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MODE INSIGHT

December 2023 – Transportation Market Overview

TRUCKLOAD INTERMODAL LTL PARCEL INTERNATIONAL

TRUCKLOAD Soft Close to 2023 The OTRI, which measures carrier tender rejections across some of the largest TMS providers in the transportation industry, has been operating under 2022 peak season levels. This, along with the year-over-year rate decreases, are good indicators that this will be a light holiday peak season and slow start to 2024. That being said, these levels are expected to climb in the coming weeks as many operations will shut down for the holidays. This typically leads to temporary rate spikes that can continue through mid- to late January. Being a bear market, these temporary rate spikes shouldn’t be as severe as observed during the pandemic years. Source: sonar.surf

National Spot Rates Dry Van: Spot rates have already begun to show increases typical to the holiday season. This should carry through the New Year. Reefer: Spot rates are normally not far behind Dry Van trends. Expect increases as shippers are experiencing the end of year push and the protect from freeze season. Flatbed: Spot rates historically see a national average downturn during the end of year. The leading cause of this is the demand for construction materials decreases and construction sites shut down for the holidays and colder weather.

December 2023 MODE Insight

TRUCKLOAD UPDATE Going into 2024, National Rate averages are expected to continue to decrease, excluding the temporary carry over from the holidays, as National Diesel Rates are projected to drop. No macro-market conditions are expected to cause a rise in linehaul averages that would offset the decrease in FSC. Source: DAT.com/trendlines

National Spot Rates Fuel prices continue steady fall

$2.51 $2.48 $2.44 $2.41 SEP OCT NOV DEC est.

$2.11

SEP

$2.52 $2.47 $2.49 SEP OCT NOV $2.39 DEC est.

$2.09 $2.08 $2.10

OCT NOV

DEC est.

DRY VAN

FLATBED

REEFER

December 2023 MODE Insight

INTERMODAL Current Market Beneficial Cargo Owners (BCO) will now have access to rail service between Barbours Cut Container Terminal at Port Houston, Texas, and nine key UP-served markets. The UP states this on-dock operation will “save customers’ time, reduce greenhouse gas (GHG) emissions and simplify the end-to-end supply chain for all of the Class I railroads’ customers.” Import & Export/Empty service is available as of December 1 for the following UP Intermodal facilities: Chicago (Global 4), Kansas City, Memphis/Marion and Port Laredo. Additionally, UP Railroad plans to open a new international intermodal terminal in Phoenix in first-quarter 2024 to connect ocean ports and points in the Southwest. The new service from the facility will enable customers to convert long-haul truck traffic to rail saving 380 truck miles between the Los Angeles Basin and Phoenix. Auto manufacturers and parts suppliers shipping freight across the U.S.-Mexico border stand to benefit from a new intermodal service from next year that promises to cut the existing service between Chicago and Monterrey by one day.The service, which will start on January 1, 2024, is being put together by BNSF Railway, Grupo México Transportes (GMXT – the majority stakeholder in Ferromex) and JB Hunt Transport Services. It will run between Monterrey, Silao-Bajio and Pantaco-Mexico City regions. BNSF trains and JB Hunt trucks carrying intermodal containers will interchange at Eagle Pass, Texas, to and from GMXT, which will operate the trains between the border crossing and Monterrey, Silao-Bajio and Pantaco-Mexico City six days a week.

December 2023 MODE Insight

LTL Initial Auction of Yellows Assets Complete Tis the season and XPO, Estes, Saia and R&L Carriers (RAMAR) are gifting themselves big time this holiday season. The initial auction of 130 Yellow terminals took place earlier this month and generated a total purse of $1.88 billion according to the court documents filed on December 4. XPO lead the charge by dropping a whopping $870 million to acquire 28 total properties. Estes, the stalking horse bid winner, also walked away from the auction with 24 properties after spending $248 million. SAIA bid just over $235 million to secure 17 properties as they continue to enhance their expansive network, and R&L carriers also left with a hefty bill just over $211 million for 8 properties. While these were the top spenders during the auction, there were many other LTL carriers, intermediaries and investors who were active. Below is a Successful Bidders sheet highlighting the winners.

