- Southern California warehouses and distribution centers are experiencing a surplus of capacity
- The ocean market since the spring has been showing signs of life.
- Excess air cargo supply capacity continues to put downward pressure on pricing
- U.S. truckload carriers are hopeful they can continue to navigate a year of declining demand and rates.
- Canada’s longshore workers seal four-year contract
Surplus of Warehouse Space, Slow Peak Season Expected In Southern California
A large amount of the available space is from third-party logistics providers (3PLs), who generally handle overflow space, Scott Weiss, vice president of technical sales at Performance Team, told Journal of Commerce.
“There’s an excellent amount of space at the 3PLs,” Weiss said to the Journal. “We actually have space to sell.”
Weiss also said that 3PLs and other warehouse operators in Los Angeles and Long Beach started to thin out inventory about two months ago to make space for a peak season that might not happen.
“There’s definitely less inventory on hand for some of our customers because of moderate ordering and the weeding out of inventory,” Weiss told the Journal of Commerce.
Experts say that a lack of terminal congestion has had a positive effect on the supply chain, and operating conditions are expected to continue to be smooth through peak season because of less cargo.
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Despite Predicted Muted Peak Season, Ocean Market Outlook Healthy
While a weak peak season is expected, the outlook of the freight market heading into 2024 could be promising.
Rates have risen from post-pandemic lows due to a tipping point of capacity withdrawals mixed with potential green shoots of volume recovery because recent inventory restocking has altered the spot market.
Average spot rates from Asia to the U.S. West Coast have increased to $1,700 FEU from a low of around $1,000 in June.
An underlying factor is the U.S. economy maintaining strength despite months of recession worry.
Matson Navigation CEO Matt Cox told the Journal of Commerce he expects “trade dynamics to gradually improve for the remainder of the year as the trans-Pacific marketplace transitions to a more normalized level of consumer demand and retail inventory stocking levels.”
Air Cargo Rates Fall Due To Surplus Space, Giving Shippers Upper Hand
According to Clive Data Services (which is now part of Xeneta), growth in available capacity has exceeded tonnage carried during every month in the past year.
“We are already seeing more shippers relaunching contract negotiations with their logistics service providers to push down air,” said Niall van de Wouw, Xeneta’s chief air freight officer, in a statement last week.
Many experts also believe that data trends point to rates beginning to bottom out.
Senior research analyst at investment bank Stifel, Bruce Chan, is one of those people.
“Things are not likely to get much worse from a demand perspective, in our view,” Chan wrote last Friday in a market update.
Truckload Carriers Hoping For A Market Jump
With seasonal trends below normal, U.S. truckload carriers are hopeful they can continue to navigate a year of declining demand and rates, and soon sail into a healthier market.
In a July 27 call with Wall Street analysts, Jim Gattoni, president and CEO of Landstar System, said that he doesn’t think that the truckload market bottom has been reached.
“I would not declare a bottom yet,” Gattoni said in the call. “We’re still seeing a little more pressure on the contract side and the spot prices aren’t coming up yet.”
In 2022, the 40 largest U.S. and Canadian carriers increased revenue by a combined 18.7% to $50.9 billion, according to the Journal of Commerce. But, with a decrease in rates in late 2022 and into 2023, this year has been less lucrative so far.
But, some experts believe that a stronger ending to the year is possible.
“After bottoming in the second quarter, spot rates may bounce along the bottom or show modest improvement in the third quarter before showing expected modest seasonal uplift in the fourth quarter of this year,” CEO of Knight-Swift — the largest U.S. truckload provider — said during a July 20 earnings call.
Western Canada’s Longshore Workers Seal Four-Year Contract, Easing Port Tensions
The agreement comes after a month of uncertainties at the port and promises to resolve the backlog caused by prolonged negotiations.
Specific details about wage levels and the breakthrough in negotiations remain undisclosed. The British Columbia Maritime Employers Association (BCMEA) stated that the updated agreement acknowledges the skillset of the waterfront workforce and ensures stability for Canada’s West Coast ports.
The path to this agreement witnessed five weeks of disruptions, including 13 days of strikes, leading to a trade halt worth around C$800 million daily. Canadian ministers highlighted the importance of stable labor relations for the country’s trading reputation.
The previous contract offer rejected by the union suggested a 19.2% wage increase. Meanwhile, the US ILWU is still in the process of ratifying its tentative deal proposing a 32% wage hike over six years.
Only Montreal’s major container port remains in contract negotiations as its current agreement is set to expire by year’s end.
The diversion of discretionary cargo away from the West Coast has led to many importers of Asian-made goods favoring ports in the Southeast, Savannah in particular. 2022’s Asia import volume only decreased by 0.3% after 2021’s 13.5% spike, however, the Southeast’s market share rose by 1.1% from 19.8% to 20.9% between these two years, a 5.2% volume increase, while the West Coast’s market share dropped from 59.9% to 56.4%.
Savannah led the Southeast ports with a market share increase of 0.7% to an 11.1% total, increasing the port’s import volume by 6.1%. Charleston followed suit with a market share increase of 0.5% to a market share of 3.8% after a 14.6% spike in shipment volume.
Although it remains to be seen whether the Southeast will maintain its market share after ILWU contract negotiations finish, the Southeast ports are a gateway to North and South Caroline, Georgia, Tennessee, and Florida. And as Southeastern ports get more upgrades and improved supply chain infrastructure investments, shippers may prefer to send imports from Asia directly to the Southeast ports rather than to the West Coast, where they must make the intermodal journey across the country.