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"Why I believe a freight recession is imminent" - by CEO of FreightWaves ...and also... "Freight Market Crash Indicators" by AFT Dispatch, Inc.

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Is the freight market crashing? What are the most reliable freight market indicators of market demand? In this video we’ll explore the possibility of a freight market crash by looking at tender volume, tonnage, and tender rejection rates.

Having just closed out the 1st quarter of 2022, we had a pretty disappointing month of March. Normally, March is a very strong month, especially toward the end of the month because of the generally anticipated volume boost, sales, and inventory reductions with shippers stocking shelves for the summer.

Instead, this year we saw spot rates falling and volume dropping. There are several reasons for the trucking market crash being experienced by truckers all over the country. One reason is the spot market oversupply of trucking capacity, otherwise known as having too many trucks and not enough freight.

Consumer spending is also shifting from products and goods to services, travel, and entertainment. We saw this a couple of years ago as well and it also the freight market crashing. Something else that we have this year that we didn’t have in the past is extremely expensive gas which is leaving a whole lot less discretionary income that consumer can spend on products.

Inventories are simply too high and purchasing is slowing down on both the consumer and institutional levels. This leaves the freight market with too many trucks and not enough freight. This might seem counterintuitive but it actually make sense. If people aren’t buying products, then inventories don’t need to be replaced and will remain high. There is product available but it doesn’t need shipping and this is why our rates are plummeting.

Something that many new truckers are dealing with, are very high operating costs. I’ve spoken with truck drivers who have operating costs of $2.50 per mile which in my opinion is way too high…
…Furthermore, the surge of new entrants continues which drives rates further down. New companies don’t have much of a choice and brokers know this so they push these truckers to take their cheap freight…
Declining freight rates, tender volume, and high fuel cost plus large loans taken out by new trucking companies does not help one make money or even just stay afloat….

Video from:
AFT Dispatch, Inc. and A2C Logistics Co – Truck Dispatch & Leasing on Owner Operators

Freight Market Crash Indicators – What’s Happening to the Trucking Industry?
(7 minutes)



AFT Dispatch, Inc. and A2C Logistics Co – Truck Dispatch & Leasing on Owner Operators – Our professional dispatchers keep you loaded with the best loads at the highest prices.

Feb 4th – By AFT Dispatch – VIDEO
The American Trucker Convoy to DC 2022 Is in the Making – Here Are the Details!

Quick rendition:
Canada has approximately 35,000 to 60,000 owner operators.
In the U.S. we have over 350,000 owner operators and when we look at it from a slightly different perspective of small carriers plus owner operators we’re looking at a very, VERY LARGE number of folks.

”…when you combine all these the sheer numbers are absolutely astonishing!
We have over 500,000 trucking companies in the United States and here’s the interesting part: 80 percent of these companies are considered small, which means they have six trucks or less.
So the vast, vast majority of the entire trucking industry in the United States is comprised of small trucking companies.
And you bet! Most of these companies, many of these companies at least, would be taking part in such a convoy that’s being discussed. Here in this video today, now they’re in total over two million semi trucks on the road in the United States… …and what’s really interesting is that they’re really gathering steam quickly to a point where they’re beginning to worry some of the POWERS THAT BE….”

DEFINITION Drayage is a freight service that moves goods from one truck to another in a port or at a distribution center. It may also include the movement of goods from a supplier to a retailer, in the form of in-store deliveries. A drayman’s job is to transport cargo from the dockside or quay to warehouses, factories, and other destinations on land.

Friday Feb 11th – FreightWaves (trade publication) by Clarissa Hawes
Oakland truckers overwhelmed by looming CARB rule, supply chain obstacles
[ CARB – California Air Resources Board (CARB) Truck and Bus rule on emissions.]

Besides the daily challenges drayage truckers face to keep their small businesses afloat at the Port of Oakland, some are questioning whether they still will be operating this time next year. That’s because of an emissions rule in California that is requiring them to upgrade their trucks to include 2010 model year or newer diesel engines by the end of the year.

Bill Aboudi, president of AB Trucking in Oakland, planned to upgrade his aging fleet by replacing half of his trucks this spring and the remainder in the fall to comply with the California Air Resources Board (CARB) Truck and Bus rule deadline of Dec. 31.

