After rates rose and plunged dramatically in 2010, shippers will see more stability this year. Increases in capacity will outpace volume, keeping rates from rising.
Paul Svindland is a managing director in the enterprise improvement group and co-leads the transportation and logistics practice of AlixPartners, a global business advisory firm.
Ocean shipping often seems like a roller coaster ride, with rates and capacity rising and falling in rapid succession. Shippers' and carriers' experiences over the last two years certainly fit that pattern, but the situation is likely to stabilize somewhat through the end of this year and into 2012.
After an abysmal 2009, containerized ocean carriers were "bullish" in 2010. Initially, they had good reason to be as demand continued strong after the Chinese New Year in mid-February and through early summer. In some trade lanes, rates rose by more than 50 percent, and the future was looking bright for ocean carriers. But then, after a weak peak season and softened demand in the fall, rate levels began to decline again, albeit not nearly as badly as in 2009. Now in 2011, rates have stabilized somewhat but are still nowhere near the level that carriers were hoping for.
Indeed, in April of this year, large importers and ocean carriers were scurrying to negotiate trans-Pacific rates in time for the industry-standard May 1 contract period. Unfortunately for the carrier community, it appears as though rate levels will be down at least 10 percent (excluding bunker fuel surcharges) in the trans-Pacific eastbound trade. Much smaller reductions are expected in the more balanced trans-Atlantic trade.
As for other important trends in ocean shipping for the remainder of 2011 and early 2012, we expect that U.S. container imports and exports will continue to grow. Most analysts agree that growth will range between 3 and 4 percent on trans-Atlantic lanes and about 8 to 9 percent on trans-Pacific lanes. As the U.S. economy continues its recovery, export growth should level off, but this will occur only if the U.S. dollar strengthens, as many economists are predicting.
Building up capacity
Although carriers are continuing to engage in slow steaming and other cost-cutting practices that will impact the supply-demand balance, most analysts still expect that growth in vessel capacity will outstrip demand. In the trans-Pacific trade, for example, "new build" capacity is expected to increase by 15 percent even though volume growth is forecast to only reach the high single digits.
Nevertheless, the top 10 ocean carriers have a combined 2.3 million TEUs (20-foot equivalent units) of capacity on order—and this figure does not include the substantial options for additional orders that have not yet been exercised.
Why so much building right now? Carriers are taking advantage of the easing liquidity and looser credit markets as well as favorable prices for new ship construction, which allows them to resume the aggressive building programs they had largely halted during the recession.
Another factor that will encourage a capacity-demand imbalance is that carriers continue to make most of their investments in ultra-large ships that can only be deployed in the Asia- Europe trade lanes. As a result, the large vessels they replace will move to the Asia-North America (trans-Pacific) trade lanes, further increasing capacity.
Why would ocean carriers choose to deploy these ultra-large vessels if they result in capacity outweighing demand? Carriers that have the financial capabilities to procure ultra-large vessels will enjoy continued trading advantages versus their competition due to economies of scale. Maersk, for example, recently announced that it had ordered 10 18,000-TEU triple- E class vessels. These ships are projected to cut 20 percent to 30 percent of that company's transportation cost. Moves such as this could drive additional consolidation in the industry because carriers that operate very cost-efficient vessels may gain so much advantage that other carriers may no longer be able to compete.
Not enough containers
Even though there is plenty of vessel capacity available, some shippers can expect to experience shortages of another type: a lack of containers. For example, exporters shipping from inland locations may have trouble finding containers as carriers increasingly are looking to turn their equipment closer to the ports in order to cut down on costs. This means there will be less equipment for companies that export from inland points unless they commit to covering the containerpositioning costs through higher rates. We already are seeing this play out in such areas as the Ohio Valley, where exports are booming but exporters are having a tough time getting carriers to commit equipment for outbound loads without a rate premium.
Shippers should also expect some service challenges related to container pickup and delivery while the industry transforms the way container chassis are handled and managed. No longer will chassis be the responsibility of the ocean carrier; instead the burden of providing, managing, and maintaining that equipment will fall on the drayage and intermodal carriers as well as on the chassis-leasing companies. During this period of transition, carriers and terminals will look to push chassis out of expensive waterfront property. Meanwhile, there is still not a clear replacement strategy in place, nor does anyone know how the labor unions will react to losing profitable maintenance and repair work should chassis leave the terminals. All of that can lead to disruptions in the availability and flow chassis.
Longer term, this development could increase costs for leasing companies and truckers, which will now be saddled with the maintenance and repair expenses as well as labor and lease costs associated with storing chassis. Until now, much of this cost has been bundled into terminal expenses and covered by the terminals and carriers. Leasing companies and dray providers will eventually look for shippers to lift the burden of this additional cost.
