Chicago economy

Supply chain relief sparks row over degree of slowdown in US economy

Some supply tensions in the United States are easing, two years after a surge in demand began to empty shelves, rumble shipments and sow the seeds of runaway inflation.

The queue of 25 cargo ships bound for Southern California’s two major ports is less than a quarter of January’s record backup, and spot container rates have fallen nearly 20% this year. Flexport Inc.’s average transpacific sea voyage of 102 days is the fastest since November. According to Hapag-Lloyd AG, delays in moving containers out of railroad depots in Detroit and Memphis are shorter than they were in September.

But for every sign that a cooling economy will give supply chains a chance to rebalance, there’s reason to be skeptical. On the East Coast, ship bottlenecks are being reconstituted. Container dwell time continues to increase at rail yards near Chicago and Kansas City. At 9.6 days in April, the wait to transport goods by rail from nearby ports of Los Angeles and Long Beach was the longest since July.

The confused picture is divide the observers. For some, logistical ties between factories and consumers will be strained again when China allows factories to operate at full capacity. Others sense the onset of a longer-term weakening in demand for goods as inflation erodes purchasing power and spending on services rises.

Howe Wallace is on another side – those who have given up guessing.

“I’ve stopped speculating about what’s going to happen next year,” said Wallace, president and CEO of PalletOne Inc., based in Bartow, Fla., a large producer of wood pallets. He said business is “still quite strong” but the next few months are “too uncertain to call”.

Watching the pallet market is one way to track the underground strength of the economy. Here are some obscure gauges from the supply chain world that give clues to how much of a downturn is to come:

Product packaging

An often overlooked business indicator is the demand for product packaging – corrugated boxes. According to a Bloomberg Green Markets survey that provided data for the past nine months, packaging producer sentiment has recently turned negative after remaining mostly strong for the past two years.

During the pandemic, the demand for cardboard packaging was so high that the time from order to delivery peaked at 22 days in February. With shrinking order books, the lead time fell three days last month to 14, and industry players believe it could fall below 10 days by July, according to the Bloomberg analyst Intelligence, Ryan Fox.

Experienced industry managers see corrugated packaging as the proverbial canary in the coal mine, but that may not be flat yet.

“They think packaging is a leading indicator of the economy because a lot of products are shipped in boxes,” Fox said. “And yet, some see the drop in demand as a necessary respite. They’ve been killing each other for two years, so the return to normal is welcome.

Flatbed trucks

Another real-time boost to physical commerce is the current rate of freight moving on flatbed trucks, excluding fuel surcharges, which is down only about 3% from its peak a year ago. according to Lee Klaskow, senior logistics analyst at Bloomberg Intelligence. These rates are still almost 57% higher than they were in May 2019.

Flatbed trucks move a lot of heavy machinery, industrial components, and home building materials.

“Things are moderating but will still be better than before the pandemic,” Klaskow said.

Some smaller hauliers that have entered the market recently and are now facing crippling diesel costs will be forced out of business during a one-time freight market correction, although the contract market has held up much better, Klaskow said. Contracted rates for flatbed trucking excluding fuel surcharges rose 3.7% in April from a 13.1% increase in April 2020, he added.

Freight trains

Former Federal Reserve Chairman Alan Greenspan liked to study old-school numbers like scrap prices and railroad shipments. Consumers have been buying a lot of goods since the start of 2020, so it’s always instructive to keep an eye on how much bulk goods and products are still criss-crossing the country on trains.

North American rail volume in the first 20 weeks of 2022 totaled 13.5 million railcars and intermodal units, down 3.8% from a year earlier, according to Association data. of American Railroads. So far this year, intermodal volumes – those goods traveling by sea, road and rail – have largely mirrored 2019 levels, but tracked 2021 traffic amid continued congestion.

According to Bloomberg Intelligence, the four-week moving average of train speeds slowed by 5%, while dwell time increased by 9%.

The slowness does not seem to stop in the short term. China’s shutdowns could pose challenges for U.S. rail operators in the coming weeks, as shipping containers from Asia are already flooding ports, according to Klaskow.

Shipping pallets

At Virginia Tech, home to the nation’s leading pallet engineering lab, they claim “pallets move the world,” and that’s not really a stretch considering there are nearly 2 billion of them alone. ‘in the USA.

As purchases of goods have exceeded spending on services over the past two years, prices for new wooden pallets – the basis of a so-called unit charge – have jumped 59% nationwide since the beginning of 2020 and continue to increase.

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Chaille Brindley, editor of the Pallet Profile, says demand is still strong. “Pallet manufacturers and recyclers remain very busy. Many are worried about a slowdown that could occur. But they haven’t seen it happen yet,” he wrote in a market report this month.

Higher transportation costs, severe labor shortages and buoyant demand are keeping pallet prices high. For example, in the mid-Atlantic region, a premium used pallet may sell for $12-13, but in the West, the price may be $18-20 if you can find them, depending Brindley.

In some areas, this is almost double the pre-pandemic cost.