Those plans are on hold for now, Aboudi said, as used truck prices continue to soar because of semiconductor shortages, which have caused larger fleets to hold on to their old equipment longer because of new truck order delays. He and other drayage companies typically buy their used trucks from over-the-road fleets, which are typically on a three-year depreciation schedule.

“I get asked about a possible CARB extension every single day by owner-operators,” Aboudi told FreightWaves. “CARB is creating uncertainty if they will be able to earn a living next year.”

The CARB rule covers all diesel vehicles with a manufacturer’s gross vehicle weight rating greater than 14,000 pounds.

Lynda Lambert, public information officer for CARB, said there is a provision in the Truck and Bus rule for new truck buyers who are experiencing manufacturer delays, but there’s no extension for California truckers who planned to buy used trucks but either can’t find one or can’t afford one because of supply constraints.

J.D. Power Valuation Services reported that used truck pricing in calendar year 2021 soared over 96% higher than in 2020 because of the chip import issues, which have drastically impacted the new truck market…

…He recently looked at a late-model truck with over 500,000 miles. The dealership was asking nearly $130,000, his initial budget to purchase three trucks….

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Why I believe a freight recession is imminent

Craig Fuller, CEO at FreightWaves

Last week, I published an article entitled “Just 3 years after 2019’s trucking bloodbath, another is on the way.”

For anyone who lived through the trucking debacle of 2019 – when carrier after carrier suddenly shut their doors – the thought of experiencing that again is truly frightening. After all, we lost some very large carriers during that period , including Celadon, Falcon and NEMF, just to name a few. In addition, we lost thousands of small and mid-sized trucking companies. In addition, major 3PLs conducted aggressive reductions in force.

Celedon shuttered operations one year ago.A Celadon truck sits after the company’s shutdown. (Photo: Jonathan Smith/FreightWaves)

The article stoked controversy. Some disagreed with my call and voiced it directly to FreightWaves or on social media. 

First off, different opinions and disagreements are part of a healthy market. When I started FreightWaves in 2017, the goal was to create transparency in the freight market, much like you see in the financial markets. In order to accomplish transparency, there needs to be an open dialogue between those of us interested in the direction of the freight market. 

When FreightWaves was just beginning, I was told by an editor at a major publication (who has been covering supply chains for many decades) that trucking rates were not volatile and they barely moved. I’m still not sure why he believed that, but I suspect he thinks differently now. 

Trucking has always been volatile. It is one of the most fragmented markets on the planet, with few barriers to entry. Carriers come and go. Booms are followed by busts. The typical trucking cycle is three years and usually what kills it is oversupply – too many trucks chasing high-paying spot freight and high load volumes. 

The problem is that capacity expansion always continues well past the peak and can even continue for a time after the market has entered a recession. In the bloodbath of 2019, the peak of the market took place during the second quarter of 2018. However, it wasn’t until September 2019 that the number of new entrants into the trucking market peaked.  

Another trucking bloodbath imminent? (Photo: Jim Allen/FreightWaves)Another trucking bloodbath imminent? (Photo: Jim Allen/FreightWaves)

FreightWaves always calls market moves early 

At FreightWaves, our business is benchmarking, analyzing, monitoring and forecasting freight markets. And much like financial market information services providers, having the freshest insights into the market is incredibly important to our success. 

FreightWaves tends to call inflection points much earlier than other industry observers. It’s a big part of the value we provide our audience and clients.

On Feb. 27, 2020, we warned that the freight market was about to see a massive disruption due to COVID, and that it wasn’t factored into historical data or market sentiment. This was two weeks before the “NBA and NHL moments,” when those sports leagues called off their seasons. At that point, most believed that the U.S. would avoid disruptions from COVID. Unfortunately, two weeks later, the worst health crisis in modern American history began. 

That’s the disadvantage of looking strictly at historical data and shows why having the most up-to-date data in the market is critical, particularly in a market as volatile as the trucking freight market. 

As I wrote back then: “The coronavirus is a black swan event not reflected in historical data. These unforeseen events make it clear why near-time data is crucial for freight operations.”

It turned out that FreightWaves’ analysis was correct and anyone relying on historical data or data without context was going to be wrong. 

