Supply chain diversification apparent in freight market

Chart of the Week: Outbound Tender Volume – by region SONAR: OTVI.URWT, OTVI.URSW, OTVI.URNE, OTVI.URSE, OTVI.URNW, OTVI.URMP, OTVI.URNW

In comparison with June 2019, regional outbound freight demand has shifted noticeably to the Eastern half of the U.S. based on shipper requests for capability (OTVI). The Southwest region, which incorporates Texas, has captured many of the growth while the freight-starved Northwest has deteriorated essentially the most when it comes to percentage change. 

A few of this movement might be attributed to the post-pandemic economic fallout as supply chains turn out to be unkinked and consumption patterns stabilize. But there is unquestionably a sustainable shift in how freight is distributed domestically. 

First off, we have now to acknowledge that we are likely to speak about 2019 prefer it was last yr as a consequence of the incontrovertible fact that it was what many consider the last “normal” yr before COVID-19 took us on a wild economic roller coaster ride. It was in reality 4 years ago, meaning that even during stable periods, patterns change over such a length of time — although the pandemic has definitely accelerated this recent shift.

The warmth map above shows each region color-coded from darkest blue (highest outbound demand) to white (lowest outbound demand). The Midwest originates essentially the most freight, with the Northwest and Mountain Prairie regions having the least. 

The Southwest region averaged about 11% less demand in 2019 than the West Coast. That has flipped in the primary half of 2023.

Inventory offloading

Inventory correction probably accounts for a certain portion of the shift as many firms have slowed their ordering now that they will receive goods on a more predictable cadence and consumption has slowed.

This activity would naturally reduce the quantity of freight coming out of the West since that’s the nation’s largest entry point for goods from overseas. While there are still many firms with inventory to shed, the nation’s largest retailers are reportedly near being where they need to be.

The newest Logistics Managers’ Index inventory level component shows a slight contraction with a worth of 49.5 — values below 50 show contraction, those above 50 show expansion. That’s a stark contrast to a yr ago after they were expanding rapidly with values over 70.

Now that inventories are more consistent with demand, a few of the ordering patterns have remained relatively sticky. customs data that measures container volumes entering the ports, Port Houston inbound container volumes (CSTEU.USHOU) have doubled versus June 2019. The Southern California ports of Long Beach (CSTEU.USLGB) and Los Angeles (CSTEU.USLAX) have contracted when added together.

Diversification redistributes freight

There’s a push for supply chain diversification within the post-pandemic world. Procurement teams are being pushed to search out multiple sources to hedge their exposure to risk of supply chain disruptions. One in all the byproducts of that is freight patterns shifting away from what has been the predominant path for the flow of products within the U.S.

There’s actually more nuance to this outside of the West Coast demand erosion. Throughout the region itself, patterns are also changing. 

Phoenix, once a market where carriers couldn’t buy freight to hold, is an up-and-coming outbound market, though inbound volumes still outweigh the outbound. Outbound tender volumes for Phoenix are up 66% versus June 2019, while the distribution-centric Ontario, California, market has eroded 14%. If this trend continues, the once easy-to-manage market could also be more exposed to service risks. 

The underside line is even in a particularly loose trucking market, underlying changes are occurring. Once capability falls into closer alignment with demand, transportation providers can have some latest puzzles to resolve in network management. Transportation managers will want to observe these pattern changes to be ahead of their service and value risks.

In regards to the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that gives an interesting data point to explain the state of the freight markets. A chart is chosen from hundreds of potential charts on SONAR to assist participants visualize the freight market in real time. Each week a Market Expert will post a chart, together with commentary, live to tell the tale the front page. After that, the Chart of the Week will probably be archived on FreightWaves.com for future reference.

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