Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
The great ocean freight tsunami that swamped the maritime industry from the fall of 2021 through spring 2022—and threw ports and containership lines for a loop—has subsided. In its place has emerged a market slowly returning to some semblance of pre-pandemic normal while facing the prospect of a recession on the near-term horizon, rapidly softening demand, and plummeting rates for container cargoes that have yet to hit bottom—and are foreshadowing rate wars of past years.
“Spot rate levels are back to pre-pandemic levels,” observes Lars Jensen, chief executive officer of consulting firm Vespucci Maritime. He cites two principal reasons. One has been the recovery of ports from congestion bottlenecks through the first half of last year. “High rate levels were partly a function of vessels trapped by congestion. As those eased, more capacity was released into the market,” he notes.
The second was a sudden sharp drop in demand starting in September, “where [the market] collapsed, especially in Asia-to-North America and Asia-to-Europe lanes,” driven by inventory corrections on the part of importers in the U.S. and Europe, he says. It’s a cycle that’s typical of a market bracing for uncertain economic times, and shippers consequently dialing back ordering and more aggressively managing inventory levels.
Yet there could be a silver lining on the other side, Jensen notes. “Every time an inventory correction occurs, once addressed, you get a wave of cargo on the back side. Consumers regain confidence, and importers need to bring business back to normal levels, which leads to a surge in cargo,” he explains.
Betting on how deep the decline will be and when the rebound will begin is the challenge for shippers, ports, and vessel operators alike. Ship operators are likely to cancel more sailings in response to weaker demand and the diminished need for capacity. “One scenario is that we are heading into a recession that is short-lived,” Jensen says. In that case, he sees a market continuing to collapse in January and February, then rebounding sometime in the spring.
“If we are heading into a deeper and longer recession, then cargo going back to the normal surge will be late in the year,” he predicts. “That will leave a relatively depressed [ocean freight] market for [most of] 2023.”
PORTS: A RETURN TO NORMALCY?
Ports are feeling the impact as well, although in different ways. The double-digit surge in cargo experienced in 2021 has been considerably dialed back. In October, the Port of Long Beach (POLB) saw a 16% decline in container volumes compared to the previous year. Yet for the first 10 months of 2022, the port was tracking 1.5% ahead of 2021. Mario Cordero, POLB’s executive director, says he expects the full year 2022 to be flat. “For me, that’s not a bad number given that 2021 was a record year of unprecedented surges.”
He sees the port “on the cusp of normalization.” Where in January 2021, there were nearly 110 containerships anchored outside the port waiting to unload, “today there are zero vessels at anchor and backed up,” he notes. Container dwell, the amount of time a container sits in the port, is down 93% from the worst congestion in November 2021. Today, only 3% of containers dwell in the port more than a few days. On the rail side, “back in July, we had 13,000 rail containers that were dwelling at the terminals nine days or more. That number today is less than 350,” he reports.
Cordero is optimistic as he considers lessons learned from the past two years. “Anytime you move 20 million containers in a gateway, you need to transform your operations,” he says. Looking ahead, Cordero and his team are focused on improving and expanding the port’s infrastructure and increasing productivity and velocity. Over the past decade, the port has invested some $4 billion in its infrastructure. Over the next decade, the port’s plans call for $2.6 billion in capital expenditures, “a lot of that directed toward rail improvements and expansion,” Cordero notes.
One particular issue somewhat unique to Southern California ports is meeting upcoming goals for emissions reduction, notably a zero-emissions goal for trucks by 2035 and for cargo-handling equipment by 2030. “Both of these objectives are very challenging,” Cordero says. The port is getting a helping hand from the federal government, having recently won a $30 million grant to replace diesel-powered yard tractors with zero-emission electric models. “We’re moving ahead with electrification in a socially responsible way sensitive to the importance of the job market.”
DIVERSIONARY TACTICS
The 2021/2022 port congestion issues, particularly on the West Coast, also caused shippers to take a more in-depth look at their supply chains—and where they have import ocean cargoes landing in the U.S. One outcome was a marked diversion of ocean container cargo from West Coast to East Coast ports, a surge that led to congestion issues there, particularly in Savannah, Georgia. Another factor was concern about rail labor contracts and fears of a looming strike, which Congress averted. Some believed that trucking—and to some extent, westbound rail service—would be easier to find from East Coast ports and would reduce their risk of exposure to potentially strike-affected rail service from the West Coast.
