Economic Briefing
Supply Chains Largely Back in Cycle
Over the past 24 months, the global supply chain has been hit with significant overstocks (stemming from the supply chain crisis in 2021 and 2022 which led to “just-in-case” inventory strategies leading to overstocks). The US business Inventory to Sales Ratio has returned to levels (on average) in-line with those from 2016-2018. Some sectors, such as general retailers, were sitting significantly lower year-over-year and were even below 2019 levels. Generally, this suggests that inventories are finally back into a “reasonable” rate.
The impact of this is important on global supply chain activity. Over the past year, good GDP or manufacturing activity did not necessarily translate into new orders for products. Despite good sales growth, if a product was overstocked and in inventory, firms simply refilled those orders and it did not create new supply chain activity upstream (inbound demand into assembly lines for raw materials, energy, labor, transportation, etc.). But with the supply chain now balanced, new orders in manufacturing, retail, wholesale trade, and even broader economic growth measured in GDP will lead to much broader supply chain activity.
This has been a rare cycle, there have only been three of these “decoupling’s” that took place in the past 25 years. Supply chain managers should see transportation and supply chain activity resemble more “normal” activity. Good sell-through in December will lead to more active global manufacturing activity in 2025.
Christmas Rush Boosts Container Rates Inbound
Against normal seasonality, challenges in the Red Sea and in other parts of the world have pushed container prices up more once again. Through October 31st, Drewry was reporting that Asia-US East Coast lanes were 100% higher than rates from a year ago. Some diversion of inbound freight (destined to avoid a potential strike at East Coast Ports) helped keep these prices in a more reasonable range compared to other trade lanes. For instance, Asia to US West Coast ports saw prices surge by 122% for the same period.
But the real concern continues to be Asia to Europe. Inbound lanes shipping freight into Rotterdam from Asia were still up 224% year-over-year and those moving into Genoa were up 168%. Red Sea disruptions continue and despite US strikes on Houthi Rebel positions in Yemen, some attacks appear to be ratcheting up.
This diversion from the Red Sea and Suez Canal around the Cape of Good Hope at the southern tip of Africa adds 9-11 days of additional transit times and may have resulted in stripping approximately 20-25% of global capacity out of the maritime sector. Most firms are counseling customers to expect these disruptions to continue through much of 2025.
US and USMCA Markets Mixed in October
The latest round of Purchasing Manager’s Index (PMI) surveys from October showed that USMCA markets were mixed headed into the final two months of the year. The US and Mexico were in contraction with readings of 48.5 and 48.4 respectively. Both markets were warning that uncertainty surrounding the election, hurricane impacts, and the short East Coast Port Strike were all factors in the month. That could have clouded the results. Most manufacturers in both markets are optimistic about the first half of 2025, and optimism was strong despite new orders remaining soft.
Canada was different and showed solid growth with a PMI of 51.1. Canadian firms reported that domestic demand was stable, and the country was benefitting from a shifting of volumes early in October to avoid potential East Coast worker strikes. Canada continues to be impacted by local labor contract negotiations, some of which were causing work stoppages at the time of writing.
Generally, global manufacturing activity (which is a key factor in global supply chain activity) remained underperforming in October, despite some slight improvement month-over-month between September and October. Asian markets generally saw mild improvements in activity while Europe remained weaker (many countries in the Eurozone continued to be in deep contraction). But again, most manufacturers in most markets remained optimistic about potential activity in 2025.
Inside This Edition
Christmas Rush Boosts Container Rates Inbound
Against normal seasonality, challenges in the Red Sea and in other parts of the world have pushed container prices up more once again.
US and USMCA Markets Mixed in October
The latest round of Purchasing Manager’s Index (PMI) surveys from October showed that USMCA markets were mixed headed into the final two months of the year.
Load-to-Truck-Ratios Show Hurricane and Strike Impacts
A quick glance at the DAT Trendlines national map shows states in the West facing some of the tightest load-to-truck-ratios (LTR) across the country.
Trucking Prices Remain Mixed – But Could Increase on Helene Recovery
Trucking prices were a bit flat in October amid a significant amount of noise.
