Shipping Finally Cools Off

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Finally, relief from shipping woes is in sight.

After more than two years of disruptions and delays that have bedeviled virtually every type of business. There’s no going back to the pre-pandemic normal, but shippers can at last expect a real improvement.?

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More trucks and truckers are arriving,?helping to ease chronic capacity shortages. Plus, demand is down from the pandemic surge.?

That means lower rates.

Spot rates are off by 30% from their peak this spring, fuel surcharges not included. They’re 9% above prepandemic levels, and should slowly dip more, ending 2023 5% higher than they were before the virus roiled the industry.

Contract rates are slower to fall, although still 24% higher than pre-COVID. By the end of next year, it will be 17% above those levels.

Of course, diesel fuel remains sky-high , which means continuing high fuel surcharges. But, diesel costs should gradually come back to earth, too.?

Ocean shipping is dropping in cost but remains above the 2019 average.

The cost of moving a standard shipping container from China to the West Coast costs 66% less now than it did at its peak, though the current cost is still almost triple pre-COVID prices.?Demand to move ocean freight is down sharply. Most retailers ordered early this year, anticipating delays ahead of the holiday season. Now, volumes are subdued.

Congestion at East Coast ports should mostly clear up in the next few months.?Problems remain, of course. Shortages of truck chassis will last into 2023.?

Warehouses are stuffed with goods, and will take time to get cleared out.?

Freight rail is the most worrisome, though.

A crippling strike was averted, but the industry remains critically understaffed. Before the pandemic, head count dropped from 60,000 workers to 52,000, as railroads sought to run leaner. Since then, the workforce has dropped even more, to about 48,000. The resulting crew shortages led to inevitable delays when demand jumped.

The cooling economy and the softening in freight demand should help, but the system remains fragile and prone to disruption.?So, expect rail freight rates to tick higher. Carload rates are up 4%-6% in 2023. Intermodal, in which freight moves from rail to truck, will be up 2%-3% after 2022’s 15% rise.?

Keep an eye on regulatory moves that could create new bottlenecks.

A recent California law requires independent truckers to be classified as employees of the businesses they serve, which will raise costs and may push drivers out of the industry.

What’s more, the National Labor Relations Board may attempt to impose such a policy nationwide, depending on which party holds the White House (and appoints NLRB members) in the future.

California is also forcing older trucks, those built before 2010, off the road in the name of air quality, another cost driver.

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