Throughout the COVID disruption, FreightWaves continued to provide real-time data and to analyze the trucking market with the freshest perspective on what was happening. This real-time analysis provided insights that were unmatched and unlike any in the history of the freight industry – government agencies, financial institutions, multinational corporations, and transportation providers all relied on FreightWaves to keep them informed during a confusing, dynamic situation.

(Photo: Shutterstock)(Photo: Shutterstock)

In the trough of the COVID shutdown, we called for a freight bull market and nailed it

On April 15, 2020, I wrote the blog post GOOD NEWS: THE FREIGHT MARKET IS ABOUT TO TURN UP.”  At the time, the global economy had just shut down, most states had implemented drastic measures to contain COVID and unemployment hit new records. It was a dark and scary time, but I was bullish that the freight market was about to accelerate.

As I wrote at the time: 

“So here is the good news. The contract trucking market seems to be bottoming out. The declines we saw in trucking tenders seem to be leveling off and there are signs of a bottom. This makes sense – most of the economy that shut down due to COVID-19 and shelter-in-place orders are largely offline right now.

Over the next few weeks, we can expect that the parts of the economy that impact freight demand will start to come back online. Life won’t return to normal, but the trucking freight markets largely will. The reason is that the parts of the economy that are unlikely to return are the ones involved in sectors that generate little freight demand – concerts, events, sports. In other words, the really fun things that involve large gatherings. Travel is also expected to be all but shut down. All of this will come back eventually, but probably not until there is a coronavirus vaccine. 

Restaurant dining will continue to suffer, but in regard to freight movement, demand is largely fungible between grocery and restaurants. In other words, people are still eating food, just from grocery or takeout versus dining at a restaurant. 

Manufacturers and retailers will start to come back on board. This will be good for freight demand. There is a significant backlog of orders in manufacturing sectors that have been shut over the past few weeks. Even with demand being curtailed, this will return. 

Two stressors are unemployment and consumer sentiment, but this is where the government has stepped up with unprecedented stimulus. The $2 trillion in fiscal stimulus coming from the White House and the estimated $4 trillion in stimulus coming from the Federal Reserve will cycle through our economy. And the U.S. isn’t the only country doing this. Countries all over the world are pumping massive amounts of money into the global economy. 

And since consumers are not able to spend their money on experiences and fewer services, they will have more money to spend on goods. And there is one thing that consumers, especially Americans, will do is to spend their money.” 

This is exactly what happened. Almost to a ‘T.’ 

At the time, many questioned my analysis and forecast of the market. Quite a few believed the U.S. economy would experience a multi-year downturn that would rival the Great Recession – or worse. Some of those same voices are calling me out now.

But I have confidence in our analysis. I wish the answers were different. I would prefer to say the U.S. trucking market was robust and the expansion will continue throughout 2022. But I can’t. Since I wrote the piece about the bloodbath, FreightWaves SONAR’s tender data continues to reinforce the perspective of a declining freight market.  

Tender rejections are the best indicator into real-time supply/demand in the truckload sector. The data comes from actual electronic load requests – “tenders” in the truckload contract market. 

A high rejection rate means that trucking companies have more options to choose from. A low rejection rate means carriers have fewer options in freight to pick from. Since this measures actual load activity and not load board posts or searches, it tells us what the market is actually doing. 

And since it measures the willingness of carriers that are contracted to accept or to reject a load they have a contracted rate for, if the rejection rate declines, it suggests capacity is loosening. 

At the start of March, the rejection rate was 18.7% – today it sits at 13.90%. Even though it has only been a week since I wrote the “bloodbath” article, the rejection rate has fallen another 1.3%. The last week of March is normally one of the best weeks of the year for carriers, but this year it has been one of the worst.

Just wait for April… 


FreightWaves speaks to a broader swath of the transportation industry than anyone else

One of the things that makes FreightWaves unique compared with any other data source in the freight market is our army of journalists and analysts who track the freight market and actively discuss trends with contacts throughout the industry. These “channel checks” offer incredible opportunities for us to understand what is happening on the ground and help bring context to our industry-leading data.

Comments from industry executives I have received in the last week include: 

Large industry supplier (sent on the day my article was published): 

“In an internal memo that I sent to the team last week about weakening demand and what that means for the industry, my closing line was ‘The Elmer Fudd steroid-induced demand juicer is over.'” 

