Over the last six months, we have engaged with five separate shippers that are searching for an alternative to their current TMS system due to the software being discontinued. In general, these are products that have been in the market for some time and have been relevant players. This type of news forces priorities to change as efforts focus on identifying a stopgap or a new TMS platform altogether. The result? 2023 priorities get pushed out. The top three questions when time is money:
The decline in ocean container rates is being driven by a number of factors, with one being a slowdown in the production of goods. In China to U.S. trade-in inbound Ocean containers, the volume has dropped significantly. Factors include the continued Covid-19 policy by the Chinese government that includes lockdowns and continued nationwide precautions that are keeping factories working. Imports into China have also been waning as oil and liquified gas demand falls to 2018 levels. Noted by Greg Miller, American Shipper, the positive view is that the lower demand for raw materials in China is only temporary. The positive news for U.S. importers is budget in 2023 may actually hold true.
The news was too good to be true: diesel prices settled at an $4.83 average price per gallon at the end of September, maintaining the downward trend from June’s high mark of $5.75 per gallon. What changed to dramatically increase the cost of diesel to $5.22 during the first week of October? The change was OPEC’s announcement that it would cut its production target. As a result, the cost of diesel increased to its highest level since July.
The production cut announced by OPEC and Russia amounts to 2 million barrels a day. Oil is currently stabilized in the $90 a barrel range which should support diesel returning to a realistic price level and resuming a downward trend to a lower price per gallon. Keeping fuel prices elevated for any length of time may be more about limited refinery capacity and increases in diesel exports. Today, U.S. oil refineries are running at 91% capacity which is traditionally high with fall typically used for maintenance time resulting in less available capacity.
Despite the best efforts of rising diesel cost, the Rockfarm truckload index illustrated its 8th consecutive month of decline in the rate per mile. Midway through October we are at $2.83 cost per mile, the lowest recorded cost since February of 2021.
As we push through Q4, clarity to what lies ahead in 2023 is still not clear. It seems that most economists are leaning toward gloom in 2023. We are seeing positive indicators, such as manufacturing strength that may be viewed as keeping us on an even keel through 2023. In any case, we see certain trends indicating companies are working toward mitigating risk in supply chains. The trends include near-shoring initiatives, deep assessments into the supply base, and implementation of cost control measures that include improvement in technologies.
The leading initiatives we are seeing from shippers evolve around three focus points: 1) improvements in demand planning 2) inventory management and 3) reducing freight expense. Each of the initiatives involves newer technologies that are required to integrate with older ERP platforms or enhance standing technologies such as warehouse management and transportation management systems. In both cases, the availability of standalone technologies that are readily available for deployment has never been greater.
The capital infusion of private equity companies into supply chain technologies over the past 10 years has spurred a great deal of investment. The question at hand is will the investment be curtailed due to higher interest rates? As the cost of investment increases due to higher interest rates, prioritization on technologies will begin to “shake out” the players that have the wherewithal to continue to grow and compete. The reality? Supply chain technology is now positioned as a requirement to do business. Selection of the right technology is critical to move manufacturers, distributors, truck brokers and logistics service providers alike to greater heights as we look forward to 2023.
For more information please reach out to our Supply Chain Coach team.
Brad’s journey into logistics began as a Marine Officer and transitioned from the LTL docks to the non-asset side within the logistics service provider arena. As a co-founder of Rockfarm, Brad drives our business development efforts and delivery of our promise. An Arizona native, Brad enjoys spending time outdoors in his home state with his wife and family.
“Our approach to the market allowed us an opportunity to push forward in 2008 and enable our mission, “lower the cost to serve” to stand as a cornerstone to our company today.”
Sanicola, Laura. (2022 October). Explainer: Why are U.S. fuel prices rising again? Will they keep going up?
Gourinchas, Pierre-Oliver. (2022 October). Policymakers Need Steady Hand as Storm Clouds Gather Over Global Economy
Hoover, Bert. (2022 October). Kroger Acquires Albertsons for $25 Billion: How Will It Affect the Consumers?
Bureau of Labor Statistics. (2022 October). Consumer Price Index
Maritime Executive. (2022 October). Container Lines Blank Sailings Bring Capacity Back to 2019 Levels
Miller, Greg. (2022 September). Shipping’s China Syndrome: Demand sinks across multiple cargo markets
Wolf, Connor. (2022 October). Bison Transport Acquires Pottle’s Transportation