Source: Court Docket 1268

December 2023 MODE Insight

LTL UPDATE LTL Market Update As we round out the 2023 calendar year, we start December with two LTL carrier GRIs taking effect. On December 4, Old Dominion implemented their “Steady Eddy” 4.9% rate increase again – albeit a month earlier than usual – and SAIA activated a 7.5% rate increase, which is also earlier than normal and higher than what we’ve seen from the carrier in recent past. Looking through the end of the month and into 2024, we anticipate continued softness in industry volumes. The United States ISM Purchasing Managers Index for November came in at 46.7, marking the 13th consecutive month in contraction territory and signaling continued order softness within the manufacturing sector. U.S. industrial Production is also still less than exciting as October experienced a -0.68 YoY drop.

Source: Trading Economics & Institute for Supply Management

Fuel Since late October, U.S. highway diesel retail prices have continued to drop week over week. Through November, the national average per gallon dropped $0.253 to $4.254 from October’s average of $4.507. To kick off the holiday season, we start of the first week of December at a national average of $4.092 per gallon, marking the sixth consecutive week of price drops.

December 2023 MODE Insight

PARCEL Parcel Outlook Amazon Rise: Amazon has surpassed UPS and FedEx to become the top private logistics company in the U.S. As of November 23, 2023, Amazon has delivered over 4.8 billion parcels, projecting to reach 5.9 billion by year-end, demonstrating a 13% increase from the previous year. UPS, in contrast, reported a U.S. parcel delivery volume of 3.4 billion from January to September 2023, expected to fall short of the 2022 record of 5.3 billion. Amazon has excelled in the U.S. residential parcel delivery sector but faces challenges in catching up with UPS and FedEx in global business and other sectors. Analysts note that while Amazon delivers quickly, it lacks the same level of pick-up or delivery range as its competitors. Changing Market Dynamics for UPS and FedEx: Soft demand has shifted power dynamics, allowing U.S. retailers to negotiate larger discounts with UPS and FedEx after years of firm pricing. Both companies are now competing to fill trucks as demand shrinks, marking a significant reversal from their previous dominance. UPS Rate Increase and Surcharges: UPS has announced a 5.9% average rate hike for Ground, Air and International services, effective December 26, 2023. Peak season surcharges will be higher compared to 2022, targeting high-volume shippers during the peak season. UPS plans to adjust Delivery Area Surcharges, adding nearly 3 million Americans to the surcharge list. Estimates suggest 30% of the U.S. population is impacted by DAS charges. FedEx is expected to follow in 2024. Surcharges now often account for 50% of the weekly parcel invoice cost.

December 2023 MODE Insight

INTERNATIONAL Key Trends Supply: November Transpacific capacity down nearly 10% year-on-year Demand: Load factors for U.S. imports are improving slightly but rates continue to slip Operational: Carriers considering Panama Canal surcharges as drought conditions persist

Capacity in Transpacific Trade – Blank Sailings and Route Revisions Asia to U.S. capacity continues to fluctuate as carriers continue blank sailing programs, while some lines are adjusting service routes based on the ongoing restrictions at the Panama Canal. November overall capacity was down nearly 10% compared to last year. Blank sailings will likely remain moderate in the coming weeks as carriers begin planning for potential volume increases ahead of the Chinese New Year peak season, which typically starts booking/shipping in late December.

Spot Rates Fall Back After Some Gains The global composite of Drewry’s World Container Index (WCI) fell 6% in the last week of November, versus the prior week, to $1,384 per forty-foot equivalent unit. The global composite has given back all of its gains since the beginning of Q4 and is now down 1% compared to October 1 levels. Source: Freightwaves Sonar

Blue line: Global Composite. Green: Shanghai-New York. Purple: Shanghai-Genoa.

