The 2:00 Minute Warning

Now that it’s the end of July, we’ve been getting a lot of great questions from shippers about issues that can impact their 2022 freight budgets.

The Code Red conditions in the freight markets have obliterated freight budgets in 2021. Not surprisingly, we are getting several questions that deal with the turbulence in the ocean markets. Shippers want guidance on whether rates will rise, fall, or stay the same?

That’s why I encourage you to consider these insights on the ocean market from our friend Peter Tirschwell, Vice President for Maritime & Trade at IHS Markit. Peter was kind enough to share an email exchange with a shipper who asked for his thoughts about what to expect:

I am concerned about what appears to be a series of successive black swan events that are shifting the goalposts further into the future in terms of relief around rates and service. Over the past decade it used to be one disruptive event every few years, i.e. financial crisis, West Coast labor, Hanjin, front loading ahead of Trump China tariffs, and now the pandemic but now what we are seeing is the pandemic is spawning its own series of spinoff black swan events such as Yantian, Vietnam, BC forest fires, UP Chicago rail ramp, not to mention the Suez closure which could have been tied to all this if crew fatigue was involved.

To me Yantian and Vietnam are especially worrying because while Asia for the most part conquered Covid through mass testing, lockdowns and contact tracing, they are slow on vaccinations which given the Delta variant is leaving them much more vulnerable to further lockdowns thus we can almost anticipate further supply chain disruptions. The effect of that as we know well will be further slowdowns in container, chassis, and vessel asset circulation, thus lower effective capacity, and continuing upward pressure on rates.

I therefore feel, even given the expected slowdown in transpac eastbound growth rates, that budgeting for ocean needs to err on the higher side, possibly with no significant easing from where we are today.

In short, err on the side of caution and don’t expect ocean rates to fall anytime soon.

We also received insight about the ocean market from a top 100 U.S. importer during a recent webinar we helped host for Presidents and CEOs. This importer shared how many shippers have been holding off their ocean shipping while hoping prices would fall, but have reached the point where they now need to get their shipment moving in order to make the holidays. This and other factors will cause an already tight ocean market to continue to be overloaded.

In the truckload and LTL markets, we expect capacity to remain tight for the remainder of 2021 and for the first two or three quarters of 2022. Two reasons for that: there isn’t enough equipment and there aren’t enough drivers. And with carriers now increasing driver wages by 15% to 20%, there are no signs of immediate relief on the horizon. As we have noted in several previous Two Minute Warnings, the carriers can and are being selective in working with their customers. Add it all up and it is likely that both TL and LTL carriers will look for rates increases that are higher than the traditional 5% GRI’s (General Rate Increases).

When it comes to parcel pricing, for the past two years, we have cautioned shippers that they should also expect their overall costs to be higher on average than the general rate increase. And now, more than ever, shippers need to pay attention to the accessorial charges that are being charged.

If you have any questions about any of these modes, we encourage you to get in touch.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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