John Bevacqua (aka John B the ‘Freight Freak’) has been reporting in with supply chain news for quite a few years. As an expert, we look to him for the inside story – news from within the fulfillment industry. He serves as the VP of Logistics at a bi-coastal, medium sized fulfillment company – AMS Fulfillment.
For the past few months the supply chain news we hear from the mainstream media has been filled with dire predictions – shortages, breakdowns, food insecurity, higher costs. Our reports from John B have confirmed rising prices and shown us the adaptations that companies are making. But for the most part the supply chain is still intact, delivering our products with only a few scarcities.
Recently the magazine Supply Chain Drive featured President Biden speaking about foreign-owned shipping companies raising their prices and ‘profit taking’. The article states:
“The president is pushing lawmakers to approve the Ocean Shipping Reform Act of 2022, part of the administration’s plan to address rampant consumer price inflation that has reached a new 40-year high. The proposal would empower the Federal Maritime Commission to self-initiate investigations into carriers’ business practices and provide a pathway for shippers to seek financial relief when hit with unreasonable fees.”
Another article in Yahoo News tells us that trucking is getting cheaper. Quoting from the article:
“Shippers are finding it much easier to secure capacity to move their loads, with the outlook on capacity hitting the highest level since June 2020. They also noted their view on inventory levels “continue to rebuild.” About 10% of shippers expect rates to increase from 16%, while 58% expect pricing to be flat —which is up from 48% from the last survey — while 33% expect rates to fall.”
We’ve asked John B to bring us up to date on what he sees within the industry. Is it all bad news and dire predictions or is there good news as well?
The good news is… we are seeing a slight softening in the market contributing to lower costs and higher capacity. Ocean container costs have dropped by an average of 15-20% from Asia. The trucking industry for LTL and FTL has also dropped in some lanes close to the same. I believe this may last a couple more months, but as we move closer into Peak Season it’s a toss-up.
Typically, capacity tightens, and rates increase across the transportation sector before peak Oct-Dec. However, in the midst of a potential recession it becomes a question of market demand. As for this year, I believe the market will tighten and rates will rise again in the third and fourth quarter. Statistics show, that even in some past recessionary times the market demand still spiked during peak periods.
I don’t expect fees to go back as high as what we experienced late last year. The industry now has additional equipment and resources to service the demand. This was confirmed after speaking with Clarksons PLC, a leading provider of integrated shipping services, thus servicing many of the larger carriers. They explained that they’re not seeing a retirement of vessels at this time.
The bad news is, many industry leaders have said “We will never go back to the pre-covid pricing ever again.” Well, I believe Supply and Demand dictates pricing in almost every market in the US, especially transportation sector. If demand decreases the carriers will be forced to lower pricing to remain competitive to keep the equipment in service. If demand continues to shrink the carriers will be forced to retire the equipment reducing supply/capacity. Therefore, we may not ever see pricing as we did pre-covid again, but I believe at some point the market will correct and settle to something in between.
Keep options open and be sure to plan ahead to lower your risk.
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About the Freight Freak: John Bevacqua is the VP of Logistics at AMS Fulfillment. His area of excellence is in creating distribution and fulfillment operations that function as a capable interface between suppliers, retailers, and wholesale distributors. His experience includes developing and leading FedEx/ Kinko’s Distribution Services into the FedEx post acquisition, USA Wireless Technologies, and a top Logistics Management company. He has also worked with third party fulfillment companies, preparing him for his current position with AMS Fulfillment.