Labor Day insights on the freight market
Hello, and welcome to this week’s edition of Straight Talk. Inside, we discuss:
First, I want to wish everyone a safe and enjoyable Labor Day and I hope you all had the opportunity to get away from work for a few days (and if you are reading this on Sunday or Monday, thank you—but you really should enjoy a few days off!)
I also want to take a moment to suggest you check out a new white paper from Hai Robotics. The white paper—How to Use Batch Factor for Right-Sized Automation—explains how understanding SKU Batch Factor in automated order fulfillment can optimize automation size, efficiency, and ROI in your warehouse operations. You can download it here: https://www.scmr.com/paper/get-the-right-size-of-automation .
And if you like that content from Hai, consider joining us in Chicago for the NextGen Supply Chain Conference. Hai is not only a Gold Sponsor of the event, but Matthew Kelly, the director of strategic partnerships and commercial development, will be joining us as part of a panel discussion on the automation inside the warehouse. Carthartt’s Tony Gariety, UPS Healthcare’s Mike Packer, and GXO Logistics’ Adrian Stoch will also be on the panel. It should be good. You can find out more about the conference or register at www.nextgensupplychainconference.com .
And now, on to this week’s Straight Talk.?
Shippers wait, but green shoots may be appearing
As I was out on one of my morning walks last week, I came across an interesting article on the purchasing power of Americans (you can find more on this further down this newsletter). Given the talking points from politicians and everyday citizens on social media on the state of the economy, I found the research fascinating and it got me thinking: industry stakeholders seem to agree the trucking industry has been in recession, yet the economy continues to grow. And while unemployment continues to tick up, it remains relatively low compared to historical precedents.
So, what state is the economy really in? And what does that mean for shippers and the freight industry? I’m not an economist, so I’m not going to even try to answer that question, but I’ve pulled together some varying data/research that I have seen in the last week or so to help you decide for yourself.
Shippers are cautious
UPS, FedEx and the U.S. Postal Service have all recently announced peak season pricing increases, but in the rest of the freight market, we may be seeing some stability heading into 2025. That isn’t necessarily translating into shipper confidence, however.
The quarterly BlueGrace Logistics Confidence Index came out this past week, and it found a mixed bag for Q4 among the shippers surveyed. “While the previous quarter showed strong alignment in revenue and order expectations, Q4 has seen a significant decrease in consensus. This shift suggests businesses are facing new challenges or uncertainties, leading to divergent expectations. However, the sharp increase in consensus on inventory projections indicates greater alignment, possibly due to clearer market signals or shared supply chain experiences,” it noted.
The Index saw shippers indicate a 21% variance in their revenue expectations for Q4 compared to what they forecast in Q3, with a 54.2% variance increase in inventory and a 22.8% decline in orders. “Moving forward, businesses should remain adaptable, monitoring trends while refining inventory strategies to ensure resilience in a changing market,” BlueGrace noted.
The company noted a “cautious optimism” that has remained from the Q3 survey, but it was seeing an “increasing awareness of potential risks.” “The small decline in positive and neutral sentiment, coupled with a significant rise in negative sentiment, might reflect a market environment that is becoming more cautious,” BlueGrace wrote.
So that sounds like shippers are being more cautious heading into Q4, so where are the glimmers of hope?
Ocean freight rates declining
Following a peak in July, ocean freight rates are dropping, and futures markets are suggesting a significant drop in 2025, according to data from Linerlytica. The firm said rates have dropped 38% on the Transpacific and Middle East routes to the U.S. West Coast. A rebound may come in the short term, though.
“The outlook over the coming four weeks is mixed, with carriers hoping that the diversion of cargo away from the U.S. East Coast ahead of the potential port labor disruptions in October could provide a boost to the market,” the firm said, noting that freight futures contracts “continue to weaken, with North Europe rates trading at a discount of over 70% to current spot rates.” No rebound is forecast over the next 12 months.
Freight recession ending?
An analysis of data by Motive found that trucking exits declined from June to July, dropping 53.6% and were off 74% year-over-year. That is the lowest level of contraction in the market since October 2022, it said. In an interview with CNBC , Hamish Woodrow, head of strategic analytics at Motive, said more freight is moving into retailers. “When I look at the trends, what is pretty clear here is compared to last year, where retailers were destocking so they were artificially not bringing in inventory, we now see strong restocking trends,” he said noting an increase of 13%-14% with discount retailers, nearly double the rate of last year.
