Flexe Institute Market Watch: Supply Chain Normalizing

The consumer frenzy that contributed to significant supply chain disruptions is unwinding.

Retail purchases fell in three of the past four months. Spending on services was flat in December—the worst monthly reading in nearly a year.

Analysts say consumer spending that provided the supply chain sector with unprecedented demand and disruption is no more.

Inflation cut into the personal savings rate, which dipped significantly over the past several quarters. US consumers have fewer dollars to spend, and its effect on the supply chain is showing.

As a result of less demand, many key segments and verticals within the industry are normalizing. US imports returned to near pre-pandemic levels to close out 2022 and remained that way to start the year. December imports were 1.3% above 2019 levels and 10.1% below 2021.

US import market #

Imports returned to near pre-pandemic levels to close out 2022 and remained that way to start the year. December imports were 1.3% above 2019 levels and 10.1% below 2021.

The sluggish volume pushes rates down and eases port congestion. Some shippers expect significant ocean freight savings this year.

West Coast ports are no longer a bottleneck #

The port disruptions widely discussed in 2022 on the West Coast are alleviated. At this time in 2022, over 100 container ships sat off Los Angeles and Long Beach ports.

Now, there are almost no ships waiting in the Pacific Ocean and increasingly few off the East and Gulf coasts. Queues are between zero and two ships.

Truckload and LTL volume drop #

Trucking services demand fell faster than anticipated. Fewer imports are making their way into the domestic trucking market as consumers are buying less. The Outbound Tender Volume Index is down 27.73% YoY.

Sluggish LTL volumes forced some carriers to rightsize their workforce. However, rates have not followed suit, jumping to levels not seen since October—freight’s peak season. Average LTL rates are 53% higher than last year.

Not everything is back to normal #

Despite normalization throughout the supply chain, there are areas where trends aren’t following historical means.

Ocean shipping #

Ocean schedules have improved, but delays remain. The trade route from Asia to the US takes 25% longer than pre-pandemic. With ocean volumes declining and prices falling, some companies laid off staff.

Additionally, there could be further ocean import reductions with China relaxing its Zero Covid policy. The population’s lack of immunity and sick workforce has strained production at the country’s critical manufacturing centers.

Warehousing Impacts #

Companies leased 132 million square feet of industrial space across the US in Q4 2022—down 28.2% from Q3.

However, warehouse capacity will remain tight throughout 2023 as supply outpaces demand. High inventories in the US grew again last month.

The leasing slowdown raises the potential for a glut of new warehouse space in the coming months, with 682.6 million square feet of new development in the construction pipeline.

Despite a tighter-than-pre-pandemic market, warehousing capacity has been loosening slowly. It will continue to ease as 2024 gets closer. As a result, leading businesses are avoiding leases at current record-high costs.

Supply chain modes and nodes update #

Ocean freight #

• Imports fell 12% MoM and 19.4% YoY

• Average long-term contracted rates dropped by 13.3%

• Xeneta data indicates that 85% of shippers plan to decrease ocean freight spending in 2023

• Only 42% say their volumes will stay “stable/consistent” with 2022

US Ports #

• Port of New York and New Jersey surpassed the 9M container mark for the first time in its history

• But for the first time in four months, New York processed fewer containers than the Port of Los Angeles, moving 613,011 containers versus LA’s 728,871 in December.

Intermodal #

• Rail carloads increased 2.2% annually

• Intermodal containers and trailers fell 3.2% to their lowest January tally since 2013.

• With US import declines, intermodal demand and pricing is likely to soften in 2023

Freight #

• Truck freight shipments in Q4 2022 contracted 7.1% YoY

• They were also down 4.6% compared to Q3 2022

• Spending fell just 0.2% compared to the third quarter and was up 1.8% over Q4 2021

• LTL is faring better than truckload, with more volume in the market due to eCommerce

Warehousing #

• Demand for warehousing services remains high nationally, but there are significant markets that loosened throughout 2022

• Currently, the national industrial vacancy rate sits at 2.9%

Parcel #

• UPS, Fedex and the Postal Service increased parcel rates to start the new year

Market watch: The logistics industry month-over-month #

Logistics Managers’ Index (LMI) #

Last month, the index ticked up as the warehousing utilization rate grew significantly along with inventory levels. This suggests inventories weren’t fully cleared during the holidays and warehousing capacity shrunk as a result.

Disposable Income vs. Durable Goods Spend #

Durable goods consumption and disposable income are intertwined. This month’s data shows that personal consumption rose, while disposable income fell. Continued consumption predicts the need for logistics services. But continued disposable income decreases will lead to less consumption.

Industrial Real Estate Vacancy Rate #

The lower the rate, the more difficult it is to find warehousing, distribution and fulfillment space. The market currently operates at an all-time low of 2.9%. The new quarterly figure will be released next month.

US Manufacturing Purchasing Managers’ Index #

The index captures industrial output in the country during a given period. Like durable goods consumption, it provides context for demand forces: The higher the manufacturing index, the more volume enters logistics networks.

This month, jumped for the first time since September, indicating economic growth.