KANSAS CITY, MO. — Transportation capacity and costs have somewhat normalized since the unprecedented supply chain challenges that emerged during the height of COVID from 2020-22, but the dynamic industry continues to experience fluctuations, especially when drilling down to specific sectors.

The broad view is increased truck and ocean freight capacity has been favorable for shippers in driving down freight rates while rail rates have varied. Rising fuel prices, which generally are passed on to shippers, have added to shipping costs across all transportation modes.

Barge traffic, and subsequently US grain and soybean exports, are being challenged by low water levels on the lower Mississippi River. Panamax ocean-going vessels, meanwhile, are facing low water levels through the Panama Canal. Railroads are performing well, but forecasts of a hard winter could bring challenges in the months ahead.

On a broad scale, the September Logistics Managers’ Index (LMI) released in early October was 52.4, up from 51.2 in August and compared with 61.4 in October 2022. It was the second consecutive monthly increase after declining for six consecutive months (five of which were new lows) to an all-time low of 45.4 in July and indicated the strongest growth in the logistics sector in seven months. The highest index of 76.2 was posted in March 2022. The September index was the highest since February, with the increase “fueled by continued growth in the warehousing market, increased inventory costs and some signs of green shoots emerging in the transportation industry,” according to index researchers.

Prices of another major cost component — diesel fuel — have been moving higher since June but remain below year-ago levels. Retail on-highway average diesel fuel prices from the Energy Information Administration of the US Department of Energy have reflected recent gains in crude oil prices that have moved modestly above year-ago levels. The US average diesel price for the week ended Oct. 9 was $4.50 per gallon, up 15% from the summer low but down 14% from a year ago. Fuel surcharges added to truck and rail freight rates have moved in step with the on-highway average price.

Ocean freight available

Ocean freight rates, both for bulk and container, are down sharply from record highs posted during the COVID period, and that isn’t expected to change significantly any time soon. China still is a key player in determining the course of the ocean freight market, as it did during COVID.

“Ocean freight owners are crying in their soup,” said Jay O’Neil, HJ O’Neil Commodity Consulting, noting that current dry bulk rates are below those of 20 years ago in large part because China still hasn’t “come back” into the market. “We’re still waiting on the great China re-opening.”

Despite the decades-low rates, bulk freight rates have “started to wake up,” O’Neil said. Rates have increased slowly over the past three months, and they are “cautiously” expected to move higher in 2024.

Compared with dry bulk carriers, the container market is vastly different as the result of ship owners’ reactions during COVID.

Container owners “shot themselves in the foot the last couple of years,” O’Neil said.

High freight rates during COVID resulted in record-high profits for container owners. One way to avoid taxes was to build more ships, and container ship owners ordered 20% to 25% additional capacity. Since vessels take one to two years to build, that capacity just now is coming online as cargo demand is down and freight rates are at 20-year lows.

Truck rates favor shippers

The trucking industry is experiencing the likely end of the COVID bullwhip effect.

Since COVID, carriers have fortified both their fleets and their staff through significantly enhanced sign-on bonuses, salary increases and expanded capacity. But now the industry feels saturated with capacity.

“It’s an interesting time because things are bouncing along the bottom from a demand and trucking standpoint,” said transportation analyst Jim Ritchie, president and CEO of RedStone Logistics, Olathe, Kan., and an instructor of supply chain management at the University of Kansas School of Business.

Ritchie said truckload prices are down overall, and spot prices are considerably lower than the contract market. In some cases, carriers were operating at a cost-per-mile level that was unsustainably below their operating costs.

Finding a pricing balance was proving to be difficult with diesel fuel prices steadily rising, though still well below the record high of $5.81 per gallon set in June 2022. Ideas are diesel fuel prices are likely to sustain if not rise, especially with the recent conflict in the Middle East inserting more volatility into the crude oil market.

Another supportive pricing element was the higher driver salaries, including higher rates carriers committed to paying during the pandemic.

Ritchie said he thought a leveling in transportation labor costs was ultimately a good thing for both the trucking industry and shippers.

Overall, shippers are experiencing a mostly favorable period concerning ocean and truck freight rates, challenging barge freight rates and “as expected” rail rates that tend to systematically increase.

– Read even more about the state of the supply chain in a special report from Food Business News.