To begin the month of June, we saw labor disruptions up and down the West Coast last weekend as the ILWU port workers walked off the job. Now going into the second year of negotiations, the ILWU has escalated the stakes with these brief and mild strikes. In the long term, this continues to challenge shippers as they will look to shift imports and exports to the East and Gulf Coasts to avoid future issues with the West Coast. Along with the challenges at the ports, shippers looking to move imports from Asia to the East Coast will see challenges with a drought in the Panama Canal, which will limit daily capacity and volume this summer.
We have lots of additional freight market indicators to monitor, from the Purchasing Manager’s Index (PMI) to trucking employment, all with exclusive analysis in this week’s market update.
Watch This Week's Redwood Rundown
Labor disruptions. Produce season. Continued overall market contraction. Get this quick scoop on the market this week with our 3-minute Rundown with EVP of Procurement Christopher Thornycroft:
A Closer Look at Supply & Demand Indicators
Labor challenges as described above will continue to create market pressure (not to mentionthe potential parcel strike we analyzed earlier this week), but let’s explore some other key metrics.
As discussed in the Rundown video, the Institute for Supply Management’s Manufacturing PMI for May fell to 46.9 from 47.1 in April. Any reading below 50 indicates contraction and this now marks a 7th consecutive month of industry contraction. Along with the disappointing overall May numbers, new orders fell to 42.6, inventories fell to 45.8 and backlogs of orders fell to 37.5. This continuous contraction for manufacturing does not bode well for future spending on goods by consumers, and we see the impact of interest rates on capital expenditures in these numbers. Though the PMI is most tightly tied to LTL shipments, the overall freight market feels the ebbs and flows that this index reflects.
The southern market is dominated by produce season from Southern California (Los Angeles 4.8 to 1 load-to-truck ratio) to the border of Texas where onions have been blooming (El Paso 6.9 to 1, McAllen 12.7 to 1). These and related markets traditionally stay tight all the way through the Fourth of July holiday before cooling off as produce spreads north.
The northern market, volumes are in a trough from the Northeast (Elizabeth, NJ 2.3 to 1, Philadelphia, PA 2.6 to 1) to the Midwest (Chicago, IL 1.5 to 1, Columbus, OH 2.1 to 1) up to the Pacific Northwest (Seattle, WA and Portland, OR both 0.7 to 1).
Heading into the Fourth of July weekend, we will see the capacity crunch currently being felt in the Southeast and South Central rise north into the Carolinas and Virginias, along with Missouri and Kansas markets, creating pain for logistics providers with newly awarded contract rates.
Top 3 Charts for the Week
1. DAT National Average Rates
There’s almost no change month-over-month in the average rate per mile across full truckload, flatbed and reefer modes. Given the $0.57 spread between contract and spot rates, most will hold onto their awards waiting for the market to turn, but true paper rates will be exposed quickly in the form of rejection of tenders with sufficient lead time. Tender rejections should rise naturally given the inevitable leak of available drivers, but no tangible pressure will be felt until rejection rates near 5% (currently 2.87%).
Data adapted into map format with permission from DAT Freight & Analytics.
2. Bureau of Labor Statistics Long-haul Trucking Employment from Enterprise-level Carriers
While the exit of capacity remains inevitable given the dynamics describe above, the Bureau of Labor Statistics actually saw a significant uptick in April of 3,400 jobs in long-haul employment levels for truckload carriers. This is preliminary data, and we expect downward revisions coming next month, but this is an important reminder that carriers with large contract footprints remain healthy, so long as they have the external network available to reposition their equipment without eating too heavily into contract revenue.
Source: Bureau of Labor Statistics, U.S. Department of Labor
3. U.S. On-Highway Diesel Fuel Prices
Saudi Arabia announced Sunday that it would begin cutting oil production by 1 million barrels per day in July to support the “stability and balance of oil markets.” Crude oil is trading nearly 40% lower since its most recent January 2022 peak. This has downstream effects on diesel prices, with the average price nearly $2.00 less than a year ago.
Looking for Even Deeper Market Insights?
The question on everyone’s mind: When will the market truly flip and start heading toward higher freight volumes and tighter capacity? We’ll keep monitoring the labor dynamics, supply and demand balance, produce season trends, and all other freight market health indicators as we head into summer.
Follow the Redwood LinkedIn page to catch our Redwood Rundown videos on Tuesdays, plus coming soon you’ll be able to sign up for exclusive deeper weekly market insights via email on Wednesdays. And keep checking back to our insights blog for these weekly deep dives.