Once upon a time, a long, long, time ago (February 8th, 2021, and then again on May 18th, 2021, to be exact) I wrote two articles forecasting high transportation rates and congestion was not going to recede any time soon. You can find the articles here Why I do not believe LA/LB port congestion will vanish in March. | LinkedIn and Will high ocean container and truckload rates continue? | LinkedIn if you want a refresher.
My estimate way back then was high ocean rates persist at least through fall of 2021 and high trucking rates to the end of 2021. For both ocean and ground, it seems more likely all the way to the end of the first quarter of 2022 before relief comes. My May 2021 conclusion was come to using the following data: PMI (Purchasing Managers Index) raising 10 points Jan 2020 to May 2021, consumer spending was already at pre-pandemic levels and rising, a bump in GDP from 2020 of 21.85 to May 2021 to a 22.41 high mark, and room for increased labor participation even though unemployment was already down to 5.8%.
Here we are now in December of 2021. It is time to see how we are doing. The PMI Index has leveled out for the past three months and forecast to be 60.3 for November 2021 (Oct was 61.1). The most recent high was 64.7 in March 2021.
Consumer spending is still on the rise (1.3% in Oct), but higher prices due to inflation account for part of the increase as volume of goods rose less than dollars. Adjusted for inflation, consumer spending rose a modest 0.7% in October. While forecasts are continuing increases on consumer spending, especially on services, due to inflation and pandemic impacts, it is less clear how consumers will be spending on goods after the holiday buying season.
GDP has been on the rise the first two quarters of 2021 but tanked in quarter three. Expectations are a healthy rise in quarter four, which will seem spectacular, but once the third quarter dive is factored in, the fourth quarter, while still good, will not seem so illustrious when viewed as a whole.
The last number of relevance is the labor participation rate. As of October 2021, the labor participation rate sat ta 61.6 and has stayed in a band between 61.5 and 61.7 since the end of 2020. This one is a puzzler. The pre-pandemic labor participation the rate was well above 63. In short, regardless of reason, there would seem to be more room for people to enter, or reenter, the labor market. There may be a reason it will not happen quick.
Considering an October unemployment rate of 4.6%, which means lower unemployment claims, it very well may be a displaced, or disenchanted, fraction of the labor market traded in their employee handbook for a subscription to ‘Entrepreneur Magazine’ during the pandemic starting their own businesses. If this is the case, the 61.6 labor participation rate of today, may become the new normal with little room for growth, at least for now. With all the above leveling in data in mind, my guess now is the beginning of the end of the continuation of rates rising in the transportation sector due to capacity. To go even further, while rates will not regress back to quarter one of 2020, there may even be a sense of normalcy, even if higher rates linger to an extent, by March or April 2022.
My last indication may be the most telling. It is the ‘Ike Factor.’ While I have been in and around the logistics industry for decades, I am no longer in the middle of getting things from here to there. My gig now is reducing the risk for, and insuring cargo, not moving it. Like a passing fan of soap opera television, I check in now and again to see what is going on and see who, if anyone, was written out of the script. I am lucky I happen to know someone who does watch ‘the soaps’ every day and knows most everything about them. If I want to catch up on the transportation market, I talk to my friend Ike over lunch. I had the ‘Chun King’ at our last lunch. It was indeed yummy.
In one of my many conversations with Ike Sherlock, Chief Operating Officer of AGX Freight (https://www.agxfreight.com/) of Jacksonville Florida, Ike mentioned intermodal rates off the west coast were beginning to soften and pointed out the backlog of vessels seemed to be shrinking. Since AGX Freight is a leader in truck brokerage, intermodal, asset-based truckload, and flatbed freight, I paid attention. AGX Freight is in the thick of all things ground cargo. If Ike brings it to the table, it is well worth me stealing. Proof of that is here I am writing things, which at least a portion of, I stole from Ike.
My conversation with him is the very reason I hit the Internet to look at the data in the first place. Thinking of Ike’s comment, I did ‘Google’ to see just what number of vessels were stuck off the Los Angeles/Long Beach coast anchored in place or in a drift box further out to sea. Supporting Ike’s information he shared with me, I saw as of 26November2021 there were ninety-one container vessels on the west coast, thirty of them at berth/terminal, and only sixty-one anchored off the coast and none in a drift box. Considering that was fifteen vessels less than the week prior waiting on the water for a berth, it seems like good news for those of use waiting to see congestion ease. Transportation without congestion almost seems ‘old school’ considering how long the supply chain has been operating at over capacity.
The reduction in vessels is not a sign in itself of reducing congestion. The reduction is mostly a reduction on paper. Even though there may be less vessels waiting right off the coast of LA/LB forty-mile zone, quite a few more are waiting further out to avoid possible fines for stacking the box closer to LA/LB, some as far away as Mexico and Asia. The sleight of hand of changing the queuing system of how vessels waiting are counted by the officials has not gone unnoticed. Although, the actions taken to spread the vessels out is a start as a first step forward recognizing the problem. The officials who changed the counting rules may have been betting the first presumed first quarter slow-down and other factors mentioned would chip away at the real backlog and shake out to be an actual reduction by the end of March.
With holiday shipping all but complete, if it is not on, or near, the store shelf, it will not be a gift for this year’s gift giving season. Shipping from Asia to North America will reduce with an eye on preparing for the Chinses New Year. February 2022 will be pivotal in what our 2022 will look like. Barring any pandemic drama, if, as in years past, February serves as a springboard to clean up supply chain pipelines and clear the deck, the transportation industry may find itself in a position of being initiative-taking by April of 2022 instead of reactive like it has been for the past year and a half. If I am wrong, no worries, I will blame Ike, he said it, sort of.