In today’s fast-paced supply chain environment, it is important to know and understand the trends most likely to shape the future. To help you navigate the constant and transformative changes moving today’s supply chain, DHL Supply Chain’s Transportation Quarterly Report highlights what to watch each quarter. The data referenced is pulled from reports from DGF, Morgan Stanley, FTR, Sonar, Cleveland Research and Xeneta.
TOP THREE TRENDS WORTH NOTING FOR Q1 2023
1. Spot Market Rates
While we did see spot market rates increase slightly over the holiday season, we are now seeing normalization in Q1 against the high rates of last year, with spot rates continuing to decrease, and riding under contract rates.
Tender rejections remain historically low, which means capacities are loosening up. This is a good sign as it shows there is plenty of economic activity occurring. Analysts predict we will reach the market floor with spot rates sometime by the first half of 2023.
2. Port Congestion
While port congestion is down significantly compared to COVID-19 levels, congestion and service disruptions for the Northeast and Gulf ports continue to challenge the market. Container dwell time at ports in Southern California has continued to normalize over the last 45 days. We see two primary reasons for the significant reduction in port congestion.
First, businesses based in the U.S. are taking action to draw down inventory, which is reducing the amount of import activity and lightening congestion. Second, the point of entry into North America is becoming diverse, with more activity shifting to Gulf and East Coast ports. We are seeing choppy import booking through customs, which is a good indicator that congestion will continue to remain low.
3. Freight Volume
Freight volume continued to decline in Q1. While the industry typically sees an increase in truckload demand in January and February of each year, this year’s uptick during these two months was at the slowest pace in the past five years. This implies that seasonal demand for this time of year might be lower than what has typically been seen in previous years. One reason for this is that decreasing manufacturing output continues to lag behind recent historic output, which is an indicator that inventory is being drawn down.
Given the decrease in volume, we have surprisingly not seen a high number of bankruptcies with trucking owner/operators. This is probably because many of them locked in at the low interest rates. If interest rates continue to increase, further impacting big purchases, freight volumes will remain low and may begin to cause an eventual rise in bankruptcies. If this occurs, it will recalibrate the demand ratio.
ECONOMIC OUTLOOK BOX
- Market conditions appear to be stabilizing as the economy slows.
- U.S. GDP in the third quarter posted a gain but that is not hiding any of the key indications that the broader economy is slowing.
- Diesel prices continue to become challenged with current inventory challenges and the impact of OPEC+ oil production cut.
- More interest rate increases are bound to occur and likely to remain in place longer than expected, with recession risks having tapered but still looming large.
- The trajectory of the economy rests on American consumers but it is showing signs of weakening, especially in the housing sector as mortgage rates surge and inflation erodes consumer savings.
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