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FSA: Your Source for All Things Food Supply Chain
To provide food shippers with a better perspective of the freight economy and the logistics marketplace in upcoming months, Food Chain Digest reached out to gain perspectives from Avery Vise, Chief Trucking Analyst and Vice President, Trucking for FTR Transportation Intelligence. Here’s what he had to say.
With logistics costs continuing to increase in Q4, what are the primary factors that are driving these escalating costs? We do not expect sharply higher logistics costs for Q4 as freight rate pressures are subsiding due to softer overall freight demand and greater capacity, especially in truckload. On the other hand, we believe logistics cost relief is speculative in Q4 as those downward pressures collide with ongoing disruptions in the supply chain and labor market and higher demand during the quarter, especially for food. Shippers should prepare for modestly higher costs, but they could be pleasantly surprised. However, fuel costs remain a wild card as volatility returned in late August. Also, distillate inventories remain low by historical standards, which is potentially problematic heading into the home heating oil season.
Avery Vise
What do you anticipate the logistics marketplace will look like in Q4 of 2022? A shift of trucking activity and capacity during 2022 back into normal route guides from the spot
Refrigerated Truck Loadings
Although seasonally adjusted spot market volume for refrigerated freight has dropped sharply in 2022, FTR estimates that total seasonally adjusted refrigerated volume has been stable. Dry van has followed the same basic pattern. The cooling spot market does not indicate a drop in overall freight, but rather a shift of activity from spot to contract as capacity has increased in the contract arena. market has helped settle rates and capacity, but Q4 still could see some stresses. Perhaps most notable are chronic rail service congestion issues that will limit the ability of the intermodal segment to handle as much peak demand overflow as usual. Due to the profile of intermodal freight, packaged dry goods and food would see the largest impact. However, increased use of poweronly logistics solutions in recent years means that truck capacity in the spot market has never been more fluid. While this situation has advantages for shippers, it also means that freight segments can experience capacity shortfalls more readily due to spikes in demands in other segments. In other words, if intermodal cannot handle its usual peak season share of traffic, that overflow could affect availability, not only of dry van capacity but also capacity in refrigerated and possibly even in some specialized segments.
What do you anticipate the logistics marketplace to look like longer term into 2023? Shippers should see relatively more stability once we get past the 2022 peak season. Labor stresses have dissipated in trucking, and equipment constraints also are starting to let up. Rail carriers have been making incremental progress in adding head count, but they face multiple hurdles in improving service and velocity. Shippers should not have too much difficulty sourcing truckload capacity in Q1 at least in 2023, but the market could get incrementally tighter as the year wears on. Even so, we do not envision anything remotely like the stress seen in 2021.
Spot rates look to be down by double-digit percentages again in 2023, likely producing rate levels
that are stronger than they were in 2019, but not as strong as they were in 2018. FTR is forecasting contract rates to remain quite strong in 2013, however. While we see them declining about 5 percent year over year, that follows year-over-year gains of more than 13 percent in 2021 and around 8 percent in 2022. LTL contract rates also look to give back some of their robust rate gains, but as with truckload, we are forecasting a high floor. LTL has a fairly wide range of outcomes, however, as the manufacturing sector has significant risks both to the upside and downside.
What advice do you give providers and carriers to successfully navigate through this anticipated logistics/freight market? Watch for signs that the market is not behaving as expected in a postpeak environment. Surging diesel prices in the spring were a catalyst for many drivers to return to the security of working for larger carriers, but digital freight matching and legal threats to the leased owner-operator model could keep spot capacity and activity elevated. While this scenario could help maintain a floor on rates, it also might make it more difficult for carriers to honor capacity commitments. Carriers might find active logistics divisions valuable assets.
What advice do you provider shippers to successfully navigate through this anticipated market? The recent softening of the freight market is untested by a holiday peak season, so shippers are not out of the woods in terms of capacity shortfalls or near-term freight rate spikes. At least through Q4, shippers would be smart to treat the freight market as if it were still 2021, using the same day-by-day and hour-by-hour tactics that kept their goods moving at the peak of the market. For shippers invested in holiday-related purchases – whether consumer goods or food – the fourth quarter of 2022 probably is not a time to get overly aggressive with carriers.
Any additional insights you’d like to share?
Q4 offers a wide range of possible outcomes because of macroeconomic issues, especially inflation and its potential impact on consumption. So far, soaring inflation has flattened out consumption on a unit basis, but consumer spending on goods is only marginally weaker when adjusted for inflation. Consumers overall still are in an extraordinarily strong financial position with lots of cash and low levels of debt relative to disposable income. Even with the “doom and gloom” pronouncements in many quarters, holiday spending and associated freight demand could be robust.
