November 3 2022

Freight Insights for October 2022

The following insights are provided by Sunset’s Strategic Account Management team.

Trends and discussions range from seasonal manufacturing and agriculture trends that affect available capacity to general insight into outside factors affecting freight volumes.

Below is a summary of the October insights:

DOMESTIC

Capacity

  • It’s turkey season in the United States with Minnesota being the biggest turkey-producing state.  We’re going to see a heightened presence of refrigerated tractor-trailers shifting to the Midwest to meet that demand as the holidays approach, tightening capacity for dry-van and reefer trailers in the Midwest.
  • The current load to truck ratio as reported by DAT is 2.64 as of 10/30.  We saw 3 weeks of loosening capacity in October with the final week showing a bit of tightening.
  • JOC reports that, overall, truckload capacity is available – but can be significantly tighter on a regional or even local basis.  Changes in seasonal demand is listed as a main factor which is more apparent as overall freight volumes ease.

Demand

  • Non-seasonally adjusted retail sales* rose 1.7% in September and 8.4% YoY.  The inflation rate in Q3 is expected to be 7.8%, as reported by the US Census Bureau.  This indicates a large part of the retail sales leap is reflective of inflated costs for retail items.*Excluding fuel, motor vehicles, and automotive parts
  • The Bureau of Labor Statistics (BLS) is reporting a seasonally adjusted loss in trucking employment of 11,400 jobs for September. It was the first decline in this category since March.  Even so, trucking employment remains 3.6% higher YoY and 3.3% higher than 2019, according to BLS data.
  • The drop in employment doesn’t match up with a decrease in freight demand, though it may anticipate one. US manufacturing output, while slowing, was still up 3.2% YoY in September.
  • Manufacturing employment continued to trend up in September (+22,000). Job gains occurred in motor vehicles and parts (+8,000), fabricated metal products (+6,000), and electrical equipment and appliances (+3,000). Manufacturing has added an average of 36,000 jobs/month thus far in 2022.
  • US manufacturing output continues to expand, albeit slowly, underscoring resilience in the US economy despite recessionary trends.
  • The S&P Manufacturing PMI for Oct came in at 50.4.  Expectations are that it will hold through the end of the year, indicating a slow growth for the final months of 2022.  Production rose at a marginal rate helped by supplier bottlenecks easing, however, new orders declined due to greater client hesitancy amid marked inflation.
  • Sales of passenger cars and light trucks have started Q4 2022 off well. Sales rose to 14.9M units (SAAR) in October after 13.6M units in September. The level was above expectations and the highest since June 2021 (15.3M units).

Service/Cost

  • UPS Inc. has rolled out a parcel pricing program that offers shippers one all-in rate while waiving almost all delivery surcharges, including fuel.
  • The US District Court in Rhode Island declared tolls on tractor-trailers a violation of the US constitution by discriminating against interstate commerce.
  • Hurricane season is upon us.  We have already seen several days of delays due to flooding and high storms out of the East Coast, especially Florida after Hurricane Ian.
  • Low water on the Mississippi due to drought is causing an increase in cost of barge transportation, especially grain. Much of the grain harvest in the US will need to be moved intermodally, causing other intermodal traffic to be delayed or moved via truckload.
  • Nearly 30 LTL carriers, freight brokers, 3PLs, and technology firms are adopting a standardized electronic bill of lading (BOL) developed by the Digital LTL Council of the National Motor Freight Traffic Association (NMFTA). The electronic document is designed to replace paper BOLs and help LTL carriers plan freight flow more efficiently, reducing costs for carriers and shippers alike.
  • The national average price of Diesel is $5.32/gal as of 10/31/2022.  OPEC has cut oil production which will create a short-term squeezing in the market.  Stocks for diesel are at their lowest for the time of year since 1982.

Expectations

Sunset expects capacity and demand to remain steady and freight costs to stay flat but fuel prices to increase until the Thanksgiving Holiday.  This is also the time when winter weather will begin.

INTERNATIONAL

Capacity

  • US Freight Unions are currently either waiting to vote on ratifying the tentative agreements made in September or have opted to not accept the proposed contracts and have resumed negotiations.  All unions have agreed to maintain the service status quo and not cause any immediate disruption as they continue to negotiate until the current deadline of November 19th.
  • In October, members of the International Longshore and Warehouse Union (ILWU) have purposely delayed job actions in Oakland and Seattle/Tacoma which slowed down operations and prevented some terminal operators
    from working night shifts.
  • The most recent addition to the global ordering spree for ultra-large container ships comes this month as Cosco & Orient Overseas International (OOIL) placed an order for (5) 24,000-TEU ships at a total cost of $1.2B.  This order brings the total number of ships ordered by OOIL to 29 – the first 12 of which are expected to join their working fleet mid-2023 – just in time for the IMO 2023 carbon emission regulations to take effect.

Demand

  • Cargo volumes continue to be above pre-pandemic levels, but the rate of growth has slowed compared with unusually high volumes last year.
  • Union Pacific Railroad (UP) and J.B. Hunt Transport Services are reducing domestic intermodal rates out of SoCal and delaying or halting peak season surcharges due to decreased demand for intermodal transportation in that region.
  • Although imports to the West Coast are down 11.5% YoY, the rest of US ports are reporting increases in volume.  East Coast ports are up 10% YoY and Gulf Coast ports are up 28.4% YoY, making the US all-in volume up 1.5% YoY.
  • The South Florida Container Terminal at the Port of Miami has announced that its plan to add Kalmar cranes to the yard will be completed mid-2023.  The cranes are part of a densification/expansion project at SFCT that will eventually enable it to handle over 500,000 TEU per year – up from its current throughput of 385,000 TEU.

Service/Cost

  • Freightos’ Baltic Index reports global container shipping rates fell to $3,340/FEU in Oct 22, a drop of 67.7% from $10,321/FEU at the same time last year.
  • China to US Ocean transit time has dropped consistently this year from a peak of 80 days in Dec 2021 to 61 days in Sept 2022.  Please note this includes transit time to all US ports.
  • Reports of COVID quarantines and testing requirements are coming in from Ningbo – shipment disruptions are being reported at an average of 2 weeks of delays at this time.
  • The legacy of the COVID-19 pandemic’s effect on supply chains seems to be less about cost increases and more about altered attitudes toward risk.  The global supply chain network built during the 1990s – 2000s was based upon efficiency and managing costs. Now there’s another dimension to consider – which is based in resilience, service, and security.

Expectations

Sunset expects ocean capacity to remain available and import demand to slow as we near the end of 2022 into 2023. Rates to stop their decline and flatline as we move out of retail season.  We expect small blips to rates and service leading into and during the Chinese New Year 2023.

Industry data is pulled and summarized weekly from key proprietors and industry experts using multiple publications and sources. Sources include, but not limited to: FreightWaves, Cass Transportation Index, DAT, Journal of Commerce (JOC), PYMNTS, NRF, Cleveland Research. The information is discussed with Sunset Managing Directors and validated prior to publication of summary data in this posting.


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