Approaching the summer of 2016 I wrote an article called ‘Will there be a busy season?’. Just in case you missed it and need a refresher, (https://www.tjocargo.com/will-there-be-a-busy-season). For the most part, the article pointed out storage warehouses were full of unsold retail goods and consumer demand was flat. In addition, early shipping by importers fearing the worst of the upcoming SOLAS requirement in July 2016, were all signs of a very sad ‘busy season’ for the shipping industry. That was then, this is now.
Today the market is shaping up quite nicely. Unless some well-meaning politicians in Washington decide they want to ‘save us’ from something real or imagined, all signs point to a brisk year. Taking a snapshot of current trends the outlook is much more upbeat than last year. The Global Port Tracker, published monthly by the National Retail Federation and Hackett Associates, forecast volume will rise 2.1 percent year over year. It sounds like retailers are, or have expectations of, selling more and are finally importing more goods.
Another area of increased activity is rail carload volume. The Association of American Railroads reported U.S. rail traffic for the week ending August 05, 2017 reported 4.3% higher volume than the same week last year. This increase follows a healthy 4.2 percent for the first 31 weeks as compared to last year same period. On the commodity side, despite double digit reductions in grain and petroleum, both metal and non-metal minerals and chemicals helped account for an overall increase. On the FAK side intermodal units spiked a whopping 6.8 percent over the same week last year.
Warehouse capacity is still tight as it was last year, but for a good reason now. No longer is unsold inventory the major impact keeping warehouses full. Now it’s real live growth driving the capacity train. As E- retailers grow and bricks and mortar retailers stabilize they are now fighting for modern warehouse space in key markets.
On top of it all something is likely to happen that hasn’t happened for six years. All the additional imports and alliances are giving the ocean carriers greater pricing power. It’s forecast the container lines will manage a $5 billion dollar profit. Container lines have been hurting so long they can’t even remember how to spell the word profit. Getting profitable is a big deal for them.
Things we should expect to come with all this good news? If you are not a major shipper with a good service contract expect peak season surcharges. Container lines aren’t brave enough to force peak season surcharges on the big guns, but they sure will hit the smaller shippers with additional surcharges during peak season. Also prepare to continue to see warehouse space be at a premium though 2018 in large metro areas. Developers are busy building more space, but can’t keep up with the pace of demand
For those of us on the non-asset sidelines we should also prepare our customers to expect truck capacity challenges. Driver shortages are already dogging the industry. Increasing volume and the upcoming electronic logging mandate will be apt to make things even tighter. The truckload and container hauling market promises to be a seller’s market which will put upward pressure on rates. Unless the trucking industry can get the Millennials to fall in love with the idea of driving a truck for a living or pay drivers more, a lot more, the driver shortage issue may persist for quite a while. So look for trucking rates to be higher than last year as a result. What impacts trucking, often finds its’ way to rail. As transportation buyers find low capacity and high rates on rubber, they will turn to rail where they can. Intermodal and rail-trailer rates will likely stay strong and lean north as more formally truck freight finds its way to rail.
All in all some transport tools may cost more for the remainder of 2017 and 2018, but that’s not always a bad thing. It shows a healthy demand where demand has been weak in the past. Plummeting transport rates typically mean deep rooted troubles in the economy. We should be happy rates are stiffening up. After all, if you pay $12 dollars for a glass of beer, you are likely in a place you really want to be. You couldn’t, or wouldn’t, pay the $12 dollars unless you were indeed in your ‘happy place’.