Economic Briefing
ILA Port Strike Impact Spreading Quickly
At the time of writing, the ongoing worker strike at East and Gulf Coast US ports was in its third day and was beginning to send ripples across the global supply chain. By most estimates, the US economy will lose up to $5 billion a day in losses for every day the strike continues. Some analysts also believe that if the strike is short (less than 5 days) the recovery time could be less than a month. But if the strike goes on for 2 weeks or more, it could take until January to unravel the backlogs.
A run on retail inventories of paper products was taking place in the early days of the strike and it could take some time for many firms to replenish those inventories. Surge and panic buying can disrupt replenishment cycles and throw freight flows off for a half a year or more (the 2021/2022 global supply chain crisis was an example of this). Other supply chains that could be severely impacted span food and agricultural products, pharmaceuticals, construction, high tech, and many more. The ports on strike handle more than 40% of all containers that hit the United States over the course of a year.
Analysts are also watching the global maritime ripples. Ships that are waiting offshore to be unloaded are going to be slow in their return trips, backing up maritime shipping and stripping capacity out of fleets in Europe and eventually Asia. Some analysts believe that the Asian ripple could hit as late as December or January, and push container shipping prices up during unseasonal periods.
Oil Prices Increase on Middle East Tension
The latest exchange of munitions in the Middle East has pushed oil prices up 7% in the first week of October. Oil prices are volatile and speculative trading is pushing prices up and down based on fears of an expanding war in the Persian Gulf. At the time of writing, Israel had not yet responded to Iran’s latest barrage of 180 cruise missiles, but officials had warned that a response would be in the offing. That fear is what pushed oil prices higher.
From a supply and demand perspective, the world is well supplied with oil at this time. There are no significant oil production disruptions and global fleets are still able to keep pace with demand. The East and Gulf Coast port strikes do not impact bulk tankers and the loading/unloading of those vessels.
The US was expected to hit 13.4 million barrels a day of oil production this year and could eclipse 13.7 million by the end of 2025. US inventories remain at the lower end of their 5-year averages, but refineries were having no problems finding inventory when they needed it. This is keeping gas and diesel prices muted. Diesel surcharges were 21.5% lower than this time last year.
Sharp Contrast Between Services and Manufacturing Sectors
All aspects of the global supply chain are being impacted by the host of events that have hit the US supply chain. Anticipating challenges at US port late in September, many supply chain managers had already been shifting some new orders over to air cargo, using smaller shipments moving in expedited modes to keep assembly lines open and retail store shelves full. As a result, air cargo rates into the US were 14.5% higher through August (lates available) and the IATA reported that air cargo volumes were consistently 11% to 12% higher throughout the summer.
Uncertain economic conditions going into the end of the year are also impacting views of how to manage inventory. Despite the Federal Reserve trimming interest rates by 50 basis points in September, the cost of capital remains high headed into the end of the year. Many financial managers want to keep inventories lean headed into 2025 (to lower the cost of capital and capital required), and this has led many to keep inbound flows tighter than usual. Using smaller, tuck-in orders to fill stockouts is likely to be more frequent so that overstocks are not a considerable risk. This should keep air cargo demand high, and keep prices elevated well into the end of the year.
Inside This Edition
Oil Prices Increase on Middle East Tension
The latest exchange of munitions in the Middle East has pushed oil prices up 7% in the first week of October.
Sharp Contrast Between Services and Manufacturing Sectors
Global manufacturing conditions continued to deteriorate through the end of September according to Purchasing Manager’s Indexes (PMIs) from around the world.
Trucking Prices Remain Mixed – But Could Increase on Helene Recovery
Trucking Producer Price Indexes showed a mix of results through the end of August (the latest available).
Intermodal Volumes Continue to Be Strong
US intermodal volumes were still up nearly 10% Y/Y YTD through week 38 and the National Retail Federation is expecting inbound container volumes to continue to push total TEUs to grow by 12% or more Y/Y by the end of 2024.
Air Cargo Rates Also Surge on Recent Disruptions
All aspects of the global supply chain are being impacted by the host of events that have hit the US supply chain.
Transportation Briefing
Trucking Prices Remain Mixed – But Could Increase on Helene Recovery
Trucking Producer Price Indexes showed a mix of results through the end of August (the latest available). Truckload prices were up 0.3% month-over-month between July and August but were flat year-over-year. In the wake of the Yellow Freight bankruptcy, LTL prices were interesting. Prices dipped 1.5% M/M but remained 1.2% higher Y/Y. When stripping out the impact of fuel, prices were 7.7% higher (which is exactly where historical estimates showed average prices in the wake of a significant industry bankruptcy).
The impact of Hurricane Helene and the subsequent timing of the East and Gulf Coast port strike is uncertain. Many distribution patterns were impacted by flooding and damaged roads and bridges, and that extra time on the road is likely to strip some capacity out of the industry and tighten conditions. In addition, shipments that were diverted to emergency shipping will also strip out capacity from routine shipping and distribution, which could temporarily tighten capacity in the eastern half of the country and push prices up with it. When the ports open back up, that impact will be felt more profoundly as supply chains try to unwind from the strike and purchasing managers ask for expedited processing of port freight.
Intermodal Volumes Continue to Be Strong
US intermodal volumes were still up nearly 10% Y/Y YTD through week 38 and the National Retail Federation is expecting inbound container volumes to continue to push total TEUs to grow by 12% or more Y/Y by the end of 2024. The NRF estimates show nearly 2 million TEUs to hit US ports each month through November, before slowing to 1.9 million in December. The US port worker strike will of course throw a curve into the forecast, and it will not be known until final figures are released in Q1 of next year how much freight was “lost” as a result of the strike.
Rail prices were up 3.4% year-over-year as a result of this increase in inbound cargo. Again, any dislocation of capacity (as a result of Hurricane Helene or backlogs and backups due to the port strike) will create challenges and could push prices up higher. What is known is that there will be significant volatility in shipping activity, capacity availability, and prices as a result through this recovery period.
Air Cargo Rates Also Surge on Recent Disruptions
All aspects of the global supply chain are being impacted by the host of events that have hit the US supply chain. Anticipating challenges at US port late in September, many supply chain managers had already been shifting some new orders over to air cargo, using smaller shipments moving in expedited modes to keep assembly lines open and retail store shelves full. As a result, air cargo rates into the US were 14.5% higher through August (lates available) and the IATA reported that air cargo volumes were consistently 11% to 12% higher throughout the summer.
Uncertain economic conditions going into the end of the year are also impacting views of how to manage inventory. Despite the Federal Reserve trimming interest rates by 50 basis points in September, the cost of capital remains high headed into the end of the year. Many financial managers want to keep inventories lean headed into 2025 (to lower the cost of capital and capital required), and this has led many to keep inbound flows tighter than usual. Using smaller, tuck-in orders to fill stockouts is likely to be more frequent so that overstocks are not a considerable risk. This should keep air cargo demand high, and keep prices elevated well into the end of the year.
