Freight Volumes Affecting Logistics Economy

freight volumes container feature

Freight volumes are still challenged, driving down prices, based on two indices that track them (credit: Erwan Hesry on Unsplash)

Freight volumes are continuing to operate in negative territory, with two closely watched indices showing contraction in the market as demand for goods including consumer products for retail and ecommerce remain challenged ahead of Q4 restocking.

As of today, the Freightos Baltic Index, which measures freight volumes and prices globally, lists average daily spot rates from China/East Asia to the U.S. West Coast at $1,324 per 40-foot container, down from more than $14,000 a year ago. For shipping a container from Asia to Europe, the rate has fallen from nearly $11,000 a year ago to $1,319 today.

The average spot rate in the index for shipments from China/East Asia to the East Coast are higher, at $2,351, reflective of the volume shift from the west coast. The index does not cover shipping to U.S. Gulf Coast ports.

While spot rates are roughly the same as the pre-pandemic year of 2019, the Wall Street Journal reports, because labor and energy costs have grown dramatically, the bottom line of carriers have been squeezed, leading to more canceled sailings.

And for the third consecutive month, the Logistics Managers’ Index (LMI) hit a new all-time low of 47.3 for May, down 3.6 points from April and operating in contraction territory for the first time.

The LMI is compiled by supply chain experts from Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP). It’s a combination of eight components including inventory levels and costs; warehousing capacity, utilization and prices; and transportation capacity, utilization and prices.

Any figure above 50 indicates the logistics industry is expanding, while a reading below that indicates contraction.

Transportation utilization was down 9.5 from April to 45.5, impacted by falling freight volumes, while transportation prices were down 8.9 to 27.9, the biggest decline since the LMI was created in early 2017.

“Taken together, it would appear that the glut of available capacity has driven down utilization and prices,” the LMI report stated. “There is little hope of a reprieve for carriers in the form of restocking inventories. Inventory levels dropped 1.5) to 49.5, the first time that inventories have been in contraction territory since February 2020.”

The report noted that the index figure for downstream retail inventories, i.e., what’s on hand in retailers’ networks, was in positive territory at 54.4, but upstream inventories (manufacturers and wholesalers) are contracting, with a figure of 46.7.

The cost of warehousing services is in growth mode at 62.8, but down by 7 points from April, and at the lowest level since June 2020. “These are likely to continue to come down as more long-term contracts signed during 2020 and 2021 continue to come off the books,” the report noted.

Another metric from LMI, covering aggregate logistics prices, is just above the contraction level of 150, at 155.1, the lowest point since the index was launched. It’s a composite of inventory costs, warehousing prices and transportation prices. The reading is down 85.7 points from a year ago and down 116.2 from the all-time high in March 2022.

“While the continued contraction has been tough on carriers, there is strong evidence that decreased logistics costs have contributed significantly to the slowdown in overall U.S. inflation,” the report noted. “As logistics prices come down and eventually moderate, we could see inflation continue to moderate, which may lead to a slowdown in interest rates and eventual recovery in the freight market. It appears that we will have to hit the bottom before a rebound can occur. The questions now are where that bottom is, and whether or not we are getting close to it.”