A recent survey of shippers by investment firm Cowen & Co. found that while a majority of shippers likely will move much of their freight back to the West Coast, a small but significant portion of that volume will never return. “We believe there may be a [roughly] 10% permanent shift of freight to the East Coast … creating long-term opportunities for Eastern transportation companies,” the report said.
Among the motives the report’s lead author, Jason Seidl, cites for the shift are: the impact on Southern California truck capacity from regulations related to California emission requirements and the impact of AB5, the law that restricts businesses from classifying workers as independent contractors rather than employees; the opportunity for (and increasing interest in) reshoring to Mexico and the benefits associated with potential shifts; reduced political risk; the lower cost of transportation; and the further technology enablement of the supply chain.
“A LITTLE BIT OF BREATHING ROOM”
East Coast ports have been adjusting to the shifts in business as well. Beth Rooney, director of the Port of New York & New Jersey, noted that of the port’s 10.5% growth in the past year, roughly 85% of that was cargo diverted to New York/New Jersey from West Coast ports. “It has been an interesting evolution,” she says. “All the East and Gulf Coast ports benefited from those shipper decisions.”
In her conversations with the maritime community about freight diversion, she says, she’s found “it’s more a function of anxiety, what is going to happen with [West Coast longshore] labor negotiations, rail congestion concerns, what’s happening on the drayage trucking side,” and the prospect of California ports losing some 25% of their drayage capacity on January 1, when new laws kicked in.
More than anything else, shippers are searching for reliability, consistency, and peace of mind, Rooney observes. And that presents opportunity. “We won’t have another 18% increase like we had in 2021, but I don’t think we are going to be flat or losing ground in 2023,” she notes. “We will get close to what we have been, which is 2% to 2.5% compound annual growth.”
One upside of the softer market, Rooney says, is that “we have a little bit of breathing room. We handled volumes we were not expecting until the 2027 or 2028 time frame [last year].” The slower pace makes this a good time to continue to work on developing capacity and improving fluidity, she oberves.
She also cites the need for increased creativity and innovation. “We are operating as a supply chain participant pretty much the same way as when container shipping started in 1956. And it’s not unique to us. It’s a national issue.”
A MATTER OF CAPACITY
For their part, vessel operators are watching the market and reacting swiftly to address declining demand, rationing capacity to match. That could lead to more blank (canceled) sailings and other adjustments.
“Our aim is to focus on improving service levels and vessel schedule integrity, which has been impacted by record cargo volumes the past two years,” says Narin Phol, Maersk North America regional managing director based in the U.S. As for capacity, Phol believes that “current fleet capacity will stay the same. And as we retire old tonnage, we will replace it with new, green methanol-fuel ships. We have 19 green methanol ships on order.”
Vessel operator Hapag-Lloyd has also put plans for further expansion on hold. Over the past two years, the containership giant has placed orders for 22 new vessels “with a capacity of more than 400,000 TEUs [20-foot equivalent units],” notes company spokesman Tim Siefert. “We have no plans for [additional] newbuilds at the moment.”
Will rate wars of the past return? “We cannot speculate,” Siefert says. “As usual, it is hard to foretell rate developments in the market when they always depend on the supply and demand balance,” he explains. “A crucial point will be the influx of capacity over the next [several] years. At the same time, we will see more scrapping and fleet modernization programs on the back of environmental obligations.”
Vespucci Maritime’s Jensen says that while there hasn’t been much scrapping over the past two years, he expects it will pick up. “In a market where you had $20,000 per-container freight rates, it doesn’t matter how rusted or leaky your ship is, because someone will pay you for it,” he says.
Yet between a looming recession, declining demand, new environmental obligations, and operational changes such as fewer vessels in service and slow steaming (the practice of deliberately reducing ship speeds to minimize fuel consumption and carbon emissions), capacity eventually will come out of the industry. He cites consensus estimates of about a 10% capacity reduction over the next year. New capacity is not expected to come on-stream until later in 2023 or 2024.
At the end of the day, Jensen says, vessel operators are watching closely how deep a “hard landing” will be for the market and how low rates will go ahead of a rebound. “The rule of thumb was if a freight rate goes so low [that] the carrier becomes cash-negative, they’d step away from the brink” to stem potential losses, he says, adding that excessively low rates and negative cash flow would push them toward bankruptcy.
But vessel operators, reaping the benefits of two years of record profits, are in much better shape today than in the market downturns of the past. “They are all sitting on massive coffers of cash,” Jensen says.
The Florida logistics technology startup OneRail has raised $42 million in venture backing to lift the fulfillment software company its next level of growth, the company said today.