All of these trends are important, but in the end, the main thing for shippers to understand is that capacity remains greater than demand, and that will continue to put downward pressure on rates. Until supply and demand become more balanced, the only "bulls" out there are likely to be the shippers.
New Jersey is home to the most congested freight bottleneck in the country for the seventh straight year, according to research from the American Transportation Research Institute (ATRI), released today.
ATRI’s annual list of the Top 100 Truck Bottlenecks aims to highlight the nation’s most congested highways and help local, state, and federal governments target funding to areas most in need of relief. The data show ways to reduce chokepoints, lower emissions, and drive economic growth, according to the researchers.
The 2025 Top Truck Bottleneck List measures the level of truck-involved congestion at more than 325 locations on the national highway system. The analysis is based on an extensive database of freight truck GPS data and uses several customized software applications and analysis methods, along with terabytes of data from trucking operations, to produce a congestion impact ranking for each location. The bottleneck locations detailed in the latest ATRI list represent the top 100 congested locations, although ATRI continuously monitors more than 325 freight-critical locations, the group said.
For the seventh straight year, the intersection of I-95 and State Route 4 near the George Washington Bridge in Fort Lee, New Jersey, is the top freight bottleneck in the country. The remaining top 10 bottlenecks include: Chicago, I-294 at I-290/I-88; Houston, I-45 at I-69/US 59; Atlanta, I-285 at I-85 (North); Nashville: I-24/I-40 at I-440 (East); Atlanta: I-75 at I-285 (North); Los Angeles, SR 60 at SR 57; Cincinnati, I-71 at I-75; Houston, I-10 at I-45; and Atlanta, I-20 at I-285 (West).
ATRI’s analysis, which utilized data from 2024, found that traffic conditions continue to deteriorate from recent years, partly due to work zones resulting from increased infrastructure investment. Average rush hour truck speeds were 34.2 miles per hour (MPH), down 3% from the previous year. Among the top 10 locations, average rush hour truck speeds were 29.7 MPH.
In addition to squandering time and money, these delays also waste fuel—with trucks burning an estimated 6.4 billion gallons of diesel fuel and producing more than 65 million metric tons of additional carbon emissions while stuck in traffic jams, according to ATRI.
On a positive note, ATRI said its analysis helps quantify the value of infrastructure investment, pointing to improvements at Chicago’s Jane Byrne Interchange as an example. Once the number one truck bottleneck in the country for three years in a row, the recently constructed interchange saw rush hour truck speeds improve by nearly 25% after construction was completed, according to the report.
“Delays inflicted on truckers by congestion are the equivalent of 436,000 drivers sitting idle for an entire year,” ATRI President and COO Rebecca Brewster said in a statement announcing the findings. “These metrics are getting worse, but the good news is that states do not need to accept the status quo. Illinois was once home to the top bottleneck in the country, but following a sustained effort to expand capacity, the Jane Byrne Interchange in Chicago no longer ranks in the top 10. This data gives policymakers a road map to reduce chokepoints, lower emissions, and drive economic growth.”
It’s getting a little easier to find warehouse space in the U.S., as the frantic construction pace of recent years declined to pre-pandemic levels in the fourth quarter of 2024, in line with rising vacancies, according to a report from real estate firm Colliers.
Those trends played out as the gap between new building supply and tenants’ demand narrowed during 2024, the firm said in its “U.S. Industrial Market Outlook Report / Q4 2024.” By the numbers, developers delivered 400 million square feet for the year, 34% below the record 607 million square feet completed in 2023. And net absorption, a key measure of demand, declined by 27%, to 168 million square feet.
Consequently, the U.S. industrial vacancy rate rose by 126 basis points, to 6.8%, as construction activity normalized at year-end to pre-pandemic levels of below 300 million square feet. With supply and demand nearing equilibrium in 2025, the vacancy rate is expected to peak at around 7% before starting to fall again.
Thanks to those market conditions, renters of warehouse space should begin to see some relief from the steep rent hikes they’re seen in recent years. According to Colliers, rent growth decelerated in 2024 after nine consecutive quarters of year-over-year increases surpassing 10%. Average warehouse and distribution rents rose by 5% to $10.12/SF triple net, and rents in some markets actually declined following a period of unprecedented growth when increases often exceeded 25% year-over-year. As the market adjusts, rents are projected to stabilize in 2025, rising between 2% and 5%, in line with historical averages.
