Small Businesses Owners Say Unlikely to Build Inventories Over Next Six Months
RedStone Resource
September 15, 2023
Inside This Edition
Diesel Prices Quietly Surge to Nearly Third Highest Period in History
US diesel prices have moved back up to $4.54 a gallon on a national average basis. Aside from the panic period in the weeks following the initial invasion of Ukraine, diesel prices are at their highest level since the Great Recession in July of 2008 when they touched $4.72 a gallon.
Air Cargo Bottoms in April
Estimates suggest that each ship that makes the transit requires nearly 50 million gallons of fresh water to get through the system. Drought conditions, the impact of El Nino, and increased usage have put water levels extremely low in the feeder lakes. That has forced the Panama Canal Authority to reduce the weight and frequency of ships going through the canal.
Drug Failures Continue to Increase Among Truck Driver Pools
The latest producer price index (PPI) for freight showed the impact of the closure of Yellow on market prices. The LTL price index jumped by 4.35% month-over-month and remained 26.7% higher vs. rates in 2019. On a year-over-year basis, rates were 0.5% lower.
ECONOMIC BRIEFING
Small Businesses Owners Say Unlikely to Build Inventories Over Next Six Months
The National Federation of Independent Businesses (NFIB) reported in its Small Business Optimism Survey that a net zero percent of small business owners plan to build inventories in the next six months. In other words, outside of basic replenishment of stockouts, companies are not going to be increasing their days sales outstanding. And with a spending outlook that is expected to be relatively flat, this likely means a softer new order flow than usual.
Studies of the inventory-to-sales ratio show 65% of the country currently sitting at least 3% above their long-term pre-pandemic averages. Typically, when the inventory-to-sales ratio has been this out of balance, the transportation sector has been sluggish. The good news is that this fall is the risk-averse period in which inventory building is cautious, inventories will fall during the peak, and the 2024 rebuilding process should start to create the strongest freight moving environment (on a global basis) since the summer of 2022.
Small business optimism was also cautious about the next six months from an investment and hiring perspective. Owners are still struggling to find qualified talent and inflation pressures are still making operating conditions difficult.
Diesel Prices Quietly Surge to Nearly Third Highest Period in History
Although it has not captured media fanfare, US diesel prices have moved back up to $4.54 a gallon on a national average basis. Aside from the panic period in the weeks following the initial invasion of Ukraine, diesel prices are at their highest level since the Great Recession in July of 2008 when they touched $4.72 a gallon. They remain far from the record hit in June of last year at $5.81 a gallon but (given the current sluggish supply chain activity) prices are elevated more than most would expect.
Inventories of refined diesel are expected to remain near the bottom of their 5-year average through the end of 2024. However, the Energy Information Administration has kept its forecast for diesel prices lower at an average of $4.07 a gallon for all of 2024 (which would be down from an average of $4.31 in 2023).
Petroleum prices are still rising because of a cut in global supply. OPEC+ has decided to keep nearly 2.2 million barrels a day in cuts through the end of the year, longer than expected. That has pushed Brent North Sea Crude prices above $91 a barrel and West Texas Intermediate above $88 a barrel at the time of writing. Oil prices accounted for 47% of the price of a gallon of diesel as of July of 2023.
TRANSPORTATION BRIEFING
Panama Canal to Continue Reduced Daily Transits Through Early 2024
The Panama Canal uses a lock system to move ships through the canal and it gets its water from a lake that sits near the lock system. Estimates suggest that each ship that makes the transit requires nearly 50 million gallons of fresh water to get through the system. Drought conditions, the impact of El Nino, and increased usage have put water levels extremely low in the feeder lakes. That has forced the Panama Canal Authority to reduce the weight and frequency of ships going through the canal.
At this time of writing, the canal was allowing 32 ships a day through the system, which is down from 36 ships which is “normal”. The draught of ships able to transit has been reduced from 55 feet to just 44 feet. Some estimates suggest that this is impacting LNG and container ships in excess of 13,000 containers.
The result of these drought-induced restrictions is that dozens of ships are backed up outside of the canal and some are paying additional fees to jump ahead in the line or to take abandoned slots for transit. One recent ship paid as much as $2.4 million in additional fees to jump ahead in line to get through the canal. The minimum bid is reportedly $110K to jump ahead in the line.
Freight Prices Surge in LTL, Moderately Higher in TL and Rail
The latest producer price index (PPI) for freight showed the impact of the closure of Yellow on market prices. The LTL price index jumped by 4.35% month-over-month and remained 26.7% higher vs. rates in 2019. On a year-over-year basis, rates were 0.5% lower. When looking at the last closure in the industry (Consolidated Freightways), estimates suggest that the closure added a 4-6% increase in rates in addition to normal economic growth. This closure, so far, is following a similar pattern. The CF closure showed the industry somewhat normalizing within 6-8 months afterwards.
The truckload PPI showed less impact and was probably more representative of the actual freight growth in the industry. The TL PPI was only .8% higher month-over-month and was still 17.3% lower year-over-year. Versus pre-pandemic periods, prices are still up 16.5%.
Freight rail also showed a similar pattern, rail prices were up 0.4% month-over-month and continued to be sluggish year-over-year, falling by 0.9%. Against a more normal supply chain environment pre-pandemic, the PPI was 15.9% higher this year vs. August of 2019.
