Trucking Rates and the Cost of Deisel
In March and April, national trucking spot rates dropped by 30 cents compared to the months prior. Rates dropped another 20 cents in May. These drops result in a resurgence in the contract market, with rejection rates falling from 20% earlier in the year to 7.7%. The price of diesel is starting to hurt smaller carriers and their cash flows, with many having to close their doors. The oil supply crisis on the East Coast is growing worse, raising the specter of fuel rationing just as the U.S. enters what is typically the heaviest time of year for consumption, a new low going back to 1990. According to a report from loadboard Truckstop.com, it's now 51% more expensive to run a trucking company in 2022 than last year. In addition, 43% of the revocations of trucking authority for this month were smaller companies not filing.
Detention and Demurrage Rules Are Now in Effect
The part of new U.S. shipping reform that governs detention and demurrage fees went into effect Friday, with container lines now forced to certify that fees are reasonable and incentivize cargo movement. Under the Ocean Shipping Reform Act of 2022, signed into law June 16th by President Biden, carriers are subject to fines if they charge detention and demurrage for situations beyond a shipper’s control, such as the inability to move cargo because of congestion, a lack of appointments, or a shortage of chassis. While detention and demurrage were contentious issues long before the pandemic, complaints have flared in the past two years because of frustration with fees amid historic U.S. port congestion.
As demand starts to wane, BCOs are left with a glut of inventory and nowhere to store their goods. They are left to fight for space in temporary warehouses or leave their boxes at the rail or ports. For example, 29,000 containers are being held at the Port of Los Angeles, more than triple the usual number. BNSF says the delays are stemming from congestion in Chicago. This has led the rail company to limit the number of boxes the railroad will carry out of the Southern California port complex.
Solution: Talk with your Dunavant contact to find alternative routing around congested rail and shipping ports.
The China-US container rates have flashed two bearish signals. First, Drewry's spot rates have fallen year over year. Secondly, Xeneta's spot rates are now below contract rates. Ocean carriers have widely predicted a y/y decline in spot rates in the second half, which is why they wanted to lock in contract rates early. CEO of Maersk's ocean division said on a conference call last year, "Given the extreme levels [in] the short-term rates, the correction toward a more normal level could be quite rapid." Cargo volumes are already dropping, but it is too soon to know how much, depending on holiday bookings and port congestions.
Solution: Our pricing department watches the market daily to ensure we can get you your freight quickly and at the best price.
G7 Detail Infrastructure Plan
The U.S. and allies on Sunday laid out plans to invest hundreds of billions of dollars in infrastructure projects in developing countries to challenge China's One Belt, One Road Initiative. The U.S. will aim to mobilize $600 billion in overall investments with funding from allies by 2027. In addition, President Biden said the U.S. would contribute $200 billion over five years toward the Partnership for Global Infrastructure and Investment. The Belt and Road agenda was launched in 2013 and has been used to expand China's global reach, leading to concern from the U.S. and others that some recipient countries could become increasingly economically dependent on China.