March Shipping Update
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Here’s our March Shipping Update from Customodal! So much to look forward to in March! It’s the official start of spring, beginning of Daylight Saving Time, the return of basketball’s March Madness, and St Patrick’s Day festivities. But the war in Ukraine, skyrocketing diesel prices, and continued shortages of materials and labor continue to occupy our attention.
The Fed will make its first interest rate increase at their next meeting mid-March. This first step toward reigning in surging prices will start to dampen consumer demand as well as slow down financed purchases like homes and vehicles. Before the spectre of war was on our radar, many had already factored in a series of interest rate increases for 2022 and remained bullish on the prospects for business growth in 2022.
However, rising fuel and energy costs have the ability to dampen our overall economy much more quickly, and more unpredictably than rising interest rates. Rising energy costs add layers of drag to our economy because of their pervasiveness. Whether fuel tops out at $5/gallon or $6/gallon depends on how long the war in Ukraine lasts. But this short-term uncertainty makes the Fed’s job of making medium term adjustments to the economy through interest rates harder and the possibility of inadvertent recession more real.
Other March 2022 Shipping Updates to Keep an Eye On:
- Ocean rates have moderated some since last year but remain very high…with fuel a major input cost for maritime operators. Container flows are normalizing but we expect rates to remain above normal through the remainder of 2022 – barring recession.
- Air freight (International) is a derivative of the ocean market. As demand for ocean freight normalizes and transit times stabilize, freight will shift back from air to ocean and international air freight rates will decline. We expect to see air rates continue to decline through the balance of the year….but to end the year still above norm. Domestic air freight rates have been mostly steady but service has been curtailed by increased consumer purchases for home delivery. This unprecedented demand for small parcel shipping (which is more profitable than freight) has drawn planes and pilots away, resulting in unpredictable service. Barring recession at the consumer level that reduces purchases for home delivery, we expect this to continue until operators add planes and pilots to compensate.
- Full Truckload spot rates saw their largest increase in years during 2021 and while many of those spot rates have moderated in early 2022, contract rates (which lag the spot market) are locking in historically large increases so far this year. The cyclical nature of the truckload market leads us to believe rates and capacity will continue to moderate in 2022. One development of note: the truckload market is becoming more granular in the sense that markets are developing at the lane (Origin City–>Destination City) level versus broader regional markets.
- LTL carriers are implementing “penalty” surcharges to discourage certain freight like overlength or low density shipments. These surcharges are a trend toward “desocializing” the higher cost to serve these types of shipments and is moderating GRI’s. Overall, the LTL market remains short of capacity and will remain so through mid-year.
At Customodal, we continue to work on behalf of clients to ensure freight transportation is a supply chain strength instead of a stumbling block. We’re busy everyday ensuring adequate capacity, good pricing, and cheerful logistics coordinators are ready!
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