative carriers which much less favorable pricing.
FTL Rates Fall
While there is pressure on LTL rates, full-truckload (FTL) pricing remains soft, with bargains to be had for shippers in many trade lanes. It is a very opportune time to work with a freight broker who can fully canvass the market and offer bookings at significant savings. With many truckers eager for work, bargains abound.
Fuel Prices Increase Rate Pressure
The wild card in truck rates right now is fuel. With diesel fuel pricing approaching historic highs, there is a significant need for truckers to raise rates to cover their operating costs. The extent to which that is possible, in the face of continued soft demand, remains to be seen.
The Road Ahead – 2024
With the holidays just around the corner, January will be here before you know it. What lies ahead for shippers in 2024 is difficult to predict.
Israel and Ukraine Uncertainty
Recent geopolitical tensions and fighting in the Middle East, added to the ongoing conflict in Ukraine, have made a very tentative shipping marketplace even more jittery. Without some resolution to these conflicts, volatility in the price of oil, along with overall market uncertainty will surely leave some shippers with a wait-and-see attitude. Should global demand for shipping remain at current levels, carriers may respond with further reductions in capacity to buoy rates.
Strong Dollar and Inflation
The strong dollar is always a double-edged sword. While a boon for importers, it makes U.S. exports more expensive for potential overseas buyers and lessens demand for our products. Meanwhile, inflation is nobody’s friend and erodes purchasing power for buyers and seller’s alike. Whether the U.S. Federal Reserve can engineer a “soft landing” of the economy, while staving off inflation, remains to be seen.
Increased Domestic Production
We continue to see a slow but steady transfer of manufacturing from Asia and elsewhere, back to North America. There is no reason not to expect this trend to continue, ultimately increasing the demand for domestic trucking and air freight.