Economic Briefing
Global Manufacturing Optimism High, Despite Weaker Summer Performance
Manufacturing activity worldwide typically accelerates through the summer months and into the peak retail season. But a combination of early ordering (as shippers try to avoid potential East Coast Port issues) and limiting inbound order volumes because of uncertainty heading into the peak retail season, has weakened global new order demand.
In addition, there are concerns that the Chinese economy is slowing faster than expected and that sluggishness may be rippling through other markets. Many Purchasing Manager’s Index reports across Asia were still stable, but 16 of 30 markets worldwide were in contraction through July and 20 of 30 markets declined month-over-month between June and July. New orders are weaker than expected headed into the peak season, but most manufacturers are optimistic that this is a temporary pull-back in orders until after the Fed begins to move on interest rates (which may now come sooner than later). Once the Fed starts moving on interest rates, demand for a wide variety of products should improve (especially single-family housing).
Truck Capacity Reducing More Quickly
There are many sources trying to track trucking capacity and the pullback in the number of small firms in the market. One of them comes from DAT Trendlines and the latest data from the end of July showed that the number of trucks available in the spot market was declining at a faster rate. Truck posts were down 21.6% vs. July of 2023 and were 6.7% lower than they were a month ago. Load posts, in contrast, were 10% lower Y/Y and were 21% lower M/M.
During the pandemic, many smaller firms came into the marketplace at arguably a record pace. Many took on debt to purchase equipment and labor costs surged. As companies came out of 2022 with too much inventory on hand, it took nearly 18 months to pull those inventories back down to a reasonable level, and sluggish freight demand led to many smaller firms falling on hard times. Many CDL drivers have jumped to a strong nonresidential construction market, also tightening capacity. The impact will likely not be felt as much at this time, when the freight market begins to rebound and volumes start to increase, real capacity levels and any shortages will become clearer.
Oil and Diesel Prices Fall Despite Global Instability
One couldn’t ask for a more volatile and confusing oil and diesel market. At the time of writing, there was a hurricane in the Gulf near some offshore oil production facilities, concerns of widening conflict in the Middle East, a global stock market “sell-off” ongoing, and rumors of OPEC+ throwing an additional 2-4 million barrels a day of oil on the global market. Those conditions were pushing and pulling on prices and that volatility makes it difficult to forecast where oil prices will go (and diesel prices with them).
West Texas Intermediate was trading at $73 a barrel at the time of writing, more importantly, this was 5% lower than a year ago and just slightly higher by 2.6% YTD. Essentially, oil prices are relatively flat despite this significant market volatility and the market is well supplied for now. Diesel prices have eased in recent weeks. The national price of diesel was $3.79 a gallon, down from $4.18 a year ago (@9% lower).
The EIA is forecasting that diesel prices will remain near this level, coming in on average at $3.92 a gallon for all of 2024. Crude oil was forecasted to be higher however, at $82.03 a barrel. Therefore, we will expect the EIA to adjust its forecast lower in the coming weeks if prices stay at these lower levels.
Inside This Edition
Truck Capacity Reducing More Quickly
There are many sources trying to track trucking capacity and the pullback in the number of small firms in the market.
Oil and Diesel Prices Fall Despite Global Instability
One couldn’t ask for a more volatile and confusing oil and diesel market.
USMX and ILA East Coast Port Negotiations: Local Talks Ongoing Little Broader Progress
Information on contract negotiations is still sparse while talks are ongoing, and both parties have agreed to keep the specific details of the negotiations private for now.
Hints of Maritime Prices Starting to Ease
Despite tensions continuing to ratchet up in the Middle East, maritime prices have started to show hints of easing headed into August. The Drewry World Container Index was still elevated on a year-over-year basis, sitting 226% higher vs. 2023.
Air Cargo Inbound Prices Up 5.3%
In a fairly clear sign that supply chain managers are trying to keep inventories lean going into the second half of the year, national surveys are showing air cargo inbound rates are 5.3% higher year-over-year through the end of June.
Transportation Briefing
USMX and ILA East Coast Port Negotiations: Local Talks Ongoing Little Broader Progress
Information on contract negotiations is still sparse while talks are ongoing, and both parties have agreed to keep the specific details of the negotiations private for now. The USMX reported that progress was being made on some unresolved local contract issues, but talks on the broader national contract were not showing progress right now.
Even leaks of information are being kept to a minimum, which is typically a good sign. The contract deadline is now less than 2 months away (September 30th) and many are waiting with anticipation for news of a contract agreement on the table. Most supply chain managers have already taken care of early inbounding of freight and much of it is already on water and headed toward the US to avoid risks late in the season if there were to be a disruption in throughput. Economic conditions could weigh on negotiations.
Hints of Maritime Prices Starting to Ease
Despite tensions continuing to ratchet up in the Middle East, maritime prices have started to show hints of easing headed into August. The Drewry World Container Index was still elevated on a year-over-year basis, sitting 226% higher vs. 2023. But in the past several weeks, the index has fallen by 3.3%. Some of the Asia to US and Asia to EU trade lanes are easing as volumes slow headed into the peak season. Again, some speculation believes that many purchasing managers tried to get ahead of potential shipping volatility and inbounded items earlier than usual this year (both adding to the surge in prices in July but also helping ease them into the historically busy peak shipping season).
The National Retail Federation still expects more than 2 million TEUs per month to come into the US over the next two months and slow down just slightly into the late peak season period (November and December). The greater factor will remain European demand and what that does to global maritime capacity. At this time, there are still estimates that as much as 15-20% of global maritime capacity may have been pulled out of the market by the Red Sea closure. Data from the services sector PMIs show little consumer slowing across most global regions, especially in the US market. This is more likely to keep conditions tighter than one might expect. Intermodal volumes in the US are still 8.5% higher YTD, and total USMCA intermodal volumes were up 8.1% through week 30 according to the Association of American Railroads.
Air Cargo Inbound Prices Up 5.3%
In a fairly clear sign that supply chain managers are trying to keep inventories lean going into the second half of the year, national surveys are showing air cargo inbound rates are 5.3% higher year-over-year through the end of June (latest available). Perhaps more interestingly, rates were higher by 4.2% month-over-month between May and June.
This year appears to be one in which air cargo will play an important role in inventory management. Purchasing managers are facing two different strategies. For those that have ample cash reserves, this may be an opportune time to stockpile materials and products that have little or no obsolescence or perishability risk. But for those that are borrowing capital at high interest rates, keeping inventories lean headed into the end of the year may work as a better strategy. It is this latter category that could be using air cargo to backfill small stockouts with fresh inventory – to keep ending inventories tight.
