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In today's fast-paced supply chain environment, knowing and understanding the trends most likely to shape the future is essential. DHL Supply Chain's quarterly report highlights what to look out for every three months to help you navigate the continuous and transformative changes moving today's supply chain. The data used is compiled from reports by DGF, Morgan Stanley, FTR, Sonar, Cleveland Research, and Xeneta.
Let's dive into the top 3 transportation trends globally in the first quarter of 2023.
1. Spot Market Rates
While we saw spot market rates increase slightly during the holiday season, we are now seeing a normalization in the first quarter against last year's high rates, with spot rates continuing to decline and running below contract rates.
Tender rejections remain historically low, meaning capacities are loosening. This is a good sign as it indicates that plenty of economic activity is occurring. Analysts predict we will reach the market bottom with spot rates in the first half of 2023.
2. Port Congestion
While port congestion has decreased significantly compared to COVID-19 levels, congestion and service disruptions at Northeast and Gulf ports continue to challenge the market. Container dwell times at Southern California ports have continued to normalize over the past 45 days. We see two main reasons for the significant reduction in port congestion.
First, US-based companies are acting to draw down inventory, which reduces the volume of import activity and eases congestion. Second, with more activity shifting to Gulf and East Coast ports, the entry point into North America is diversifying. We are seeing volatile import bookings at customs, which is a good indicator that congestion will continue to remain low.
3. Freight Volume
Freight volume continued to fall in the first quarter. Although the industry typically sees an increase in truckload demand in January and February of each year, this year's increase in these two months occurred at its slowest pace in the last five years. This means that seasonal demand for this time of year may be lower than typically seen in previous years. One reason for this is that declining manufacturing output continues to lag behind historical output, an indicator that inventories are being drawn down.
Given the drop in volume, surprisingly we have not seen a high number of bankruptcies among owner-operators. This is likely because many secured low interest rates. If interest rates continue to rise, further impacting major purchases, freight volumes will remain low and could eventually lead to an increase in bankruptcies. If this occurs, it will recalibrate the demand rate.
Final Words
• Market conditions seem to be stabilizing as the economy slows down.
• US GDP recorded an increase in the third quarter, but this does not hide any of the key indicators that the overall economy is slowing.
• Diesel prices continue to struggle due to current stock challenges and the impact of the OPEC+ oil production cut.
• Further interest rate hikes are inevitable and will likely stay in place longer than expected; recession risks have diminished but still loom large.
• The direction of the economy depends on US consumers, but is showing signs of weakening, particularly in the housing sector, as mortgage rates rise and inflation erodes consumer savings.
