Following the short-lived ILA strike that impacted shipping operations on the East and Gulf Coast, all ports have reopened and are operating at full scale. The terminal operators are promising to clear the congestion that has resulted from the three-day strike and return to normalcy in a matter of days. That said, the ripple effects downstream of the supply chain can take a while to bounce back to pre-strike efficiency.
Meanwhile, that is not the only positive news for the freight market. The logistics managers’ index (LMI) maintained its streak, rising to 58.6 and reaching a two-year high in September. But it is not all good news for the freight market as warehouse construction drops, hitting supply. Dwell time in the Los Angeles and Long Beach Ports has also increased, thanks to diverted freight by shippers who sought to circumvent the port regions impacted by the ILA strike.
At EKA, we bring you the latest news and trends across the freight market. Keep reading to explore the topics that shaped the freight world in October 2024.
Ports along the East and Gulf coasts have reopened following a three-day strike by 45,000 International Longshoremen's Association (ILA) members, which brought port operations in this region to a standstill. Thanks to timely government intervention, what might have been a logistical catastrophe that could have strangled the economy came to a rather abrupt end.
The United States Maritime Alliance (USMX), the governing alliance representing the interests of U.S. ports, and the ILA agreed to terms around pay, helping call off the strike quicker than anticipated. Remember that the ILA called off all negotiations leading up to the strike.
The parties tentatively agreed to a 62% pay raise, and this contract will be valid until Jan. 15, 2025. While the Biden administration officials facilitated the suspension of the strike and ensured a tentative agreement, contract ratification is still uncertain. Now, it remains to be seen if both parties finally agree on trickier topics, like full and semi-automation across the port complexes.
The September Logistics Managers’ Index (LMI) rose to 58.6, the highest level since September 2022. This is a two-year high that follows ten consecutive months of growth. LMI is a diffusion index, with a score above 50 showing market expansion and a score below 50 reflecting a contracting market.
Beyond that, the report also saw inventory levels rise significantly, mostly driven by downstream restocking. However, transportation capacity held steady at 50.0, signaling a plateauing market. Experts anticipate potential shifts in Q4.
Recently, people and businesses across Florida and Georgia were hit with devastating hurricanes, which impacted operations almost as much as it impacted lives. The aftermath of Hurricane Milton and Hurricane Helene caused substantial damage to logistics infrastructure, subsequently impacting truckload capacity in these states and surrounding regions. Agriculture was a major casualty, with Georgia farmers suffering severe losses, including one-third of the state's cotton crop and nearly 30% of the peanut crop.
Meanwhile, national dry van spot rates averaged $1.65 per mile, slightly increasing over the last year. This combination of factors underscores recovery and ongoing challenges within the logistics sector.
Prologis, the world's largest industrial property company, reported strong third-quarter earnings driven by a tight logistics property market. The company posted earnings of $1.08 per share, up from $0.80 a year earlier, with revenues rising to $2.04 billion.
This comes after the total industrial space under construction in Q3 dropped by 43% compared to the previous year, marking the steepest decline since 2008. Despite rising vacancy rates to 6.4%, Prologis remains optimistic, expecting businesses to resume leasing as they fill their existing spaces. That said, it has adjusted its 2024 earnings guidance, anticipating earnings per share between $3.35 and $3.45.
Prologis CEO Hamid Moghadam and CFO Tim Arndt have expressed confidence in long-term commercial space demand. They stressed the expected spillover from current warehouse utilization into future growth. With such optimization and a clear path to success, it is no surprise that Prologis shares rose 4.4% following the earnings announcement.
In September, Los Angeles and Long Beach ports experienced a sharp increase in rail container dwell times, reaching an average of 9.25 days, the highest in two years. The increase was unsurprising to stakeholders as it was driven mainly by retailers diverting cargo from East and Gulf Coast ports in anticipation of the ILA strike. During this period, the ports processed 874,730 TEUs of imports from Asia, surpassing previous records set during the post-COVID boom.
To avoid congestion, the terminal operators implemented strategies such as using temporary storage yards to manage the spike in volume. However, following the tentative agreement between the ILA and USMX, the East and Gulf Coast ports have resumed normal operations, with experts expecting the dwell time to peak this October and soften in November.
It is also important to note that despite the temporary truce, retailers are expected to continue routing time-sensitive shipments through the US West Coast until a labor contract is finalized and ratified by the ILA.
Unfortunately, the anticipated arrival of 3 million TEUs of new shipping capacity in 2024 is not enough to keep rising maritime freight rates at bay, as ongoing disruptions in the shipping market continue to be a stumbling block. Maritime consultancy firm Drewry has contended that even if potential strikes at US East Coast ports are averted, other inflationary pressures, such as regulations around emissions and global instability, will sustain rising freight rates.
Then there are the disruptions in the Suez Canal and the rerouting through the Cape of Good Hope, which Drewry believes will persist until at least 2026 and further affect shipping capacity. The reconfiguration of shipping alliances, particularly the emergence of MSC's quasi-single-carrier network, is forecasted to add more instability to global shipping schedules. These combined factors suggest that shippers should not expect a return to pre-pandemic freight rate levels soon.
It is unsurprising that consumers are increasingly opting for slower and more affordable shipping options over expedited services to combat inflation and manage expenses. However, the problem is that although this trend may be great for consumers, it is a disaster for major carriers like FedEx and UPS, as it is continuously squeezing their profits. It is no secret that carriers have come to rely on the premium pricing of expedited shipping to enhance profit margins.
UPS reported a 7.1% drop in demand for next-day air services, while FedEx saw a 5% decline in priority packages. As the saying goes, when there is blood, there is an opportunity, with brands like Shein and Temu capitalizing on this demand for low-cost, slower shipping.
This shift toward slower and more affordable shipping has also fueled the growth of services like UPS's SurePost. Consumers are now more conscious of their spending, especially in light of high surcharges during peak seasons and the lingering effects of the COVID hangover. As the holiday season approaches, these factors signal potential challenges for carriers. Additionally, customers are increasingly prioritizing sustainability over speed, which could further complicate the outlook for major carriers like FedEx and UPS.
In a world where uncertainties continue to plague logistics and supply chain operations, it has become imperative to have or regain some level of control over the entire process. But what better way to ensure this than complete transparency across the board?
Transform and enhance the throughput of your logistics operation with EKA Solutions. It doesn't matter if you are a carrier, broker (3PL), or trying to navigate a trucking ecosystem; EKA Solutions can simplify your business and equip you to take on any regulation or policies thrown your way — no matter how unfounded they may seem. Contact us to get started.
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