Top ten 3pL/truck brokerage (Last Friday, March 25th): 

“Heard from an investment banker that they have fielded a lot of inbound questions from your article. It’s happening. I called it 3-4 weeks ago internally. Our linehaul purchasing rate is down almost 20% in 3 weeks. Rates are not down so much due to fuel offset.” 


Other top ten 3PL/truck brokerage (today): 

“I’ve been following your increasingly apocalyptic takes on the freight market on Twitter and agree. I don’t think most are ready for the pain that could be coming.”


Large enterprise fleet – 1000+ trucks (Monday, March 28th) : 

“We were turning down 4 loads for every truck a year ago. Today, we are barely keeping our trucks running. In some markets, things are so bad that we have resorted to signing up for a load board account to keep them moving.” 

Large enterprise fleet – 4000+ trucks (Wednesday, March 30th): 

“The only market this reminds me of is right after September 11th. Consumer spending completely dried up, but the industrial economy had just come out of a recession. But it was rough for a few quarters.” 

A truck moves down the highway. (Photo: Jim Allen/FreightWaves)A solitary truck moves down the highway. (Photo: Jim Allen/FreightWaves)

Large LTL carrier with a sizable truckload brokerage (Tuesday, March 30th): 

“Rapid deterioration in truckload brokerage. April is going to be rough for the truckload carriers.” He went on to talk about LTL doing well, but that shipment sizes are down. 

I don’t cite this chorus of industry professionals just because they agree with our thesis, but because they illustrate that second core advantage FreightWaves has over other analysts – we are constantly talking to market participants. 

Continual conversations with operators in the market give context and “sanity checks” to FreightWaves data. In this case, we’re seeing broad agreement across multiple datasets, as well as from transportation practitioners from different segments.

For those who believe that the unprecedented truckload bull cycle will coast through 2022 or even reach new heights from here, I have a simple question – Where’s the data?

SONAR provides the freshest and deepest freight market intelligence platform, with unmatched accuracy. If you are interested in learning more about SONAR, you can sign up for a demo.


Craig Fuller, CEO at FreightWaves

Craig Fuller is CEO and Founder of FreightWaves, the only freight-focused organization that delivers a complete and comprehensive view of the freight and logistics market. FreightWaves’ news, content, market data, insights, analytics, innovative engagement and risk management tools are unprecedented and unmatched in the industry. Prior to founding FreightWaves, Fuller was the founder and CEO of TransCard, a fleet payment processor that was sold to US Bank. He also is a trucking industry veteran, having founded and managed the Xpress Direct division of US Xpress Enterprises, the largest provider of on-demand trucking services in North America.

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Trucking industry will be in trouble if demand drops to pre-COVID levels

Wednesday, April 6, 2022

Trucking spot rates are way up, but so are operating expenses. What does this mean for carriers? 

“Demand is just falling back to pre-pandemic levels.” I’ve heard this rebuttal to my earlier articles about a 2022 trucking “bloodbath” (here and here) for the past week. If “demand falls back to pre-pandemic levels” turns out to be true, the situation for truckers will actually be much worse than even I have predicted. 

Since the pandemic began, the number of dispatchable trucks in the for-hire trucking market (trucks with a driver and available to haul a load) is up approximately 10%. Since trucking rates are contingent upon the balance of supply and demand, if volumes were to drop back to pre-pandemic levels (with far more capacity in the market), rates would collapse. 

9F3BD5A5-4B6E-4A5B-977B-5EE83B895139.jpe Total number of tractors in the for-hire market Later model used truck prices are soaring as scarcity sets in. (Photo: Jim Allen/FreightWaves)Later model used truck prices are soaring as scarcity sets in. (Photo: Jim Allen/FreightWaves)

But even more worrisome is that the operating expenses of carriers are at much higher levels than before COVID. FreightWaves estimates that operating expenses for nearly all carriers have surged by as much as $0.38 per mile over pre-COVID levels. This calculation only includes maintenance, insurance and fuel costs. 

The calculation does not include driver wages or equipment purchase/finance, which could nearly double the increased amount of operating expenses.  

If a trucking fleet were to start up today with an employee driver, its operating cash expenses would be as much as $0.72 per mile higher than a trucking fleet that was started in 2019. 