In 2024, there were 125 new occupancies of 500,000 square feet or more, led by third-party logistics (3PL) providers, followed by manufacturing companies. Demand peaked in the fourth quarter at 53 million square feet, while the first quarter had the lowest activity at 28 million square feet — the lowest quarterly tally since 2012.
In its economic outlook for the future, Colliers said the U.S. economy remains strong by most measures; with low unemployment, consumer spending surpassing expectations, positive GDP growth, and signs of improvement in manufacturing. However businesses still face challenges including persistent inflation, the lowest hiring rate since 2010, and uncertainties surrounding tariffs, migration, and policies introduced by the new Trump Administration.
As U.S. businesses count down the days until the expiration of the Trump Administration’s monthlong pause of tariffs on Canada and Mexico, a report from Uber Freight says the tariffs will likely be avoided through an extended agreement, since the potential for damaging consequences would be so severe for all parties.
If the tariffs occurred, they could push U.S. inflation higher, adding $1,000 to $1,200 to the average person's cost of living. And relief from interest rates would likely not come to the rescue, since inflation is already above the Fed's target, delaying further rate cuts.
A potential impact of the tariffs in the long run might be to boost domestic freight by giving local manufacturers an edge. However, the magnitude and sudden implementation of these tariffs means we likely won't see such benefits for a while, and the immediate damage will be more significant in the meantime, Uber Freight said in its “2025 Q1 Market update & outlook.”
That market volatility comes even as tough times continue in the freight market. In the U.S. full truckload sector, the cost per loaded mile currently exceeds spot rates significantly, which will likely push rate increases.
However, in the first quarter of 2025, spot rates are now falling, as they usually do in February following the winter peak. According to Uber Freight, this situation arose after truck operating costs rose 2 cents/mile in 2023 despite a 9-cent diesel price decline, thanks to increases in insurance (+13%), truck and trailer costs (+9%), and driver wages (+8%). Costs then fell 2 cents/mile in 2024, resulting in stable costs over the past two years.
Fortunately, Uber Freight predicts that the freight cycle could soon begin to turn, as signs of a recovery are emerging despite weak current demand. A measure of manufacturing growth called the ISM PMI edged up to 50.9 in December, surpassing the expansion threshold for the first time in 26 months.
Accordingly, new orders and production increased while employment stabilized. That means the U.S. manufacturing economy appears to be expanding after a prolonged period of contraction, signaling a positive outlook for freight demand, Uber Freight said.
The surge comes as the U.S. imposed a new 10% tariff on Chinese goods as of February 4, while pausing a more aggressive 25% tariffs on imports from Mexico and Canada until March, Descartes said in its “February Global Shipping Report.”
So far, ports are handling the surge well, with overall port transit time delays not significantly lengthening at the top 10 U.S. ports, despite elevated volumes for a seventh consecutive month. But the future may look more cloudy; businesses with global supply chains are coping with heightened uncertainty as they eye the new U.S. tariffs on China, continuing trade policy tensions, and ongoing geopolitical instability in the Middle East, Descartes said.
“The impact of new and potential tariffs, coupled with a late Chinese Lunar New Year (January 29 – February 12), may have contributed to higher U.S. container imports in January,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “These trade policy developments add significant uncertainty to global supply chains, increasing concerns about rising import costs and supply chain disruptions. As trade tensions escalate, businesses and consumers alike may face the risk of higher prices and prolonged market volatility.”
New York-based Cofactr will now integrate Factor.io’s capabilities into its unified platform, a supply chain and logistics management tool that streamlines production, processes, and policies for critical hardware manufacturers. The combined platform will give users complete visibility into the status of every part in their Bill of Materials (BOM), across the end-to-end direct material management process, the firm said.
Those capabilities are particularly crucial for Cofactr’s core customer base, which include manufacturers in high-compliance, highly regulated sectors such as defense, aerospace, robotics, and medtech.
“Whether an organization is supplying U.S. government agencies with critical hardware or working to meet ambitious product goals in an emerging space, they’re all looking for new ways to optimize old processes that stand between them and their need to iterate at breakneck speeds,” Matthew Haber, CEO and Co-founder of Cofactr, said in a release. “Through this acquisition, we’re giving them another way to do that with acute visibility into their full bill of materials across the many suppliers they work with, directly through our platform.”
“Poor data quality in the supply chain has always been a root cause of delays that create unnecessary costs and interfere with an organization’s speed to market. For manufacturers, especially those in regulated industries, manually cross-checking hundreds of supplier communications against ERP information while navigating other complex processes and policies is a recipe for disaster,” Shultz said. “With Cofactr, we’re now working with the best in the industry to scale our ability to eliminate time-consuming tasks and increase process efficiencies so manufacturers can instead focus on building their products.”