Headlines for Q1 2024

  • Concerns about Economic and Geopolitical Risk, Carriers Desperate to Prop Up Rates, and Untangling the Complexity of Supply Chain Sustainability

Global Ports

The Headlines: Ports all over the world are still seeing volume declines (yet are notably still higher than 2019). U.S. ports, for example, saw a monthly decrease of 9% in container import volume in November, with the East and Gulf Coast ports feeling the biggest declines. The largest decrease was in Chinese imports, as congestion at the Panama Canal and recent problem in the Suez Canal (see the Ocean Freight update below) are having a growing impact.

What’s Important: For its part, U.S. ports continue to invest in infrastructure improvements. Presently, federal, state, local, and private funds are being fed into infrastructure and technology developments, with funds expected to reach more than $25 billion by 2028. With the end game of optimizing port capacity and efficiency, the White House has spoken recently about the need for more government support to improve U.S. supply chains.

October to November Comparison of U.S. Import Volumes from Top 10 Countries of Origin - Click to Enlarge
The Outlook for Q1 2024
Projected Nearshoring Trends in Europe - Click to Enlarge

European Update

The Headlines: Starting January 2024, the EU Emissions Trading System (ETS) will expand to cover maritime shipping—with some potential unfortunate consequences. These include, additional costs that could be passed on to shippers and ultimately consumers, disruptions or shortages in the supply chain, and increased competition from countries who have less stringent regulations. The projections for the Euro Area Manufacturing PMI have turned positive, however, indicating a slight expansion on the horizon.

What’s Important: There will be ETS Surcharges implemented by carriers beginning in January. The amount of the surcharge will be determined by the carrier, so the cost impact is uncertain for now. Companies impacted are those shipping into or out of the EU via sea freight, all of whom should stay in close contact with their forwarder as the fees begin to be implemented.

Ocean Freight

The Headlines: Significant disruption has been happening in two key shipping regions – the Suez and Panama Canals due to the conflicts in the Middle East and draught in Central America. Meanwhile carriers are struggling with volumes still down, with Maersk announcing a workforce reduction as it tries to cushion the impact. Not surprisingly, the number of blank sailings is increasing, which is impacting schedule reliability.

What’s important: The situation in the Red Sea is particularly fluid and should be watched closely by all shippers who may be impacted. Given these developments, there could be an increase in the volume of cargo going from Asia to the U.S. East Coast diverted to West Coast ports. The same situation happened in 2021-2022 with the result being there were not enough trucks to meet the demand spike. The impact of the disruption for companies in Europe and N. America will be extended transit times, schedule disruption, and increased costs

Wait Times at the Panama Canal - Click to Enlarge

Air Freight

The Headlines: Recent data from the International Air Transport Association (IATA) shows an increase in global demand for October, up 3.8% when compared to October 2022. Overall, cargo revenues are down significantly from their peak in 2021, but still above pre-pandemic revenues. However, despite the Q4 increases, demand in the air cargo market is expected to remain flat in 2024.

What’s Important: The present situation in the Red Sea may drive additional volume to air freight and some cost increases. That dynamic aside, increased competition from airlines who are fighting for their business, should lead to better opportunities for shippers to benefit from lower costs, more flexibility and options. Shippers should strategically leverage this opportunity and take advantage of the ‘buyers’ market’ while they have the chance.

Air Cargo Volumes Slide, But Still Higher Than 2019 - Click to Enlarge

US Inland Trends

The Headlines: A tough 2023 for transportation providers has meant, in many ways, a good year for U.S. shippers. Volatile fuel prices have been (and will continue to be) an area to be closely monitored, however. Additionally, recent data shows that carriers are still dealing with the capacity surplus added during the pandemic. Despite all this, some in the industry feel that for the moment at least, the market is stable — subdued but stable.

What’s Important: Market analysts are keeping an eye on the overcapacity issue and watching key indicators such as trucking labor trends, the size and number of active fleets, diesel fuel prices, and market changes. Some expect that by the middle of 2024 and into 2025, the market will shift. Shippers need to be proactive and review their truckload strategy now by making any necessary adjustments.

U.S. Diesel Price Trends - Click to Enlarge
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Supply Chain Risk Index

The Headlines: With many companies ‘enjoying’ comparatively competitive rates and better service from their logistics providers, Cybersecurity and Data Risk remains the risk most are concerned about with a rating of 78.21. This an increase of about 3 points so the perceived risk is increasing. Government Intervention Risk — which includes things like new regulations, tariffs and restrictions, and more — declined over 6 points to fourth on the list. Economic Risk is down about 3 points but third overall.

What’s Important: Second on the list is Customer Risk, which is up to 71.79 from 67.12. The main concern for companies is that their customers are facing inflated prices, driving the concern that they’ll take their business elsewhere based on price alone, which could lead to a price war to retain business. With logistics prices favorable, now is time for companies to emphasize service performance and improving the customer experience where possible through their supply chain.

U.S. Logistics Manager’s Index

The Headlines: The latest — November 2023 — Logistics Manager’s Index Report® LMI® is 49.4, down significantly from October and into contraction territory. The highlights of the report indicate that Growth is INCREASING AT AN INCREASING RATE for: Warehousing Capacity and Transportation Capacity. Growth is also INCREASING AT A DECREASING RATE for: Inventory Costs, Warehousing Utilization, Warehousing Prices, and Transportation Utilization. However, Inventory Levels and Transportation Prices ARE DECREASING.

What’s Important: The Index’s drop of 7.1 comes after three consecutive months of expansion. November’s decline is mostly attributed to a significant drop in inventory levels which is notable because high inventory levels have been blamed (or credited depending on your perspective) for many of the freight market’s woes of late. Shippers should be prepared for rates to rise and capacity to tighten if/ when companies work to start build back their inventories.

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Sustainability in a Crisis - Click to Enlarge

Sustainability in the Supply Chain

The Headlines: A recent report from MIT highlights several trends and drivers of supply chain sustainability initiatives. Not surprisingly, one of the main findings that was observed is that commitment to sustainability was strongest in wealthier countries, leading to the question of whether global objectives toward net-zero goals can be accomplished if they are pursued only at the local level.

What’s Important: In addition to wealth, it is interesting how the commitment to sustainability (see chart and linked report) changes during times of crisis. What has remained consistent over the ups-and-downs of the past few years, however, is the pressure on supply chain professionals to improve their companies’ sustainability profile. In other words, the objective of improving sustainability is not going away.