The cost of fuel is one of the largest variable operating expenses in the trucking industry. During 2019, retail diesel prices ranged between $2.97 and $3.11 per gallon. For the most part, retail diesel prices hardly moved in 2019. 

Using an average of 7 miles per gallon, the cost of fuel during 2019 ranged from $0.42 to $0.44 per mile for a Class 8 truck. For most carriers operating in 2019, fuel was incredibly stable and was largely an afterthought. 

Truckstop retail diesel prices in 2019Truckstop retail diesel prices in 2019

Fast forward to April 5, 2022. The retail diesel price is $5.10/gallon. At 7 miles per gallon, that equates to $0.73/mile. This $0.30 increase per mile will significantly impact the cash flows of carriers. 

Truckstop retail diesel price per gallon Truckstop retail diesel price per gallon 

Fuel is often paid for at the point of sale, when a truck is fueled. But shippers and brokers often pay a carrier a month or two after the load has been delivered. 

According to data from the Truckload Carriers Association (TCA), an average carrier runs about 6,500 miles in a given month. At $0.30 per mile, the additional cash outlay for an operator compared to 2019 is approximately $1,950 per month. This is cash that a fleet must advance before collecting it from a broker or shipper. While carriers that have fuel surcharges will be able to pass on some of their fuel expenses to their shipper customers, carriers that operate in the spot market will not. Spot freight typically doesn’t include a surcharge for fuel. 

Insurance and maintenance 

Referencing TCA data, insurance costs per mile were $0.07 in 2019. In 2022, these costs have increased to $0.09 per mile. Using the same dataset, maintenance costs have increased from $0.20 to $0.26 per mile. In total, insurance and maintenance are up $0.08 per mile. 

When added together (fuel, insurance, and maintenance) nearly every trucking company has experienced increases of at least $0.38 per mile versus 2019, regardless of when they consummated operations.

Lots of new entrants bought at the top of the market 

The trucking market has experienced the highest number of new fleet startups in its history. The chart of new startup fleets could easily be confused with a meme stock. 


Entrepreneurs and aspiring fleet executives registered a new carrier with the FMCSA and then went out and purchased a truck. Since it was nearly impossible for these carriers to order a new truck from a truck manufacturer, we can assume that they bought a truck that was at least three years old from another carrier. 

The worst thing anyone can do in any situation is to buy at the top of the market. With tender reject data warning that trucking companies are quickly losing pricing power for hauling loads,  equipment values will soon follow. 

YV3AASJ-F3xgLHLIngoInWTwqeAhtNSXwiLS5JWO Tender reject index tracks the number of loads in the contract market that are rejected by carriers. The higher the rejections, the more pricing power carriers have.

Equipment purchase and finance 

One of the largest expense increases is the truck itself. The cost of purchasing a new or used truck is mostly dependent upon when the truck was purchased. Therefore, there is a wide range in costs. 

According to ACT data, a 3-year-old used truck could have been purchased for $69,000 in 2019. In early March 2022, the price of a 3-year-old truck had nearly doubled – to $136,000. This $67,000 increase in the cost of a used truck is unprecedented.

Prices for used trucks that are 3-4 years old Prices for used trucks that are 3-4 years old 

For this example, I will use a finance rate of 5% and a 60-month finance schedule. I will also assume that the buyer put no money down on the purchase and that there was 7% sales tax on the truck. I will also assume that a truck is being driven 6,500 miles per month. 

At a 2019 sales price of $69,000, the monthly payment would be $1,393. At 6,500 miles per month, the fleet would need to generate $0.21 per mile in cash flow just to cover the equipment purchase. 

The truck will have a residual value when it is sold five years later, but it is hard to predict what the market will be at that point. For our calculations, we are going to use cash flow and not GAAP. 

If a similar truck was purchased in 2022, it would cost $136,000. The monthly payment would be $2,746, or $0.42 per mile. 

While it is hard to predict how many used trucks traded at these extremely high levels, we know that many fleets have been growing quickly throughout the past few quarters and some fleets will be saddled with these headwinds. 

