Are Trucking Rates Dropping?

Are Rates Coming Down?

Are trucking rates dropping – After two years of non-stop delays, disruptions, rate hikes, and, a generally hectic global logistics industry, there are some signs of hope that things may be beginning to normalize. Though there are still problems in the supply chain, today we’ll have a look at some of the ways the industry may be improving in the near future.

A Dip in Trucking Rates

The strongest sign that things will be improving in the near future is a sliding demand for trucking in the North American market and a corresponding reduction in rates. Industry indexes for spot market rates have been sliding down over the past few weeks and are projected to continue to come down as demand and supply begin to balance out. Truckload spot rates have dropped 27% in the past month according to Bank of America Corp analysts, in addition, freight-payment company Cass Information Systems has said the market is in a clear slowdown. Demand still dwarfs supply in many markets, including the Canadian spot market, but the gap is reportedly closing, putting some downward pressure on rates.

The downward trend in rates has made some business analysts downgrade trucking stocks and related companies ahead of major quarterly earnings calls. Not only that, but the overall Dow Jones Transportation Average has fallen roughly 10% since its peak in early March, though this index looks at all modes of transportation, which may speak to a broader trend.

Are Trucking Rates Dropping
Photo source: Wall Street Journal – ‘Trucking Boom Is Hitting the Brakes as Freight Demand Slows

Inflation and Slowing Consumer Demand

One of the more murky factors contributing to a slowdown in demand, and hopefully a reduction in rates, is rising inflation tampering down consumer demand for goods. In Canada for example the consumer price index, a measure of inflation, hit 6.7% in late March, this is the highest point that it’s reached since 1991. With no corresponding increases in wages, these increased prices are having a direct impact on household spending, leading some to have a pessimistic outlook for product demand in the coming months. On top of the direct impacts of inflation mentioned, there are also governmental responses to inflation that may have a similar effect.

With central banks around the worlds hiking interest rates in an effort to increase saving among consumers and slow inflation, there may be an added effect on consumers’ demand for products that require transportation.

Chinese Lockdowns: The Good and The Bad

The current ” Elephant in the room” for global logistics is the current COVID lockdowns across China. Not only are parts of Shanghai lockdown, along with Suzhou and Guangzhou, but with rising case numbers in many areas of the country, worries are growing that more lockdowns are on the way. At the moment these lockdowns seem to be having a positive effect on global shipping.

With ports still open and many factories closed, export demand has fallen, and wait times to get into major ports like Shanghai have dropped substantially. The number of vessels waiting to berth at Shanghai port has also fallen since the lockdowns began several weeks ago.

On the flip side of this are the current lack of product from the affected regions and the rubber band effect that is expected to occur once things reopen. Currently, some carriers are banking sailings for key Chinese ports like Shanghai and Ningbo, this is leading to the accumulation of products in warehouses, just waiting for a ship. Not only is this restricting access to key resources in other manufacturing, like those for cars and cell phones, but it’s also likely to create a corresponding surge in shipping demand.

Once restrictions start to ease and more goods can be loaded on more vessels in the key ports, we’re likely to see another rate jump as shippers fight for very in-demand capacity

Photo Source: South China Morning Post

So What Now?

Going forward we’re likely to see a slight reprieve over the next few weeks, as North American freight rates begin to slide down and demand from Asia pacific stays depressed due to the lockdowns. However, this may be gone as quickly as it arrived, with demand for ocean cargo rubber banding back up right around the same time as general demand will be increasing ahead of major shopping events like back to school and Christmas, making for an eventful second half of 2022. After that, barring any stuck ships, natural disasters, additional pandemic waves, border protests, or other major disruptions, some experts believe we’re likely to start seeing some return to normal in the spring of next year.

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