Ocean Rates:
Evidently, the container shipping downturn is not following the script. Although freight rates are still falling on non-charter, the container-ship charter rates have bounced off the bottom and are now rising again. The duration of charters is also headed back upward; more two-year deals are being done again. Despite weaker import demand, commercially idle tonnage has substantially decreased over recent weeks. Further, ocean liners are still operating older vessels instead of scrapping them, and they are still ordering new vessels. Last month, MSC took possession of ‘Tessa’ (a new, first-in-class ultra-large container vessel).
Overall, forecasts for capacity and rates for Q2 will remain down, even when contract rates are above pre-pandemic rates, We’ll continue to be very interested in this unusual ocean market.
Interest Rates:
This remains a hot topic for businesses, consumers, and homeowners. While I do not profess to be an economic expert, I have reviewed a few reports and it does appear the Feds will increase interest rates one more time. According to this CNBC article, the target rate established of 5-5.25% still stands, and the next increase projected will reach 5.1%. Some economists are still predicting higher than 5.1% on this next increase.
These rate hike forecasts come amid the spreading banking chaos that sent markets into a tizzy in March, with regulators stepping in with emergency actions to safeguard depositors at failed banks. Federal officials have also updated their economic projections, slightly hiking their expectations for inflation and lowering the outlook for GDP. With all these factors considered, shippers, carriers, and businesses should not get their hopes up for any interest rate relief in Q2.
Intermodal Volumes:
According to Lawrence Gross, North America’s first quarter in intermodal was slower than last year, down 9.5% compared year over year to 2023. In Gross’s opinion, intermodal numbers have not yet bottomed out. You can find his original post here.
I tend to agree with Lawrence. Slow imports over the ocean are one obvious factor but his insight into share erosion is also interesting. Intermodal will likely continue to decrease, and shippers may want to be on the lookout for a change in course as Class I Railroads react to this continuing slide.
If you are not following Lawrence on LinkedIn, I highly recommend him for more insights into Intermodal freight, especially as the IANA releases more intermodal data later this month. Lawrence will be the first to have word on this new data.
Shipper’s seeking good service at good rates:
Shippers were likely to have seen improved services from all transportation providers in the first quarter. We predicted this at the opening of the year in our Factors For 2023 Supply Chain Article (found here) and are seeing it continue based on the market conditions remaining favourable to the shipper.
Expanding on good service and good rates, shippers should be and are seeking sustainable relationships with their supply chain partners. Last week we covered what it means to develop sustainable relationships here. If you missed this newsletter, it’s time to give it a read, as sustainability is going to be the definition of good service at good rates throughout the rest of the year.
For other shippers who are taking a short-term approach of playing the declined spot market, it’s a good time to ask if this strategy will see improved services, or potentially see substantial increases when the market changes? Veterans all know this business is cyclical and the best supply chains are still based on consistency. Hopefully, those who took advantage of the spot market in Q1 and continue to use this strategy in Q2 are also building a contingency plan for the next market.
Carriers who over-invested in equipment:
In January, we did predict the market would see a loss of carriers adding to the loss in capacity, and we touched on this again last week in an article on sustainability. Unfortunately, this has been the case. However, we also expected small carriers with between 1 and 15 trucks to be the most affected by over-investment in equipment, but the market is seeing a more widespread impact on larger carriers too.
The impact on larger carriers connects back to factor #4, and that the market is allowing shippers to seek new options and strategies aggressively. Some companies who have been partnered for 15-20 years have shifted their partnerships and selected new carriers during RFP quotes with downshifted rates.
We’re also seeing consolidations continue with the latest example being Knight/Swift acquiring US Express (article here). As acquisitions continue and owner-operators join larger fleets, we’re really looking at a level of competitiveness in the market that some companies were more prepared for than others. As many carriers pivot in Q2, it will be interesting to see what strategies prove the most beneficial for shippers and carriers alike.
Warehousing Demand:
Warehousing is not expected to change much in Q2 from Q1. Retailers are still holding high inventories, and import volumes remain low. A welcome scrap of consistency in a (literal) sea of shifting marketing for Q2.
Final Thoughts
Keyword for Q2 – Strategy.
Is your strategy long or short-term? Is it based on spot rates or relationship rates? Are interest rates driving you to acquire or be acquired? As usual, it’s all coming down to the numbers, but let’s not lose sight of the people that make numbers happen. Shippers and carriers can’t change the markets, but they can build strong partnerships with real people to insulate them from challenges.
See you next week!
Bill Robinson
