Headlines for Q2 2024

  • Improving but wary ports, more of the same in ocean freight, a potential bottom for U.S. inland freight, and geopolitics are on everyone’s mind

Global Ports

The Headlines: After three years of flat import growth around the world, projections are that imports will pick up through at least 2027. With congestion seemingly under control, for now, port leaders are more focused on sustainability. New initiatives, such as the world’s first transpacific green shipping corridor that connects Southern California with Shanghai, are underway. With a target launch date of 2025, it’s a partnership between the Ports of Los Angeles, Long Beach, Shanghai, major shipping lines, and cargo owners. Lastly, there is a potential labor strife coming for the U.S. East Coast that should be on people’s radar.

What’s Important: With the industry spending less time simply surviving port problems, more attention is being placed on initiatives like sustainability, more efficient cargo handling, and data sharing to streamline operations. Significant infrastructure investments are happening, as well, which should provide long-term benefits. With so much innovation occurring, and improvements continually being made, companies should periodically re-evaluate their routing decisions to ensure they are not missing out on potential new advantages.

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The Outlook for Q2 2024
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European Update

The Headlines: It may be a surprise that the problems in the Red Sea are not significantly impacting volumes at major European ports. And, there are even conflicting opinions on how much ocean rates have gone up. Based on the data, freight is getting to where it needs to be in the end (even if it’s more slowly or at a higher cost in some cases). Another potential surprise is that European Union countries blocked a new law that requires large companies to ensure their supply chains don’t involve forced labor or environmental damage.

What’s Important: The attacks in the Red Sea have not stopped and will continue to be a consideration for shippers and carriers. Companies should continue to factor the potential for extra transit times and costs into their routing decisions. Working extra closely with your forwarder at the time of booking is still necessary as there is the potential for carriers’ services to change based on events at the time. Regulation is always a complex topic, as supply chain companies, we all have a responsibility to be aware of the environmental and human impact of our choices, whether it is law or not.

Ocean Freight

The Headlines: Ocean freight is facing challenging times. As of February, vessel transits through the Red Sea are down 20% due to ongoing Houthi attacks. Until recently, at least, the sentiment was that as war risk insurance was concerned, the situation was “currently sustainable.” But that was due in part that no vessels had been sunk—a situation that changed early in March. The other area of major concern for ocean cargo, the Panama Canal, is slowly returning to normal, with more transit slots coming open in recent weeks.

What’s Important: Due to the Red Sea crisis, carriers expect capacity to remain tight in the short term, but overall, market sentiments are more positive. The IMF predicts the global economy will grow by 3.1% in 2024, and carriers are showing similar confidence by committing to vessel delivery up to six months in advance. Shippers should keep an eye on ocean rates. The Lunar New Year contributed to pushing rates up, and carriers are managing to hold on to those gains in some lanes. Between the aforementioned service concerns and modestly rising rates, companies should remain diligent and thorough with their planning as 2024 continues towards peak.

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Air Freight

The Headlines: Air freight carriers have been the beneficiary of ocean freight’s problems. Each month in Q1 saw double-digit growth in demand and a corresponding rise in general air cargo spot rates. Traditionally—at least pre-COVID—at this time of year, rates tend to drop after peaking over the holiday season. But the Red Sea crisis isn’t the only data point impacting air freight. Consumers are still spending, and e-commerce demand continues to grow. All this, while the industry may soon need to deal with aging fleets.

What’s Important: E-commerce originating from East Asia now makes up more than half the revenue of some airlines. Going forward, that could impact the air cargo industry in several ways. For example, we may see a sustained demand for air cargo services, air cargo routes may need to be adjusted to accommodate new trade flows, and there may be a greater emphasis on speed and reliability in general. It’s a good time for shippers to look at their regular ocean and air lanes and work with their forwarders to find any service or cost-improvement opportunities.

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U.S. Inland Trends

The Headlines: The global issues in ocean freight have had little impact on the domestic U.S. inland marketplace since intermodal capacity has been in a state of oversupply. Plus, domestic TL and LTL demand remains soft with plenty of capacity in the market. Pair these factors with little more than muted economic growth expected for the rest of the year, and disruptions and any notable rate increases should be minimal.

What’s Important: As shippers plan for Q2 and beyond, keep in mind that surface truckload transport is expected to tighten as capacity exits in the second half of 2024. However, tightening won’t be uniform or sustained across the country. It will likely become more apparent next during late spring in California as the produce season begins.

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Supply Chain Risk Index

The Headlines: The Q2 Supply Chain Risk Index shows Cybersecurity again being the highest risk overall at 83.80, a significant jump from the last quarter. This suggests that cyber-attacks, data corruption, data theft, system viruses, and security platform controls are becoming more severe. Interestingly, technology risk is the second highest risk cited at 70.83, likely a concern related to the role of generative AI.

What’s Important: Concerns about cyber risks are nothing new and have been on companies’ minds for a while. What is more noteworthy is that much like other industries, technology (e.g., generative AI) has people’s attention. At present, most supply chain practitioners are scrambling to understand the potential AI will offer them. It’s safe to say most of us are eagerly looking forward to the potential ways generative AI will be realized. How long that will take is the question.

U.S. Logistics Manager’s Index

The Headlines: The latest — February 2024 — The Logistics Manager’s Index reads in at 56.5 in February 2024. This is up (+0.9) from January’s reading of 55.6 and is tied with October 2023 for the highest reading for the overall index in the last year. For the second month in a row, this growth is bolstered by expansion in all eight sub-metrics captured in the index. This is driven by a continued expansion in Inventory Levels (58.5) which has led to a tightening in Warehousing Capacity (52.8) and growth across all three transportation metrics.

What’s Important: “Particularly notable is the expansion in Transportation Prices, which at 57.6 have reached their fastest rate of growth since the start of the freight recession in June 2022. Interestingly, Transportation Capacity was also up this month to 60.9, bumping it higher than Transportation Prices and suggesting that we have not yet entered a true growth period in the freight market. The freight market has not fully broken out of its recession and moved back to what we consider a boom period. This is in part due to the continued surplus of capacity in the market.”

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Geopolitics in the Supply Chain

The Headlines: S&P Global Market Intelligence analysts have identified five key themes that will shape global political and economic relationships in 2024: economic fault lines, geopolitical reordering, supply chain resilience, logistics rewired, and resource security. Geopolitical reordering could impact global challenges, trade flows, and investments. And in a time of uncertainties related to labor and policy implementation — high labor costs and the risk of strikes — supply chain resilience remains paramount.

What’s Important: Businesses will need to prioritize resilience with the current uncertainties related to labor and policy implementation. They should anticipate higher labor costs and the risks of strikes while deciding between conservative inventory management or leaner approaches. With geopolitical tensions and the efforts to diversify sourcing increasing risks for global supply chains, shippers should continue to evaluate their logistics strategies. Our advice, as always, is to work with your forwarder to understand what your options are.