KANSAS CITY — One index that measures logistics and transportation health in the United States was at an all-time low in March, illustrating the slowdown in freight demand since the spikes in rates experienced during the COVID pandemic. Truck and ocean freight rates, which were severely affected by the pandemic, remain well below historic highs, but logistics challenges for carriers may well be opportunities for shippers in the form of lower rates and greater availability of freight.
The March Logistics Managers’ Index (LMI) released in early April was at an all-time low of 51.1, down four percentage points from February and just above the 50-point level, above which indicates growth and below which indicates contraction, the Council of Supply Chain Management Professionals said in its quarterly Supply Chain report. Logistics managers responding to the LMI monthly survey noted an all-time low in transportation prices, with that portion of the index down five points from February at 31.1. The transportation utilization index was at 50, posting a gain for the first time in 2023. The LMI researchers said it was the “slowest rate of growth we have ever tracked in the 6.5 years of the index, but it is still growth.”
Transportation capacity continued to expand in March, registering 71.4, the fourth highest reading in the history of the index, indicating softer demand.
“The freight recession that has been discussed over the last few months seems to have reared its head in March,” LMI researchers said. “The drying up of transportation demand extends to the oceans, where carriers are struggling to fill the capacity they built up over the last few years. With many of the contracts that were in place now expiring, importers are choosing between locking in low rates or taking advantage of the very favorable spot market.”
The LMI index is a combination of eight unique logistics components, including inventory levels and costs, warehousing capacity, utilization and prices, and transportation capacity. The index was started in 2016.
Freight rates for moving grain by water (including barges, containers and bulk) are mixed from a year ago, but capacity is widely available.
“Overall, ocean freight rates are up versus last year,” said Jay O’Neil, HJ O’Neil Commodity Consulting. “But they are still struggling, and vessel owners are hoping, and betting, that China will return to good economic growth levels and support bigger cargo demand. All eyes are on China.”
An ongoing challenge to the ocean freight market has been the war in Ukraine, which with Russia makes the Black Sea region one of the premier, and lowest cost, grain export markets in the world. The war that started with Russia’s invasion on Feb. 24, 2022, initially sent grain prices soaring amid fear of export disruptions. Grain prices have dropped below pre-invasion levels only in recent weeks.
“The Black Sea food corridor (referring to an agreement between Russia and Ukraine to allow safe passage of grain vessels from Black Sea ports first brokered in July 2022) is a question that keeps popping up every 60 days,” Mr. O’Neil said. “So far it keeps getting extended. Hopefully, that will continue.”
The container market, much of which moves grain to Asia and is the primary mover of consumer goods from Asia to the United States, remains under pressure. Container rates are down and mostly back to pre-pandemic levels, Mr. O’Neil said, “and they are not likely to improve over the next few years.”
“As for container freight and logistics, vessel owners have really shot themselves in the foot with all the new vessel orders coming onstream in 2024-25,” Mr. O’Neil said. “Consumer produce demand is not growing to the level that will support this vessel growth.”
Not unlike the potential strike by railroad workers last year, part of the ocean freight market also is in the midst of labor issues.
“Logistically, the elephant in the room is the West Coast ILWU labor contract,” Mr. O’Neil said. “Talks seem to be going nowhere, and tensions are growing. We have already seen labor slowdowns in Los Angeles/Long Beach, and things will probably get worse in the coming months. Retailers and shipping lines have been smart to shift a percentage of their supply chains to the East Coast. The stocking points now are the difficult ones to negotiate — automation.”
While port conditions on the West Coast have improved since the well-documented COVID debacle, union members have been working without a contract since July 1, 2022. Talks between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) began in May 2022. A March 24 letter from 238 national, state and local trade associations called on the Biden administration to help the two sides reach an agreement, noting the lack of a contract has created uncertainty and caused vessels to be diverted from West Coast ports even though there has not been a strike or a lockout. The same group asked the administration to intervene when the contract expired last year.
“As we have witnessed, significant cargo flows have shifted away from the West Coast ports because of the uncertainty related to the labor negotiations,” the groups said in the letter. “While there certainly are other issues impacting the West Coast ports, many cargo interests have expressly stated that they shifted cargo as a result of the negotiations. That cargo will not return to the West Coast until after a contract is final and approved by both parties.
“With the lack of progress to date, we would also encourage the administration to offer mediation services to the parties in their negotiations.”
The West Coast labor situation hasn’t been without incident. Over the Easter weekend, terminals at the Ports of Los Angeles and Long Beach effectively shut down beginning the evening of Thursday, April 6, and continued closed for a time due to a lack of labor. Besides the ports, the closings affected trucking and shipping lines and terminal operators. The PMA said the disruptions were caused by a local union that withheld some workers from the Thursday evening shift. The ILWU did not comment. A local union claimed the disruption was the result of a regular monthly union membership meeting attended by several thousand workers and by union members taking off Good Friday (April 7) for religious reasons, with some disruptions continuing through the weekend.
“West Coast unions are definitely hurting the reputation and trust of West Coast port reliability,” Mr. O’Neil said.
The Great Lakes shipping season opened March 25 when the US Army Corps of Engineers reopened the Poe Lock, which had received critical repairs during the 10-week winter shutdown of the Great Lakes outlet. The Port of Duluth-Superior also has reopened for the season, with the 656-foot Federal Dart arriving under Duluth’s Aerial Lift Bridge on March 28, the earliest date on record for an ocean-going vessel to arrive at the port. Durum, spring wheat other than durum, soybeans, canola and sugar beet pulp pellets are the primary grain products moving through the Duluth-Superior port.
Barges are a primary mover of grain, especially corn, soybeans and soft red winter wheat, down the Mississippi River system to export terminals in the Gulf.
The USDA in its April 6 Grain Transportation Report said barge freight rates for grain in the week ended April 4 were down 37% to 47% from the same week a year earlier on the major southbound US waterways, although the rates varied from 7% higher to 9% lower compared with the three-year average. Total movement of grain by barge to the US Gulf (largely for export) on the major waterways (Mississippi, Illinois, Ohio and Arkansas rivers) for the year to date to April 1 was down 7% from the same period last year, including corn down 29%, wheat down 15%, soybeans up 25% and other grains up 49%, the USDA said. In comparison, cumulative export shipments for respective marketing years as of March 23 were down 40% for corn, up 2% for soybeans and down 1% for all wheat, with hard red winter wheat down 29%, soft red winter up 3%, hard red spring up 8%, soft white up 36% and durum up 71%. Total grain shipments were down 13%.
Freight rates for shipping US grain to Japan as of March 2023 were $52.50 per tonne from the US Gulf, down 31% from a year ago, and were $24.30 per tonne from the Pacific Northwest, down 32%.
This article is an excerpt from the April 18 issue of Milling & Baking News. To read the entire feature on transportation and distribution, click here.