US trucking and shipping struggles remain rampant as rates fall

The fourth quarter of 2022 is proving to be a tumultuous time for the trucking and shipping industry

At least one trucking company in the US is to lay off 25% of its workforce during what is anticipated to be the “worst fourth quarter” for US trucking companies in years, Freightwaves CEO Craig Fuller said on November 9 at the Fastmarkets Forest Products’ International Containerboard Conference (ICC) in Chicago.

Ocean shipping also is to “see a collapse.” These crashes follow downfalls for ocean shipping in May of this year, and for trucking in March of this year.

Fuller updated ICC attendees on navigating the trucking and shipping crisis in a panel discussion with Central National Gottesman VP for logistics Simon Preisler and KeyBanc Capital Markets managing director for equity research analyst Adam Josephson.

The three talked about how freight rates have fallen in recent months, coming off a year-plus of rate hikes that pushed up prices to dramatic levels.

Freight rates had skyrocketed, while the movement of material had slowed – from problems at the ports, such as a lack of equipment and workers, to vessels sailing empty in efforts to get back to China quicker.

“The worst is yet to come”, Fuller said.

Catastrophic collapse

“We’re looking at a catastrophic collapse in movement,” Fuller comments:

At some point, containerboard will have no choice. We will see this collapse. The East Coast ports will see a collapse. … There’s been a collapse in ocean container freight.

In May, when ocean shipping sunk, Fuller said there was a 90-day lag to ship from China ports to the New York/New Jersey ports, in what is a typical several-weeks trip.

Fuller even went as far to say that, “We’ve reached peak global trading over the past 12 months.”

Preisler disagreed. He shared a story of his years with mega shipping company Maersk, and how in 1998 he and others were tasked with envisioning the largest shipping container they could imagine. The 13,000 twenty-foot equivalent unit (TEU) was created.

Fast-forward 24 years, and the world’s largest container vessel set sail this year. The “Ever A lot” is a 24,000 TEU capacity ship that first took to the waters in 2022.

“It’s hard to predict how big global trade will be,” Preisler said. “We’ve seen a medium-term peak in freight volumes.”

Freight rates coming down

For transatlantic routes, rates are expected to come down in the next five months, Preisler said.

Preisler provided an example of a lane from Asia to the US that was $14,000-$16,000 per container in September 2021 that one year later is $1,500.

“That’s how quickly it has gone down from September of last year to today,” Preisler said. “The decline in rates on the Pacific is still going to happen. In the transatlantic, rates will come down in four to five months. It’ll come down very, very quick.”

Fuller encouraged attendees to renegotiate ocean rates, sooner rather than later.

“If you haven’t started to renegotiate your freight rates, do it now,” Fuller said at the start of the session.

On the trucking front, Fuller said a request for proposal (RFP) is a must. He cited one large company that recently had a 40% reduction in freight rates after an RFP.

“If you haven’t done an RFP,” Fuller said, “you should be looking into it.”

Trucking woes are expected through the first half of next year. Fuller said in a conversation with a major software company that the first quarter in 2023 “…will be the worst first quarter since the Great Depression.”

“Because if you don’t have to move product, you’re not going to,” Fuller said. “We have a dramatic slowdown of volume during peak season, and excess capacity.”

Clogged warehouses

Warehouses across the US remain “clogged.” Goods purchased and transported at elevated costs are stacked across the country. And they will remain there, too.

The outlook is to keep these goods in storage until they sell, the speakers said. Companies with high-quality goods claim they will not discount the goods. About 75% of containerized freight is consumer goods, Fuller said.

“They bought and transported that product at very high costs,” Fuller said.

As goods sit in warehouses, rates will continue to fall, except for trade to Europe, where ocean rates out of the New York/New Jersey ports remain high.

“The market has really started to break and rates are decreasing rapidly in that trade (to Brazil),” Preisler said in response to a question about freight rates from North America to South America. “The biggest slump we’ll see is in Europe.”

Preisler continued, “Consumer demand is going to collapse. That will surely result in very dramatic decreases. As a general note, the export rates out of the US are one-tenth of what the import rates are.”

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