Shipping prices have plunged after a pandemic surge, casting a cloud over peak season. Logistics leaders should take it slow as the industry recalibrates.

After the pandemic-driven surge in consumer demand that triggered a frenzy of shipping activity and skyrocketing prices, logistics and transportation companies are signaling a fast slowdown.  

With consumer demand wavering and retailers coping with excess inventories at overstuffed warehouses, global container volumes fell 8.6% in September, according to maritime data group Container Trade Statistics, reaching the lowest level since February during a period when shipping is usually at its strongest. The rapid falloff is hitting imports into the U.S. hard. Research group Descartes Datamyne says container imports from China into the U.S. were down nearly 23% in October from the annual high in August. 

The impact is cascading across U.S. domestic supply chains, dimming cargo volumes for trucking companies and railroads. It is also bringing down the hefty freight rates that have crashed companies’ transportation budgets over the past two years, presenting an opportunity to cut logistics costs for those retailers and manufacturers that are looking to move goods. 

The weekly Shanghai Containerized Freight Index, which measures shipping prices out of China, recently dropped to $1,443.29, about one-third the level it hit in early June. The separate Drewry Worldwide Container Index measuring the average price to ship a 40-foot container, reached $2,773 in early November, the lowest level in two years. Drewry, a U.K. data provider, said the average rate to ship a 40-foot container from Shanghai to Los Angeles had fallen to $2,262 in the first week of November from $11,197 in late January. 

DAT Solutions LLC, a load board matching shipments and trucks in the U.S. spot market, says loads posted to its load board were down about 52% year-over-year in October and average rates were down nearly 16% from last year. The average rate of $2.37 per mile that the company measured in early November would mark the lowest price for shipping goods by truckload since September 2020.  

The decline is coming during the so-called peak season, when business ramps up ahead of the holidays. Now, truckers are forecasting what many are calling a muted peak. “Peak season this year just doesn’t appear to be much of an event, I’ll just say it like that, while we’re still experiencing growth,” said Darren Field, president of intermodal at J.B. Hunt Transport Services Inc., a warning from the freight bellwether on the shift in consumer spending.

“We certainly did not expect that the market was going to come down as rapidly as it did.”

— C.H. Robinson Worldwide CEO Bob Biesterfeld

Still, the fading transportation costs haven’t reached deeply into the economy yet, in part because freight rates in many cases remain above prepandemic levels even after the steep declines this year. The jaw-dropping declines also measure the spot market prices. Most freight business moves on contract rates, and those long-term prices haven’t fallen nearly as fast as the spot market. The gap between spot-market rates and contract rates is narrowing, however, and the low spot prices will have a big influence on new annual contracts that carriers, from ocean shipping lines to truckers, negotiate with their shipping customers in early 2023.  

Carriers across the freight sector are trying to maintain equilibrium, in part by cutting capacity in line with softer demand. Container lines have canceled dozens of scheduled services this fall in what the business calls “blanked sailings.” But they are also fighting a tide that is moving against them, with deliveries of hundreds of new ships over the next two years that will keep capacity plentiful unless carriers take the expensive step of idling ships. 

C.H. Robinson Worldwide Inc., the largest freight broker in the U.S. by revenue, is even laying off hundreds of workers after hiring in big numbers as it coped with pandemic-driven demand. “We got ahead of ourselves in terms of head count,” said the company’s chief executive, Bob Biesterfeld. “We certainly did not expect that the market was going to come down as rapidly as it did.” 

A freight market marked by diminishing demand and lower prices will present opportunities for shipping customers to get their logistics budgets back in order, assuming, of course, that underlying demand from consumers and factories holds up. 

Here are some tips for logistics and supply-chain managers to take advantage of a changing market. 

Be careful about signing onto new warehouse capacity. Industrial developers have hundreds of millions of square feet of space under construction, and although vacancy rates remain at historic lows, there are growing signs the drop in available space has bottomed out. Even Amazon.com Inc. is offering some of its spare warehouse space for sublease. It may take time, however, even years, for the market to return to greater balance. Markets near Southern California’s ports, for instance, still have vacancy rates near 1%. 

Spread out your shipping options. Companies may be tempted to jump on low rates that may hit the market next year, but supply-chain managers should keep in mind the volatility that has marked business over the past two years. Use multiple carriers rather than putting all your pallets in one basket. 

Keep a close eye on commodity markets. Prices for raw materials have been highly volatile in the past two years. Stability in those markets will provide a good guide for the direction of supply chains, and company costs, next year.

Source: wsj.com by Paul Page