The “series C” round was led by Los Angeles-based Aliment Capital, with additional participation from new investors eGateway Capital and Florida Opportunity Fund, as well as current investors Arsenal Growth Equity, Piva Capital, Bullpen Capital, Las Olas Venture Capital, Chicago Ventures, Gaingels and Mana Ventures. According to OneRail, the funding comes amidst a challenging funding environment where venture capital funding in the logistics sector has seen a 90% decline over the past two years.
The latest infusion follows the firm’s $33 million Series B round in 2022, and its move earlier in 2024 to acquire the Vancouver, Canada-based company Orderbot, a provider of enterprise inventory and distributed order management (DOM) software.
Orlando-based OneRail says its omnichannel fulfillment solution pairs its OmniPoint cloud software with a logistics as a service platform and a real-time, connected network of 12 million drivers. The firm says that its OmniPointsoftware automates fulfillment orchestration and last mile logistics, intelligently selecting the right place to fulfill inventory from, the right shipping mode, and the right carrier to optimize every order.
“This new funding round enables us to deepen our decision logic upstream in the order process to help solve some of the acute challenges facing retailers and wholesalers, such as order sourcing logic defaulting to closest store to customer to fulfill inventory from, which leads to split orders, out-of-stocks, or worse, cancelled orders,” OneRail Founder and CEO Bill Catania said in a release. “OneRail has revolutionized that process with a dynamic fulfillment solution that quickly finds available inventory in full, from an array of stores or warehouses within a localized radius of the customer, to meet the delivery promise, which ultimately transforms the end-customer experience.”
Commercial fleet operators are steadily increasing their use of GPS fleet tracking, in-cab video solutions, and predictive analytics, driven by rising costs, evolving regulations, and competitive pressures, according to an industry report from Verizon Connect.
Those conclusions come from the company’s fifth annual “Fleet Technology Trends Report,” conducted in partnership with Bobit Business Media, and based on responses from 543 fleet management professionals.
The study showed that for five consecutive years, at least four out of five respondents have reported using at least one form of fleet technology, said Atlanta-based Verizon Connect, which provides fleet and mobile workforce management software platforms, embedded OEM hardware, and a connected vehicle device called Hum by Verizon.
The most commonly used of those technologies is GPS fleet tracking, with 69% of fleets across industries reporting its use, the survey showed. Of those users, 72% find it extremely or very beneficial, citing improved efficiency (62%) and a reduction in harsh driving/speeding events (49%).
Respondents also reported a focus on safety, with 57% of respondents citing improved driver safety as a key benefit of GPS fleet tracking. And 68% of users said in-cab video solutions are extremely or very beneficial. Together, those technologies help reduce distracted driving incidents, improve coaching sessions, and help reduce accident and insurance costs, Verizon Connect said.
Looking at the future, fleet management software is evolving to meet emerging challenges, including sustainability and electrification, the company said. "The findings from this year's Fleet Technology Trends Report highlight a strong commitment across industries to embracing fleet technology, with GPS tracking and in-cab video solutions consistently delivering measurable results,” Peter Mitchell, General Manager, Verizon Connect, said in a release. “As fleets face rising costs and increased regulatory pressures, these technologies are proving to be indispensable in helping organizations optimize their operations, reduce expenses, and navigate the path toward a more sustainable future.”
Businesses engaged in international trade face three major supply chain hurdles as they head into 2025: the disruptions caused by Chinese New Year (CNY), the looming threat of potential tariffs on foreign-made products that could be imposed by the incoming Trump Administration, and the unresolved contract negotiations between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX), according to an analysis from trucking and logistics provider Averitt.
Each of those factors could lead to significant shipping delays, production slowdowns, and increased costs, Averitt said.
First, Chinese New Year 2025 begins on January 29, prompting factories across China and other regions to shut down for weeks, typically causing production to halt and freight demand to skyrocket. The ripple effects can range from increased shipping costs to extended lead times, disrupting even the most well-planned operations. To prepare for that event, shippers should place orders early, build inventory buffers, secure freight space in advance, diversify shipping modes, and communicate with logistics providers, Averitt said.
Second, new or increased tariffs on foreign-made goods could drive up the cost of imports, disrupt established supply chains, and create uncertainty in the marketplace. In turn, shippers may face freight rate volatility and capacity constraints as businesses rush to stockpile inventory ahead of tariff deadlines. To navigate these challenges, shippers should prepare advance shipments and inventory stockpiling, diversity sourcing, negotiate supplier agreements, explore domestic production, and leverage financial strategies.