Could 2025 See the First Significant Impacts from Reshoring?
For a decade or more, there has been much discussion about reshoring and the impact that it could have on US distribution patterns (lane freight volumes and impacts on warehousing, DC’s, and terminal operations).
Transportation Briefing
Load-to-Truck-Ratios Show Hurricane and Strike Impacts
A quick glance at the DAT Trendlines national map shows states in the West facing some of the tightest load-to-truck-ratios (LTR) across the country. Inbound freight volumes that were shifted from the East Coast to the West Coast to avoid strike threats were also impacted by back-to-back hurricanes that disrupted (and continue to disrupt) activity in one sense (but attracted capacity in another). Shipments of emergency goods into the southeast led to a significant increase in available capacity locally, but closed manufacturing and wholesale distribution outbound activity limited the amount of outbound freight volumes coming back out.
States like Tennessee, North Carolina, Georgia, and Florida were showing some of the weakest LTRs in the country, and we know that this is an anomaly created by the two hurricane disasters and a dislocation of overall capacity.
But tighter conditions elsewhere pushed van spot rates nationally up by 0.5% (arguably weak headed into the peak retail season). But again, on a national basis, DAT showed a 19.9% increase in load demand and a 16.3% drop in capacity. Whether that capacity reduction was temporary as a result of strikes and hurricane disruption in the southeast, or whether it is part of a bigger trend as smaller firms exit the industry, that difference could continue to tighten national capacity further.
Trucking Prices Remain Mixed – But Could Increase on Helene Recovery
Trucking prices were a bit flat in October amid a significant amount of noise. Hurricanes, strikes, and other factors (such as the Boeing Strike) have put some uncertainty into the data. The timing of the Producer Price Index (PPI) surveys could have affected outcomes. Truckload prices were 0.2% lower through the end of September vs. August and they were 2.1% lower vs. September of 2023.
Less-than-truckload prices flattened out in September, they were just 0.1% higher from last year and they slipped a bit month-over-month by 0.3%. To put conditions into perspective, prices in LTL have risen by 6.6% since Yellow filed for bankruptcy. Estimates suggested that they would be roughly 4-8% higher over the long-term vs. conditions prior to the closure.
For comparison, freight rail systems showed a 2.9% increase in prices year-over-year, largely driven by very strong intermodal volumes. Intermodal activity was up nearly 10% this year (and expected to still be growing through October, November, and December).
Could 2025 See the First Significant Impacts from Reshoring?
For a decade or more, there has been much discussion about reshoring and the impact that it could have on US distribution patterns (lane freight volumes and impacts on warehousing, DC’s, and terminal operations). Consider that in the decade prior to the pandemic, construction spending on new manufacturing facilities averaged $64B a year over that period of time. Over the past three years, that spending has averaged $200B and will touch $234B this year. This is nearly 4 times the previous volumes. In fact, the US has seen more spending in the past three years than in the prior 12. The question is this: at what point does this new capacity begin to alter or impact US distribution patterns?
Obviously, the type of products being manufacturers make a big difference. For instance, much of the new capacity will be tied to microchip manufacturing, which could increase parcel and package level demand but may have limited impacts on modes that move larger tonnages. But many supply chains that move heavier products are also seeing some improvements in domestic build-out.
Much of this new capacity will begin to see its first production and output coming online in 2025 and 2026, and any impacts to distribution patterns and lane volumes will be understood better by then. For location, much of this new activity has been focused in areas that have 1) good distribution systems, 2) cheaper access to electricity, 3) good access to water (for cooling and manufacturing), 4) stable labor pool, 5) lower regulatory hurdles (at a state level), 6) favorable tax policy (at a state and local level), and 7) lower cost of living for employees and many others. Areas up and down the I35 corridor in the center of the country stretching across the Tennessee Valley Region and into the southeast (Florida, Georgia, the Carolinas, Gulf states, and stretching up into Kentucky) have been areas that have seen the most diverse manufacturing relocation. There are obviously pockets of activity all over the nation, but these concentrations of activity are what will lead to distribution pattern changes.
