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State of the Union

State of the Union Q1 2023

Starting with sea freight – The father of logistics:

Here are a few indexes showing that containers and bulk shipments are back to pre-covid levels.

https://tradingeconomics.com/commodity/baltic 

And lastly the Shanghai containerized freight rate index from January 2019 to December 2022

Something important to note about this; prices CANNOT get any lower unless we have another worldwide event like a major war i.e. Taiwan or escalation in Ukraine, another global pandemic, 2008-sized stock market crash or aliens landing in Central Park.

Several of my recent conversations have had the same question come up – how long will it stay low and is there anything we should be doing to take advantage? A few key pointers now that will help you maintain cheaper freight costs for as long as possible.

  1. Try the new folks – with end of 2020 through most of 2021 being a very profitable year for 1099 owner ops/brokers, many have split off to become their own carriers, give those contacts a chance, they may have some decent rates with service levels they can make executive decisions on.
  2. Stay loyal to your current options – nothing worse than being dropped for costs, EXCEPT having to go back to someone you’ve given the cold shoulder too for pricing reasons. While negotiation is ABSOLUTELY okay, give the people that have given you service for the last few years in the most congested market of all time the ability to get closer to the numbers you need to be at.
  3. STOCK UP and STOCK PILE – while the getting is good capture as much of the freight movement as you can. Customers trying to route the shipment/FOB… DECLINE IT, work the shipment yourself. There is no better way to build the relationship with your broker/carrier than to help provide volume in a slower market.
  4. Pay a little bit more – while the market is down, try and pay a little over average. You are still getting a deal but this will help prevent everything from missed updates to major claims. Remember in this industry and especially in this type of market in this industry you get EXACTLY what you pay for.


Let’s move to big retail in the US. Walmart, Target, Costco, Kroger – all their stock prices are above pre-pandemic levels, but that’s normal, the inflation plays a big role in the current price. What’s more important is that all those retailers scored **record profits** in real dollars (i.e. adjusted for inflation) and are sitting on a lots of cash! They were all burned by the “logistics bottleneck” at the port of Los Angeles, the high rail and truck costs and the overstocking of products after that. But considering their profits – I think they made too big of a deal out of it and seem to have handled the “bottleneck” quite well. The result of these outcries were record number PPP and other protection loans, employee retention credits, and general loan forgiveness provided by the government. But the outlook isn’t all bad, everyone invested in a 401(k) or 403(b) saw record increases in US Blue Chip Stocks, which propped the losses up from what they could’ve been, minimum wage workers are seeing higher salaries than ever and the recession we likely experienced through Q4 of last year and slightly into this year has already started seeing an uptick. We are in a positive light all-in-all.

Maybe some of you noticed I left out one of the biggest retailers out there – Amazon. They are the only ones whose stock is not above pre-covid levels. One of the main reasons is that their stock rose, because of the lockdown and a lot of US consumers who ordered stuff to be delivered to them now prefer to shop at the traditional brick & mortar stores. Another reason is that Amazon is not 100% retailer like the rest, but more of a tech company – they make most of their profits from AWS, not retail sales. But they are still an outlier and it needs to be noted.

Looking at some macroeconomics trend: J. Powell (head of FED) will keep raising the base interest rate. The most recent hike came to 4.5%-4.75%, a “soft landing” as they put it. Candidly they could’ve raised rates to any extent and called it a soft landing and people would have gone with that narrative. Higher interest rates mean higher loan costs, higher mortgages, higher credit card APR etc. all bad for businesses, but necessary to lower the inflation. According to the textbook definition your base interest rate needs to be as high or higher than the inflation rate (6.5% for December) in order to reign in the inflation. But the FED doesn’t care about logic, because it can print as much money as it wants (it already did during the 2020 market crash, the horrible PPP handout to huge corps, the Reverse repo program and other scams benefiting banks and hedge funds) and has a ton of “instruments” to suck those money out of the market. What I’ve always believed in during times like these is;

  • Keep your nose to the grind stone and keep working harder than you did the day before
  • Stay loyal to your clients and vendors
  • Stay eternally positive, most of us are here to help get ahead not to block & tackle.

Still, the unemployment remains low and both the US and EU GDPs grew more than expected in Q3 and Q4 of 2022 – a great sign, after the negative growth in Q1 and Q2.

On the other hand, many of large banking CEOs, Elon, Bezos and other ultrarich are warning us of recession. But one should take this with a grain of salt, they don’t care about you and me, they care about their companies and rightfully so – they aren’t about to start giving you a free stock tip out of the goodness of their heart. My prediction is this is a strategy to bring their stocks lower, so they can purchase them back from the market cheaper now (stock buyback) an sell them higher later. But, in my best legal-ease, this is a pure speculation

Finally, domestic trucking. To summarize – rates will begin going up end of April, but most experts are stating end of Q2. And we all have different definitions for “higher” of course but we should keep a close eye on the market through Q2.

In this WSJ article (use the 12ft ladder to bypass subscription) there are a few market experts providing their opinion. I’ll just leave a few quotes about the freight market:

  • Carrier executives say they are hearing from their shipping customers that they expect to return to a more normal ordering cycle this year and start moving bigger volumes closer to the fall shopping season following volatile retail spending and distribution in 2022 that left them overstocked.
  • The general consensus, almost unanimous, from customers that have given us feedback about their inventories has been that by the time they get through the spring, things are caught up,”
  • Retail customers have told the carrier that a pullback in orders is “largely an inventory correction” driven by the shift in consumer buying patterns rather than broader weakness in the economy.
    • Shelley Simpson, president of Lowell, Ark.-based J.B. Hunt,
  • She added saying on a Jan. 18 earnings conference call that the company “has good signals” from shipping customers that they plan to pick up their ordering in the second quarter.


Mikhail Rasner

President