The 2:00 Minute Warning

Last week I attended and spoke at the Journal of Commerce’s Annual TPM Conference. It was an exceptional conference because JOC brought together the leaders from some of the largest global logistics companies in the world. These leaders are the ones making the decisions that affect shippers around the world.

While this event has a heavy focus on issues affecting the ocean and drayage markets, they also did a great job of connecting the other modes in their discussions so attendees could learn a great deal about virtually every mode, or piece in the transportation pie.

For example, this year I was part of a panel that discussed issues associated with inbound freight flows, a.k.a. how freight moves from the ports to its final destinations in North America. I also attended some very interesting and informative sessions and learned some interesting things such as:

Inventory Destocking Initiatives Make for a Soft Ocean Market

The softness in the ocean market has persisted and is expected to continue into the third and possibly fourth quarter. Two key issues are affecting the ocean markets. First, China hasn’t completely returned to normal operations. Second, we are witnessing the impact of the “Bullwhip effect.” A lot of companies relied on inaccurate sales forecasts, or didn’t want to risk not having the stuff, so they ordered too much inventory and are now “destocking” and trying to work off significant amounts of excess inventory.

If you are interested learning more about how this “destocking” initiative is (at least partially) responsible for the current freight recession, I’d strongly recommend listening to our recent interview with Scott Group of Wolfe Research. Scott did a wonderful job of explaining how these destocking initiatives are impacting the freight market. If you are interested in watching this interview, please send us an email.

Truckload Market Continues to be Soft

We’re seeing rates in the truckload and drayage markets drop between 15% to 30% based on shipper variables. The truckload carriers are facing abundant supply and weak demand so their rates have dropped. Compounding this is the fact that they have higher operating costs so their margins will be significantly lower than the past two years. 

One carrier noted that in prior years, there would be more carriers “rightsizing” their fleets but after what they witnessed the past two years, they are being more cautious in protecting their capacity in anticipation of the market recovering towards the latter half of the year or early 2024. Whether that happens will depend largely on trends in consumer demand, and the “China factor.”

LTL Market Rates are Variable

The rates in the LTL market were also a topic of discussion at TPM23. In particular, while the rates in the TL and LTL sectors have, directionally speaking, moved in tandem that is not happening in this market. Typically, when TL rates fall sharply, so do LTL rates; when the TL rates move up, so do LTL rates. In this market though, the pricing in the LTL sector is acting independently and different companies are seeing different trends for their rates. 

For shippers who are looking at their LTL rates, here is a word of caution: Since the LTL carriers have excellent data about the cost of serving their customers and have done a better job of planning their capacity, make sure you are using the right carrier sourcing strategy for your LTL bids.

If you want more information about what the right sourcing strategy would be, I encourage you to get in touch with us.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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