Freight Forward - The week ahead in shipping

Welcome to the first Freight Forward, where each Monday, I’ll recap what happened in supply chains the previous week and what to expect for the week ahead. Just in case you’re wondering, I’m Cathy Roberson, supply chain writer, and researcher. For this weekly series, I serve as a research analyst for the Journal of Commerce (JOC), for whom I identify trends, provide thoughts and input into stories and assist with parcel last-mile queries.

“There are just too many moving parts to this situation. Every action in this supply chain is related to something else,” SC Ports Authority Jim Newsome said in one of my favorite JOC stories from last week, SC Ports halts forecast for clearing Charleston congestion, written by Ari Ashe.

While Mr. Newsome spoke directly to the rise in congestion at the Charleston port, the same can also be said for almost every shipper’s supply chain.

The higher supply chain costs and delivery delays have negatively impacted shippers and customers over the past year. It’s a trend we hear every week, whether it’s a specific issue within trucking, ports, airports, or warehousing, each impacted part is creating what has become an almost continuous series of waves battering supply chains, and it’s adding up for all involved.

As I write this article, another potential wave is building and could potentially hit US supply chains - China’s COVID lockdown for Shanghai. The lockdown is for one week. Ports and airports remain open and truck drivers with EIR and a negative COVID test report in the last 48 hours are allowed on the road.

The US Government to the Rescue?

The supply chain issues have now caught the attention of the US government, which is working to resolve the problems. (See JOC story - TPM22: FMC’s Maffei sees no collusion as Biden targets container lines by Michael Angell)

In addition, the Federal Maritime Commission (FMC) has been holding meetings with supply chain stakeholders to identify issues and work on a solution(s). These meetings are well worth the listen and can be accessed here.

Not only is the FMC hosting meetings, but it also appears to be more willing to take on supply chain issues and complaints. Last week, Michael Angell wrote how the FMC plans to audit ocean carriers, including what FMC calls 5 “pop-up” carriers that emerged in the Trans-Pacific market due to surging import demand.

Eric Johnson also wrote a story on the rise in shipper disputes with container lines and marine terminals, three complaints filed in March.

To what extent the US government should be involved has been a hotly debated topic by state and federal government officials, within publications, across social media, and at conferences, including TPM 22, which was held earlier in February/March. I’m sure we haven’t heard the end of it.

Slowly slowing down

But the continued increase in supply chain costs and delays will ultimately lead to the US economy slowing down.

Last year, shippers were willing to pay whatever it took to get their inventory on time. This year we will see shippers become more conscious of their costs, and this week’s economic data will likely begin to show this trend.

• The Conference Board’s consumer confidence index for March will come out on Tuesday, March 29. Expect a second consecutive monthly decline due to the uncertainty in markets and inflation concerns. Consumers are beginning to reign in their spending and will push back more on higher retail prices by becoming more selective.
• ?The US Census Bureau’s Construction spending for February will come out on April 1 and will likely be lower than January due to seasonality and supply chain delays. However, in terms of year-over-year, February spending will likely be higher due to the growth in new housing starts.
• The Markit manufacturing PMI for March will be published on April 1 and will probably come in just a little higher than February. But, cracks within the index will be wider than months past as specific PMI components such as labor, raw material, and transportation costs will continue to rise.

While most economic indicators will remain positive for at least the first half of the year, the supply chain wheels are beginning to slow down as retailers continue to raise prices to offset higher supply chain costs and manufacturers pay more for raw materials and other inputs to satisfy customer demand.

Consumers are willing to accept higher prices only up to a certain point, and I believe the consumer is quickly reaching a point of enough with February's inflation data at its highest levels since the early 1980s. Retailers will likely begin to feel a backlash during the second quarter.

Fuel pains grow

The sudden increase in fuel prices will be the catalyst that drives many consumers to start tightening their belts further, in my opinion.

Another great JOC article from last week speaks to the jump in fuel prices for ocean, surface, and air - US shippers bracing for fuel cost hikes amid oil market volatility, written by Bill Cassidy, Ari Ashe, and Greg Knowler. While fuel prices have been on the upswing for a while, Russia’s invasion of Ukraine in late February caused oil to jump significantly, and thus fuel prices shot up, and fuel surcharges across all modes of transportation jumped.

?From a carrier:

Hapag-Lloyd CEO Rolf Habben Jansen told reporters in a March 10 briefing that rising energy prices represent a “real worry” for carriers. “Fuel prices have gone up from $500 a ton to around $1,000 a ton,” he said. “We burn 4.5 million tons a year, so that means an extra cost of between $2 billion and $2.5 billion.”

From a shipper:

“I had already included a 10% increase in [domestic] fuel surcharges in my budget and that’s been blown out of the water,” Holly Pearce, director of logistics for C&D Trojan told JOC. “Best case I’ll be paying $1.5 million more, worst case, $3.9 million more and I already had $7 million baked into my budget for domestic surcharges.”

Higher and higher

When oil prices suddenly jumped earlier in March, many carriers had to scramble to extend their fuel tables to reflect the higher prices and adjust fuel surcharges accordingly. From a last-mile perspective, FedEx not only extended their fuel tables for their three divisions (Express, Freight, and Ground), but the company also increased the surcharge for each price level by 0.25%, effective April 4. Meanwhile, UPS reduced the time lag to implement fuel surcharges from two weeks to one week to match FedEx’s schedule.

Hapag-Lloyd also changed its fuel surcharge implementation to every other week.

Fuel surcharges are a huge concern. Consider that shippers have to pay a fuel surcharge for each carrier(s) they use for ocean, air, truck, and small parcel, this adds up quickly. Typically shippers will pass these costs down to their customers and ultimately to us, the consumer.

Another JOC story to check out is how the higher fuel prices are impacting truckload carriers – Higher Fuel Prices Blunting US Spot Truck Rate Decline, written by Bill Cassidy.

Since the Russian invasion of Ukraine began, oil prices have backed off a bit. But, as long as there is global uncertainty, it will continue to be a concern for consumers, shippers, and carriers.

“The most recent wildcard we are facing currently is the fuel increase driven by the increase in the price of oil globally,” retailer Fossil Group COO Jeff Boyer told analysts on March 9. “We’re not seeing major business impacts from the crisis in Ukraine at this time, as our supply chain doesn’t include routes through the impacted areas. That said, we are watching oil prices, as freight operators can pass fuel surcharges along and there could be some freight expense pressure if the conflict continues and oil prices remain elevated,” Boyer said.

When will supply chains finally get back to normal?

This is the question on everyone’s mind and I’m 100% certain that it will not happen this week. Instead, shippers, carriers, and other supply chain partners will be busy closing the books on what will probably be a “quieter” first quarter compared to last year regarding volumes/receipt of goods but higher in costs. An even higher level of uncertainty is expected for second-quarter outlooks.

That’s it for this week. What did I miss? Have a question? Let me know in the comments. I’ll be checking back throughout the week to answer questions, address comments and share additional insights.

In the meantime, here’s hoping everyone has a good freight week ahead!

-Cathy