It is tricky to figure out what is going on with the economy these days and how this relates to the outlook for global trade, logistics, and transportation in the coming second half of 2023 into 2024.
For one, inflation is still too high, with the Federal Reserve’s preferred measure still running at around 4.6%. At the same time, by official measures, the current 3.4% unemployment rate is tied for the lowest level since 1953. Perplexing still is the fact that there have been so many logistics and technology industry layoffs in recent months. So, what is really going on?
A good key indicator of the economy is always the aspect of global trade. Let’s look at ocean container shipping transportation for example. Ocean carriers once again failed to implement General Rate Increases (GRIs) for June 1. Spot rate indexes (numerous) show slight drops from where they were earlier in the latter part of April 2023/ early May 2023. Ahead of the ocean contract traditional signing season in late APR 2023, ocean carriers took an initial GRI and tried to boost freight rates. The hope was that this would catch like wildfire and somehow the market would catapult into what might be a favorable place for shipping lines and logistics companies. That being said, the market will generally bear what it bears and at this time, shipping lines have been struggling to still fill their ships as supply still exceeds demand overall. Also, trucking is always a key indicator of the economy and the DAT load-to-truck ratio being about 2:1 shows the softness in the shipping market as well the economy.
Hard Deck Logistics has talked to several top importers (including big box retailers) in the lifestyle, industrial, and automotive sectors, and there has been some progress made in reducing/selling inventory that has been stockpiled domestically now at warehouses and distribution centers for many months. However, overall many companies still seem to be at higher than their historical average inventory levels. This is important as it impacts the draw on overall container demand from Asia as one example. Further, buying overall is still at a reduced capacity as millions of Americans prepare to spend what money they have on services and vacations this summer. Various news articles report and Hard Deck Logistics also observed that there is a noticeably weaker demand for apparel, electronics, and furniture to name some. Home buying has slowed with higher interest rates, and consumers are simply tapped out amidst an unsure economy when it comes to new home purchases.
All the while, the shipping industry is approaching the traditional peak season time. Normally, demand rises during the summer and early fall as retailers prepare for back-to-school/holiday sales. This largely fills ocean container ships. Now is the time most shippers load up their warehouses/distribution centers in prep for the big sales in Q3/Q4. However, the problem this year might be that while progress has been made in depleting inventories at USA warehouses and distribution centers, many shippers still have higher inventory levels, which means not as many orders will be placed on container ships. With this being said, it has been reported by several of the world’s top ten ocean carriers by size, as well independently verified by Hard Deck Logistics with several prominent shippers, that ordering volumes have started to increase compared to the levels at the end part of 2022 and early 2023. The question will remain, at what level will the ordering continue?
In any case, the back-to-school season and traditional peak season will be good forecasting tools as to the outlook of global trade and the shipping market for the next 12 months. Let’s hope for the right balance of supply and demand to keep global trade and the economy healthy.
Sincerely,
CEO Hard Deck Logistics
www.harddecklogistics.com
traffic@harddecklogistics.com