The 2:00 Minute Warning with Mike Regan

With Ocean Rates Plummeting and Truckload Rates on the Table, Shippers Finally Get Some Good News! But...

Written by Mike Regan | Sep 28, 2022


Last week I attended and spoke at CSCMP’s Annual Edge conference in Nashville. As usual, there was outstanding content that addressed what’s happening in today’s transportation market. Two items garnered a whole bunch of attention.

First, ocean rates for containers continue to plummet. We are literally seeing something that we have never seen before with a very significant inversion between spot versus contract rates in the ocean market.

To put this in perspective, on a year over year basis, last year at this time, ocean container rates in the spot market were ranging between $15,000 - $30,000. Five weeks ago, the rates in the spot market were ranging between $5,000 - $ 8,000. Today, those rates in the spot market are ranging between $3,000 - $5,000. And we have talked to shippers that are reporting that they have rates that have broken below the $3,000 floor. As expected, shippers are wanting to renegotiate the contract rates with the ocean carriers. But interestingly, the ocean carriers that are willing to renegotiate with lower rates are only projecting those rates for 3 to 6 months.

What makes this precipitous drop in rates even more noteworthy is the fact that the rates continue to drop even as the ocean carriers have tried to shrink capacity with blank sailings. In 2021, these blank sailings were very effective in sending rates through the roof. But one senior executive from an ocean carrier told me that even with this blank sailing strategy, rates continue to plummet with signals that there is very weak demand in the ocean markets.

The second noteworthy item addressed what is happening with truckload rates. A couple of the sessions at the conference noted that with demand weakening and more capacity in the marketplace, truckload carriers are negotiating with their customers and lowering their rates in order to protect their contract business.

This is happening despite the fact that the carriers are, as we have noted in earlier Two Minute Warnings, as well as our interview with carrier executives such as JB Hunt’s President, Shelley Simpson, dealing with higher costs to operate their trucks. But Jason Seidl from Cowen noted that the truckload carriers will accept lower margins to protect those customers - especially those customers who have demonstrated a commitment to being a “shipper of choice.”

A couple of final thoughts. For shippers who are interested in lowering their rates, especially their truckload rates, some truckload executives issued this word of caution: If you want to protect your future capacity there is a right way and a wrong way to approach your truckload carriers. These executive noted that there are three things that shippers could and should do if they want the best possible results from these negotiations.

If you would like more information about these three things and other insights that may be helpful, simply send me an email or give me a call. It won’t cost you a dime and will definitely be worth your time.

P.S. Before signing off, the reason why we included the “But” in our headline is because there are some potentially troubling signs emerging at the West Coast ports. As contract negotiations continue between the PMA and the ILWU, we are seeing some local union activity that is causing slowdowns at the ports in Oakland and Seattle. If these slowdowns migrate to ports at Los Angeles and Long Beach, things could get interesting. You can count on us here at TranzAct to keep you updated on these and other important matters.

 

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
CONNECT ON LINKEDIN