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January 2 2023

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US retail inventories rising from pandemic trough Average ratio of inventories to sales among US retailers and manufacturers 1.0 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 L L Jan 2022 Jul Jan 2021 Jul Jan 2020 Jul Retail Manufacturing Manufacturing 1.48 f t i 1 48 Retail 1.2 .2 US Jan, 2022 an 2022 1.9 Source: US Census Bureau © 2022 S&P Global Januar y 2, 2023 | Journal of Commerce 11 Cover Story to keep trailers full and gain market share by lowering prices, while others cut capacity and announced temporary layoffs, said Satish Jindel, president of SJ Consulting Group. Transportation pricing will con- tinue to slide from the all-time highs of 2021 this year, but shippers aren't likely to recover all pandemic-era price hikes. For one, outside of some retail sectors, freight demand hasn't fallen that much. In October, for-hire truck tonnage slipped 2.3 percent from September but was still 2.8 per- cent higher than in October 2021, according to data from the American Trucking Associations (ATA). "Factory-related freight is holding up better than other areas," though those shipments are also decelerating, said Bob Costello, chief economist at the ATA. 'Ebbs and flows' The return of some measure of seasonality to shipping in 2022 was a silver lining for US logistics manag- ers amid otherwise gloomy forecasts about the US and world economies. US trucking companies and their shipper customers began to see sea- sonality — i.e., the month-to-month ups and downs in volume that were typical of the pre-pandemic era — reassert itself by mid-2022. That's a sign that freight mar- kets, at least on land, were begin- ning to behave more normally. But normalization is very much in the eye of the beholder. Tucker, for example, said the trucking industry needs to reas- sess its idea of what constitutes a "normal" market. "Normal is a state of equilibrium that gets interrupted by a capacity crisis every couple of years," he said. "We need to be ready for ebbs and flows." During the pandemic, it's been all flow and no ebb for shippers. A global economic slowdown or reces- sion may paradoxically help logistics managers by relieving the incessant On land, spot US truckload rates plummeted throughout 2022 but appear to be settling above "normal" pre-pandemic levels. National average monthly dry-van spot rates, including fuel surcharges, hit a high of $3.11 per mile in January before dropping to $2.38 per mile in November, accord- ing to DAT Freight & Analytics. That was still about $0.18 per mile higher than in November 2019 and $0.32 per mile higher than in May 2020, but below spot truckload pricing levels reported in 2018, the strongest trucking market of the pre-pandemic era. DAT and others predict the truckload spot market will hit bot- tom by mid-2023, or earlier. "We believe the bottoming process is beginning as spot rates are now further below costs than ever before," Tim Denoyer, senior analyst at ACT Research, said in November. Less-than-truckload (LTL) rates have proven more resilient. That's largely because the LTL market is much smaller than the truckload sec- tor, accounting for about $50 billion in for-hire trucking revenue in 2021, according to SJ Consulting Group. Softer demand in the second half of 2022 led to some rate discounting, however, as some LTL carriers tried Given the long arc of a normal- ization that has only just begun, going forward, "the key is to build resilient supply chains and transpor- tation partnerships," Tucker said. Expected correction One area in which normalization seems to be occurring is pricing, an area that makes for a fitting tip of the spear. After all, abnormal activity drove spot pricing on land and ocean to record highs in 2021. However, 2022 saw those short-term rates implode in a multi-modal pricing correction. Container shipping spot rates were expected to hit 2019 levels by the end of 2022 as vessel demand weakened faster than expected and port congestion eased, according to global bank HSBC. The eastbound trans-Pacific trade in the next few months will face a "hard landing," marked by declining freight volumes and spot rates, with a recovery occurring by peak season 2023 at the earliest, according to Lars Jensen, CEO of consultancy Vespucci Maritime and a Journal of Commerce analyst. In a more "pessimistic" scenario, that recovery may not take place until Lunar New Year 2024, Jensen said during a Journal of Commerce webcast in December. Even though spot rates have dropped from an early 2022 high of $14,000 per FEU, according to some rate indexes, to $2,000 per FEU, this does not mean a rate war is underway. "That's a normalization of rates," he said. 2023 ANNUAL REVIEW & OUTLOOK "We're not seeing things go back to the way they were, but we're seeing a more normalized trend."

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