Additionally, the GEP Global Supply Chain Volatility Index is showing more activity in supply chains, with Asian manufacturing hitting a 16-month high. Ocean freight bookings remain elevated compared to a few months ago, with the Index at 108.7, up from about 78.23 on May 5.
Fed rate cuts coming
So, while ocean and land freight markets are giving some mixed signals, the markets could see a boost as the Federal Reserve is poised to cut interest rates. It was expected the Fed would make a cut in September, but a research note this past week from JP Morgan suggests that the cut may be steeper (or the cuts may be more frequent) than initially expected.
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“[It is an] odd combination of rising concerns about a U.S. slide into recession alongside financial market optimism about the future path of business sector performance,” the note said, according to Business Insider .
Any cut will be welcome news for the market, but a deeper or a series of quicker cuts could jumpstart an economy, especially if it triggers a drop in home loan interest rates that kickstarts the home buying market and therefore the freight markets.
Buying power increases
One of the more interesting pieces of analysis I’ve read in a while is an article that came out of the U.S. Department of the Treasury in mid-July, but only reported this past week. The analysis looked at the annual increase in wages and compared it with inflation and consumer price data to determine the “purchasing power” of American households.
While there has been much handwringing about the toll inflation is taking on the economy—despite an economy that continues to grow (Q2 GDP was up 2.8%, which followed a 1.4% gain in Q1—not robust, but growth nonetheless)—the Treasury’s analysis may have found the answer. It found that real weekly earnings of a “typical middle class worker” have risen 2.3% since 2019. Factoring in inflation’s increase, and the result is that American middle-class workers have more buying power in 2024 than they did in 2019, despite inflation.
“We find that in the year ending in the second quarter of 2024, the median American worker could afford the same goods and services as they did in 2019, plus an additional $1,400 to spend or?save per year,” the Treasury wrote.
This may explain why, despite all the public complaints about inflation, Americans continue to shop.
So, is the freight market good or bad? Ready for a rebound, or a crash? Shippers may be taking a cautious approach at the moment, as BlueGrace found, but there are some signs that we may be heading for that “soft landing” the Fed has been shooting for, and if that happens, the freight markets may see an improved 2025.
Embrace the resistance
We talk a lot about change management in business, but I think many companies miss the boat. How often do we hear about a transformation project, or a technology deployment, that doesn’t go well? More often than that, the two leading reasons are the technology is not suited for the task, or the people implementing it prevented it from succeeding—either due to a lack of understanding of the goals, or the skills needed to accomplish them. So I was fascinated by an article from Gartner’s Lorraine Gavin that suggested the biggest obstacle to change is people, and that we need to think differently about those that offer resistance to change. “Supply chain leaders can use this knowledge to respond to change resistance and engage with affected employees over a longer timeframe, supporting them through the period of transition—and not just at the point of change,” she wrote. You can read more of her thoughts on change management success here .
Take that, China
While much discussion has taken place in the U.S. about protecting electric vehicle production in this country against China’s efforts to dominate the global market, the first salvo in the battle has just been fired by Canada. The Canadian government announced tariffs of 100% on all Chinese-made EVs and added a 25% tariff on Chinese steel and aluminum imports for good measure. Canada believes the Chinese government is engaged in an “intentional, state-directed policy of overcapacity” to drive down prices. You can read more here .
What I read this week
A potentially devastating rail strike in Canada was averted when the Canada Industrial Relations Board ordered binding arbitration between Canadian National and the Teamsters Canada Rail Conference union. … Free shipping continues to drive consumer buying behavior, with 92% of consumers saying it impacts their decisions. … In an effort to avoid future issues because of drought conditions, the Panama Canal Authority has authorized a $2 billion reservoir expansion to increase the canal’s water storage capacity. … An early holiday shopping season is being predicted, with record sales the result. … UPS has been named the most valuable logistics brand by Brand Finance, with a total brand value of $22 billion . … DAT’s Truckload Volume Index is indicating rising freight volumes for the second straight month. ?
Thank you for reading,
Brian