Transportation Briefing
Talks to Resume on East and Gulf Coast Ports on Tuesday, January 7th
Although no progress has been reported, the ILA and USMX are expected to resume talks on Tuesday, January 7th. The contract deadline is looming (on January 15th ), and the parties are still stuck on differences between the use of automation and robotics in operations.
Some data hints at supply chain managers planning for a potential strike threat to loom mid-month. West Coast ports have seen some late (unseasonal) increases in volume (some of this is a shift in market share temporarily and some simply the effects of purchasing managers inbounding Q1 freight early to get ahead of a potential disruption or congestion). In addition, there was some slight increases in manufacturing activity in Asia late in October and early November, typically a sign of early order fulfillment for anything trying to get to the US before the end of the year.
US Domestic Transportation Services Rates Remain Mixed in Latest PPI Data
The Producer Price Indexes for various transportation services can give buyers a good barometer of general price movement. They include both contract and spot rates and most will also have a fuel impact on them. Truckload prices were still sluggish, running 0.3% lower month-over-month between October and November (which was the latest available), and were 0.7% lower vs. November of 2023. In the latest DAT Trendlines data from December, they noted that load post demand was up year-over-year, but prices weren’t really moving yet. The load-to-truck-ratios were surging however through the end of the year, with tighter conditions in all but the mid-Atlantic, Great Lakes, and Upper Northwest region. Any locations near major port areas were still seeing good demand and tighter capacity conditions.
Less-than-truckload (LTL) prices were flat between October and November and were just 1% higher than they were a year ago. The impact of Yellow’s closure is helping keep prices elevated perhaps more than they should be given market dynamics, but most of the market adjustments have been made and economic factors will now likely drive a bigger portion of volume activity (and pricing) as a result. The sector still has not faced a strong demand environment in the wake of the Yellow bankruptcy, and there is still not a clear picture of how much LTL sector capacity was lost in the process.
Rail freight prices are also still firm, but relatively unchanged through November. Prices were just marginally lower by 0.1% month-over-month and were a moderate 1.1% higher year-over-year. Although not reflected in the Producer Price Index, rail intermodal activity finished the year up 9.3% with total traffic up 3.4% (carload volumes were down 3% primarily on weaker coal, metallic ores, and nonmetallic minerals volumes).
Air Cargo Rates Remain Elevated Through Year End
Air cargo rates have continued to show strong resilience, driven by strong global demand. Global air cargo spot rates increased by another 4% in the early part of December (latest available). Most of this was being driven by Asian trade lanes, they were up on average 18% vs. the same comparative rates from a year ago. For most of the fourth quarter, air cargo rates have averaged 14% higher vs. 2023 levels. Early December is traditionally a strong peak period for air cargo activity, but showing year-over-year growth rate comparisons highlights how much stronger 2024 was vs. 2023.
Many companies have tried to keep inventories lean, and one strategy has been to use small tuck-in orders to prevent stockouts. With the cost of capital still high, this approach helped drive second-half 2024 volumes in the sector – especially with many uncertainties about the consumer headed into the election and a shortened holiday retail shopping season.
The other factor is a lingering problem with maritime rates (many of which are still nearly 100-200% higher year-over-year depending on the trade lanes). Problems in the Red Sea, strike uncertainty, dislocated cargo capacity, and ongoing conflicts elsewhere have disrupted normal global cargo flow patterns. Air cargo has been a substitute strategy for some supply chain managers to get around these uncertainties. Again, keeping inventories lower but using smaller tuck-in orders has helped keep air cargo volumes higher.
Inside This Edition
US Domestic Transportation Services Rates Remain Mixed in Latest PPI Data
The Producer Price Indexes for various transportation services can give buyers a good barometer of general price movement.
Air Cargo Rates Remain Elevated Through Year End
Air cargo rates have continued to show strong resilience, driven by strong global demand.
Early Data Shows Pulled-Forward Inventory Will Not Create Overstocks
The US has been in an inventory overstock situation since the summer of 2023 and based on data available at the end of the year, that cycle is likely coming to an end.
Manufacturing Appears to be Stalling in Early 2025
The S&P Global manufacturing survey for December came in surprisingly weaker than expected.
Economic Briefing
Early Data Shows Pulled-Forward Inventory Will Not Create Overstocks
The US has been in an inventory overstock situation since the summer of 2023 and based on data available at the end of the year, that cycle is likely coming to an end. New survey data has surfaced showing that just 14% of supply chain managers believe that they are overstocked at this time. Federal data on inventory-to-sales-ratios show current levels running just slightly higher than levels from 2018 (which some transportation experts said were the “best in their careers) and well below 2016-2017 levels. What this suggests is that the inventory destocking process is complete, and the industry is just simply waiting for new demand to surface.
In the past 24 months, with inventory overstocks in place, a new order at the manufacturing level would not necessarily lead to assembly line activity. With inventories in warehouses, new orders could simply be fulfilled with those existing inventories. Assembly line demand for component parts, raw materials, energy, and labor were not high. But as inventory overstocks are eliminated, new orders for products create assembly line activity and demand. It creates new orders upstream in the supply chain and energizes global activity. It has been stated many times that 2025 will feel like a new cycle in supply chain activity (perhaps more akin to 2017/2018).
Although supply chain activity has picked up, it has started slowly. The port strike and tariff risks were a concern for supply chain managers and indeed there was some late seasonal inbound activity. But there doesn’t appear to be any real changes in broader warehouse utilization rates (nothing to suggest a significant overstock situation being created as a result of this early inbounding activity).
Manufacturing Appears to be Stalling in Early 2025
The S&P Global manufacturing survey for December came in surprisingly weaker than expected. The index came in at 49.4, down from 49.7 in November and still slightly in contraction. New order activity was sluggish. Output was the lowest in 18 months, but analysts tied this reduction in output to holiday impacts and weaker new orders. Weather was not a large factor in December but could be in January with some looming Polar Vortex activity expected early and mid-month.
Export orders were down more than expected as global markets slowed. That could be one of the larger factors as Europe struggles at the start of the year and China tries to build some traction with economic stimulus activity.
Manufacturers were generally more optimistic about prospects in 2025 but were notably more concerned than they were in November. Some of the factors that emerged in the month was (again) slowing global demand, the prospect of tariff impacts, Federal Reserve throwing cold water on rate cuts for 2025, and other factors that are adding a level of uncertainty.
