GDP Running Hot, Impact on Supply Chain
RedStone Resource
January 31, 2024
Inside This Edition
Oil Prices Inch Up on Middle East Challenges
At the time of writing, oil prices were inching close to the $80 per barrel mark for WTI and Brent North Sea Crude was above $83 a barrel. Markets were anticipating a possible response from the United States against attacks in the Middle East that claimed the lives of 3 service people.
Transportation and Warehousing Job Openings at 386,000
The latest job openings data has been released and it shows 386,000 openings across the transportation and warehouse sector, down from 449,000 in November. The data lags roughly thirty days and there is some normal seasonality which would affect the normal hiring and furlough of seasonal employees.
Container Rates Continue to Gain Despite Weaker Global Freight Movement
The global manufacturing sector is going through at least a mild recession, and yet container freight rates are surging on Red Sea risk. The Drewry World Container Index was up 5% in the third week of January alone as composite container rates approach $4,000/40ft.
Economic Briefing
GDP Running Hot, Impact on Supply Chain
The first release of Q4 GDP showed that the country was growing economically at a 3.3% rate, well ahead of expectations for growth of 1.5-2.0%. The growth was largely attributed to stronger consumer spending, strong exports of US petroleum and refined fuels and other types of energy, corporate investment, and spending (nonresidential construction and technology spending), and government spending (local, state, and federal).
These figures could undergo up to three more revisions, but the trend is strong. For the first quarter, economists are watching consumer spending most closely. Consumers used credit cards to make many purchases in December and with credit card interest rates at all-time highs, there is concern that consumers may resort to paying down debt rather than spending on products, services, and experiences. But other sectors are likely to continue to be stable for now, giving the front half of 2024 a positive outlook.
Oil Prices Inch Up on Middle East Challenges
There is always a risk in writing an oil story in a volatile period. At the time of writing, oil prices were inching close to the $80 per barrel mark for WTI and Brent North Sea Crude was above $83 a barrel. Markets were anticipating a possible response from the United States against attacks in the Middle East that claimed the lives of 3 service people. But beyond that, some additional news was leading to an increase in fuel prices.
Clean Tanker rates (the cost of moving refined fuels like gasoline and diesel) have surged in the past two months amid challenges in the Red Sea and disruptions to pipeline shipments in the Baltic Sea. The cost of shipping refined fuels has risen by 106% over the past year according to the Baltic Clean Tanker Index. And news that was breaking at the time of writing suggested that more major refiners would divert shipments away from the Red Sea indefinitely if the conflict was still raging. Until now, at least 25 ships were still attempting to transit the Suez Canal, but more firms have joined the parade of major maritime firms using the Cape of Good Hope transit to avoid potential strikes on their vessels.
US fuel prices were still muted because of reduced demand in the US. Gasoline prices are still $.38 cents a gallon lower than they were a year ago at $3.13 a gallon. Diesel prices are down nearly $.75 cents a gallon at $3.92 versus prices a year ago.
Most analysts are still not anticipating a surge in oil prices. Thus far, all the geopolitical tensions in the Middle East have failed to overcome global demand sluggishness, and oil prices have remained in what many believe to be the “new normal” range for prices ($70-$80 per barrel). Even with the US administration purchasing 3.5 million barrels to start rebuilding the Strategic Petroleum Reserves, it has not had much of an impact on overall prices.
Transportation Briefing
Transportation and Warehousing Job Openings at 386,000
The latest job openings data has been released and it shows 386,000 openings across the transportation and warehouse sector, down from 449,000 in November. The data lags roughly thirty days and there is some normal seasonality which would affect the normal hiring and furlough of seasonal employees. That may explain why there was such a large drop between November and December. But when comparing it to the prior two years, job openings have dropped further than expected, so there is certainly some additional trimming of open positions headed into 2024. Overall, the broader economy somehow managed to push job openings back up and above 9 million openings (6 million is considered to be “balanced”).
Compared to periods prior to the pandemic, there are still roughly 100,000 more jobs open in transportation and logistics than there were (on average) in the decade prior to the pandemic. Much of this is still showing up in the warehouse sector, but regional pockets of transportation demand will also continue to see job openings, keeping labor conditions tight. Finding qualified CDL drivers (especially those with hazmat certification), pilots, ship captains, and even rail engineers is still a challenge, even if that challenge has softened ever so slightly. CDL driver drug failures are also still being tracked closely and although the monthly rate has slowed, the industry is still losing 1,000-2,000 per month due to drug failures and ineligibility.
When demand begins to pick up in Q2 (which will spill over into the peak retail season) these job shortages will likely start to manifest and become more obvious and create some faster-than-expected capacity tightening early in this cycle.
Container Rates Continue to Gain Despite Weaker Global Freight Movement
The global manufacturing sector is going through at least a mild recession, and yet container freight rates are surging on Red Sea risk. We have written much about this, but it continues to be a developing situation. The Drewry World Container Index was up 5% in the third week of January alone as composite container rates approach $4,000/40ft. But different trade lanes (if they are primarily a heavy head-haul lane) are seeing rates surge.
Asia to Europe lanes are still being hit the hardest. Shanghai to Genoa lanes are up 129% year-over-year ($6,365/40ft) and Shanghai to Rotterdam are up 186% ($4,984/40ft). But, although not directly impacted, Asia to US lanes are also surging. The fast-moving weekly lane was Shanghai to LA, rates were up 13% week-over-week through the 25th and were 110% higher than last year at this time. Shanghai to New York (which could have some direct impact from the disruption in the Red Sea) are also higher, rising by 9% week-over-week and 90% year-over-year.
With the conflict still intensifying, it appears that the diversion will continue and as spring freight begins to move, it will likely push rates even higher.