Third, unresolved contract negotiations between the ILA and the USMX will come to a head by January 15, when the current contract expires. Labor action or strikes could cause severe disruptions at East and Gulf Coast ports, triggering widespread delays and bottlenecks across the supply chain. To prepare for the worst, shippers should adopt a similar strategy to the other potential January threats: collaborate early, secure freight, diversify supply chains, and monitor policy changes.
According to Averitt, companies can cushion the impact of all three challenges by deploying a seamless, end-to-end solution covering the entire path from customs clearance to final-mile delivery. That strategy can help businesses to store inventory closer to their customers, mitigate delays, and reduce costs associated with supply chain disruptions. And combined with proactive communication and real-time visibility tools, the approach allows companies to maintain control and keep their supply chains resilient in the face of global uncertainties, Averitt said.
A move by federal regulators to reinforce requirements for broker transparency in freight transactions is stirring debate among transportation groups, after the Federal Motor Carrier Safety Administration (FMCSA) published a “notice of proposed rulemaking” this week.
According to FMCSA, its draft rule would strive to make broker transparency more common, requiring greater sharing of the material information necessary for transportation industry parties to make informed business decisions and to support the efficient resolution of disputes.
The proposed rule titled “Transparency in Property Broker Transactions” would address what FMCSA calls the lack of access to information among shippers and motor carriers that can impact the fairness and efficiency of the transportation system, and would reframe broker transparency as a regulatory duty imposed on brokers, with the goal of deterring non-compliance. Specifically, the move would require brokers to keep electronic records, and require brokers to provide transaction records to motor carriers and shippers upon request and within 48 hours of that request.
Under federal regulatory processes, public comments on the move are due by January 21, 2025. However, transportation groups are not waiting on the sidelines to voice their opinions.
According to the Transportation Intermediaries Association (TIA), an industry group representing the third-party logistics (3PL) industry, the potential rule is “misguided overreach” that fails to address the more pressing issue of freight fraud. In TIA’s view, broker transparency regulation is “obsolete and un-American,” and has no place in today’s “highly transparent” marketplace. “This proposal represents a misguided focus on outdated and unnecessary regulations rather than tackling issues that genuinely threaten the safety and efficiency of our nation’s supply chains,” TIA said.
But trucker trade group the Owner-Operator Independent Drivers Association (OOIDA) welcomed the proposed rule, which it said would ensure that brokers finally play by the rules. “We appreciate that FMCSA incorporated input from our petition, including a requirement to make records available electronically and emphasizing that brokers have a duty to comply with regulations. As FMCSA noted, broker transparency is necessary for a fair, efficient transportation system, and is especially important to help carriers defend themselves against alleged claims on a shipment,” OOIDA President Todd Spencer said in a statement.
Additional pushback came from the Small Business in Transportation Coalition (SBTC), a network of transportation professionals in small business, which said the potential rule didn’t go far enough. “This is too little too late and is disappointing. It preserves the status quo, which caters to Big Broker & TIA. There is no question now that FMCSA has been captured by Big Broker. Truckers and carriers must now come out in droves and file comments in full force against this starting tomorrow,” SBTC executive director James Lamb said in a LinkedIn post.
Bloomington, Indiana-based FTR said its Trucking Conditions Index declined in September to -2.47 from -1.39 in August as weakness in the principal freight dynamics – freight rates, utilization, and volume – offset lower fuel costs and slightly less unfavorable financing costs.
Those negative numbers are nothing new—the TCI has been positive only twice – in May and June of this year – since April 2022, but the group’s current forecast still envisions consistently positive readings through at least a two-year forecast horizon.
“Aside from a near-term boost mostly related to falling diesel prices, we have not changed our Trucking Conditions Index forecast significantly in the wake of the election,” Avery Vise, FTR’s vice president of trucking, said in a release. “The outlook continues to be more favorable for carriers than what they have experienced for well over two years. Our analysis indicates gradual but steadily rising capacity utilization leading to stronger freight rates in 2025.”
But FTR said its forecast remains unchanged. “Just like everyone else, we’ll be watching closely to see exactly what trade and other economic policies are implemented and over what time frame. Some freight disruptions are likely due to tariffs and other factors, but it is not yet clear that those actions will do more than shift the timing of activity,” Vise said.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index indicating the industry’s overall health, a positive score represents good, optimistic conditions while a negative score shows the inverse.