Orange: Shanghai-Rotterdam. Yellow: Shanghai-Los Angeles. Pink: Rotterdam-New York.

December 2023 MODE Insight

INTERNATIONAL UPDATE The Shanghai-Los Angeles spot rates showed improvements in early November but gave back the last of their early quarterly gains at the end of the month. The WCI index of Shanghai-Los Angeles spot rates was $2,000 per FEU in the final week of November, down 13% from the recent high in the week ending November 9, and down 1% from the beginning of the fourth quarter. The major ocean carriers’ attempts to use general rate increases (GRI) in mid/late November to improve their negotiating hand for the annual contract season in May 2024 have proven unsuccessful. They will likely try again in mid-December, but their track record of getting GRIs to stick has been poor, and there is no significant forecast for import volumes to jump in December.

US Exports Rates Stronger Most global trade analysts tend to focus on spot rates for U.S. imports; however, for most of 2023, spot rates from the U.S. to both Asia and Europe have held up much better than import rates. As recently as late June, the Drewry World Container Index for Los Angeles to Shanghai (blue line) was still double pre-COVID levels and the WCI for New York to Rotterdam (green line) was 50% above “normal.” Since then, spot rates to Europe have fallen much faster than rates for exports to Asia. As of December 1, the New York-Rotterdam rate was $587 per FEU, essentially flat with pre-COVID (up 1%), while the Los Angeles-Shanghai rate was $748 per FEU, still up 48% from the same time in 2018. Source: WCI.LAXSHA and WCI.NYCRTM

December 2023 MODE Insight

INTERNATIONAL UPDATE Increased Carrier Vessel Capacity/Service Changes It has been widely published that the ocean carriers have continued to order/build new vessels, which ultimately adds to overall capacity. For orders coming online in 2024, it is estimated to be about a 20% increase in overall vessel capacity even after pulling out older, smaller, less efficient vessels. Thus far, not only have ocean carriers not withdrawn older ships, they’re still ordering new ships. According to shipbroker reports, Ocean Network Express (ONE) just sealed an order for 12 new builds for deliveries in 2025 and 2026. All of these vessels are 13,000 TEU capacity vessels. Carriers are already aggressively deploying blank sailing programs and revised service schedules (removing certain strings) to try to manipulate capacity to avoid a rate collapse. But with current import volumes lagging, the addition of a net 20% capacity increase (throughout 2024) will make it hard to avoid depressed rate market in 2024.

Panama Canal – Impacts of the Severe Drought Conditions Worsening A recent Freight Waves article dated November 30 reported that the disruption and wait times have spiked in November. The Canal Authority has cut daily reservation slots from 32 per day down to 24 and decreasing again to 22 on February 1. Wait times for ships without reservation slots have gone from two days to 11.5 days in just the last month.

December 2023 MODE Insight

INTERNATIONAL UPDATE The smaller Panamax vessels are waiting longer (up to 20 days) than larger NeoPanamax (up to 11 days). Ship position data is currently showing 21 vessels in queue which is more than double from the summer months. This is certainly an issue for the Gulf and East Coast container trade but also important to note that other dry bulk, LPG and LNG vessels will also add to the backlog. Ocean carriers are already diverting vessels but at this point it is still not enough. Because this is a regional drought situation, the impacts will likely worsen and could reach well into 2024 or until the rains come. Some carriers have already started, but more carriers will be announcing Panama Canal Surcharges in the coming weeks for implementation by January 1. Thus far, surcharge amounts range from $150-$300 per TEU; however, as is the case with new surcharges, the success or failure of the implementation will be based upon overall trade supply and demand balance at the time. It is possible that any new application of canal surcharges could eventually be rolled into freight rates as they have in the past. In response to rising wait times, the Panama Canal Authority just began offering a special daily auction slot for Panamax vessel transits that do not have reservations and have been waiting 10 days or more. The impact of this plan remains to be determined.

December 2023 MODE Insight