Some indicators show falling freight rates

Ahead of the publication of results from a number of large US trucking companies, the sentiment in the market is that freight rates are falling. Reports in the Wall Street Journal cite the Cass Freight Index as showing freight rates across North America as essentially being flat whilst spot rates are falling back noticeably. Yet the latest quarterly results from leading US truck and intermodal company, J B Hunt, assert that up until the end of Q1 both demand and rates were quite robust, with operating income up 61% and intermodal and truck demand very strong. Operating income at the J B Hunt truck division was up 210%.

At a global level some data suggests that container rates are also moderating from their extraordinarily elevated prices. Again, the Wall Street Journal is quoting the Drewry World Container Index, which is showing falls of 16% since the beginning of January although Drewry themselves state that the index is still 62% higher year-on-year. There is considerable noise in the data around this market, especially from China whose largest port complex in Shanghai is being badly disrupted by anti-COVID measures. This must be having some sort of effect on the market, probably suppressing demand, with product flows out of China disrupted.

It should also be noted that the supply of containers has increased and this may be relieving congestion issues. Certainly, the port of Los Angeles said that it recorded the highest ever through-put volume of imports its history in March, however Gene Seroka, the port Executive director commented that there had been a noticeable fall in congestion with “improved fluidity on our docks and fewer vessels waiting to enter the port”.

If congestion across North America in particular, but also in other locations, moderates then this is very likely to release substantial quantitates of physical transportation assets. This in turn will drive down prices. If this is combined with an increasing flow of new vessels and trucks onto the market, prices will fall violently. However, such a development might be counter-balanced by recovering demand in China. Overall though, the indicators in logistics markets do tend to suggest that prices are falling and will continue to fall in the short-to-medium term.

Source: Transport Intelligence, 19th April 2022

Author: Thomas Cullen