January’s State of Freight Webinar shifted to a virtual format Thursday, as frozen roads in Chattanooga, Tennessee, kept the two regular participants away from FreightWaves’ headquarters. That deep freeze is a situation much of the middle of the country finds itself in — and one that may be impacting freight markets as well.

That was one of several takeaways from this month’s webinar featuring FreightWaves CEO Craig Fuller and Director of Freight Market Intelligence Zach Strickland. Here are some of the key points in the hourlong discussion Thursday.

Frozen roads, frozen markets

Fuller noted that blaming poor first-quarter financial performance on the weather is a frequent theme of earnings for the January-to-March period at publicly traded companies. But this year, he said, “I do think it is sort of legit.”

The type of weather the U.S. has gone through in the past week, with snow, ice and bitter cold, has an impact that goes beyond just slowing deliveries from trucks moving along impacted roads, Fuller said. Some of it could be a shift of demand for products into February as people avoid retail outlets or activities.

FreightWaves data in SONAR for several data series has turned soft. And the cold weather “sort of takes away from some of the confidence that people have, as well as the fact that store traffic is going to be down because of these weather impacts,” Fuller said. He noted that in his role as CEO of Flying Media Group, in the short term “we’ve seen a pretty significant drying up both in web traffic and subscriptions this week, as well as our e-commerce business,” which he attributed to the weather.

Capacity and second-half outlook

Fuller said the early January weakness hasn’t changed his growing bullishness on the second half of the year. And the primary reason is what he called the “capacity burn-off,” which lagged expectations in 2023 but is now picking up steam.

Strickland showed a chart of SONAR data, drawn from U.S. Department of Transportation numbers, that showed a drop in capacity appears to be well underway.

He also displayed data on capacity through the Outbound Tender Reject Index and the Outbound Tender Volume Index. The OTRI is rising, a sign of capacity starting to get tighter. Volumes on OTVI are up as well. Another chart displayed by Strickland showed the OTVI versus the DOT capacity numbers, showing the former rising steadily while the capacity numbers were declining, a combination that would eventually push the OTRI higher.

“Tender volumes exceeded last year’s levels coming into January,” Strickland said of 2024. The combination of all the data, he said, is that the soft market of early 2023 is in a completely different direction this year. Data from early 2023 suggested that was “arguably the bottom of the demand cycle for the freight market,” he said. But trends are combining that could be seen as bullish and signaling a turn in the market.

The Red Sea, the Panama Canal and the shift in ports

Fuller said the U.S. is “more immune to the flow of freight through the Red Sea than Europe is. It’s largely a European lane.” But he added the flows through the Red Sea and the Suez Canal to the U.S. are not zero, so there is an impact.

What’s “actually shifting now,” Fuller said, is freight away from the drought-stricken Panama Canal and back to the U.S. West Coast, which lost a significant amount of freight during the pandemic because of massive backups that resulted in container ships headed to East Coast ports instead. And with more ships going into the Los Angeles and Long Beach ports, Fuller said, “that means you’ll see more domestic and surface demand that will really provide some level of support for the freight market.”

Shifts in recent years to ports such as Newark, New Jersey, and Charleston, South Carolina, have been “one of the worst things for trucking,” Fuller said, because freight coming in there doesn’t usually require the long-haul trucking to pull containers and other freight out of the West Coast ports and into other U.S. population centers. “If it is flowing into Los Angeles and Long Beach, that is actually pretty bullish for surface freight, both intermodal and trucking,” Fuller said. “So these things are good.”

The broader impact of ships diverting from the Red Sea/Suez Canal combination is that it ties up capacity longer, as a trip around South Africa means longer times to deliver freight. “You’re actually increasing the amount of available dispatchable capacity because you have a longer distance to go,” Fuller said.

Reshoring and nearshoring continues 

Fuller discussed the work of Peter Zeihan, an author and thought leader on China who sees few good things ahead for the country. Citing one statistic from Zeihan’s work, Fuller said the cost to produce a manufactured good in China has gone up by a factor of 10 in the past 10 years. “It is now more expensive to produce products manufactured in China than it is in Mexico,” he said.

Stepping into the political arena, Fuller said a renewed Donald Trump presidency is not likely to view the U.S. Navy as a protector of all the world’s sea lanes. “Supply chain managers have got to consider these issues,” he said.

With a corporate push for greater transparency and implementation of environmental, social and governance principles, these supply managers “are going to want to see sourcing from parts of the world that don’t have such a bad environmental track record,” Fuller added. And that is going to push manufacturing back toward the U.S. and other countries in North America with their “better quality rules than they have in China.”

“We’re going to see a lot of emphasis on reshoring manufacturing in the United States and North America, simply because the risks are too big,” Fuller said, noting that shipping insurance companies are going to charge rates reflecting those risks in other parts of the world.

 LTL changes as the loss of Yellow takes hold

With the closure of less-than-truckload carrier Yellow increasingly in the rearview mirror, Fuller said other companies have been able to absorb its customer demand “because the market was incredibly weak.”

But as the market heats up, “we could see LTL run out of capacity relatively quickly,” Fuller said. He spelled out a scenario in which the unique nature of LTL freight, carrying “shapes and sizes that aren’t as big,” could find itself in a capacity squeeze before tightness in truckload. At that point, “we may see some more flow into the truckload sector.” LTL executives during strong times have made clear on earnings calls with analysts that freight spilling over from truckload is not good for business; it may get priced the same as standard LTL freight but it is seen as damaging to “mix,” that vague goal where the combination of freight carried on an LTL carrier yields the greatest amount of revenue.

Strickland said LTL markets ultimately follow truckload trends but that the Yellow exit was able to block the worst of the freight recession from hitting LTL carriers. “But I think at the end of the day, LTL is a much smaller segment,” Strickland said. “So they are much more resilient to these cycles in terms of up and down movements because they’re just more stable.”

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