Taken all together, a fleet that is relatively new to trucking, operating a used truck purchased in 2022, would need to generate $0.59/mile more than they would have if it had started operations in 2019. If there is an employee driver to consider, an over-the-road driver in 2022 can expect to make around $0.60/mile. In 2019, the same driver would have made around $0.47/mile. 

With an employee driver, plus a truck purchased in 2022, a new fleet entering the market would have operating cash requirements that are $0.72 per mile more than the same fleet in 2019. Therefore, if a fleet is paying out an additional $0.72 per mile in operating cash compared to pre-pandemic, it will have an incredibly difficult time surviving in a dropping spot rate environment. 

The spot rate environment is changing – and quickly 

According to, the current van truckload spot rate is $3.29 per mile (as of April 5, 2022). The spot rate in SONAR includes fuel in the entire rate. All references to spot rates will include fuel.


Trucking spot rates peaked on Jan. 9, 2022 at $3.83 per mile. The $0.54 drop per mile is significant, but in historical context trucking spot rates are still way up – by over $1.00 per mile. 

Looking back at 2019, which was when we experienced the last freight recession, trucking spot rates ranged from $1.91 to $2.54 per mile. While these ranges are the low and highs, the typical range during 2019 was closer to $2.00-2.20 per mile. 

But here is where it gets tricky. The trucking spot rate is only one part of the story. It doesn’t tell us how profitable trucking carriers are.  


Trucking is a very difficult business to make money in 

A lot of this depends on whether or not spot rates drop to levels that drain the cash flow of carriers to the point that they run out of money. 

Trucking is a notoriously difficult business, with violent swings between bull and bear markets. Even in the best of times, trucking companies struggle for every penny of profit. 

The best trucking market in history took place in 2021, marked by record volume and unprecedented trucking spot rates. Nonetheless, average trucking companies struggled to make money. 

The operating ratio for dry van truckload carriers in 2021 across TCA’s benchmarking program ranged from 92 to 97. That means for every $100 of revenue the fleet generated, it generated an operating profit of just $3 to $8. This was before the fleet paid for any working capital lines of credit (debt) or taxes. 


Is a bloodbath on the way?

The bloodbath of 2019 was marked by the highest number of trucking fleet bankruptcies in history. If we see trucking spot rates continue to drop, we may see similar or worse conditions in the market. 

The operating ratio for truckload carriers in 2019 ranged from 97 to 101. A significant deterioration in spot rates, combined with the surge in operating expenses that fleets are contending with, could spell disaster for many. 

The low for trucking spot rates in 2019 was $1.91/mile. I am assuming that this is the baseline for which many small carriers will struggle to survive. Fuel is a part of the spot rate, so the calculation should be adjusted. 

The $0.30/mile increase in fuel means the adjusted 2019 spot rate “bloodbath baseline” would be around $2.21 per mile. Since fuel bills are paid immediately, I assume that anything below this spot rate level will be dire for many small trucking companies and could result in a rapid acceleration in fleet bankruptcies. 

Insurance and maintenance are not “instant” killers of fleets, but kill over time. As long as spot rates are above $2.34 per mile for most of 2022 the majority of small fleets that entered the market prior to 2020 will survive – at least until their insurance bills hit or they have a breakdown. 

Diesel fuel is increasingly expensive. (Photo: JIm Allen/FreightWaves)Diesel fuel is increasingly expensive. (Photo: JIm Allen/FreightWaves)

But new fleets will be at a major disadvantage to existing fleets 

If a fleet is new to trucking and purchased a truck in 2022, it has the worst operating environment of any carrier. Assuming that the truck is being driven by an employee driver, spot rates below $2.63 per mile could spell disaster for trucking fleets if that rate persists for long.

All of this could change – and quickly. 

If retail diesel prices move up, the break-even point for carriers would move up as well. If fuel drops, the break-even point would be lower. Watch the direction of retail diesel; it has a lot to do with the profitability of trucking fleets, especially small carriers. 

If fuel continues to surge, the “bloodbath baseline” will also move up as well. On the other hand, if fuel drops, there could be significant relief for the small spot market carriers. 

There is a great deal of disagreement on the direction of fuel and trucking spot rates, but one thing is certain – there will be volatility. Hopefully, we all avoid vertigo along the way. 

Interested in more data? 

All of the data in this article is available through FreightWaves’ proprietary SONAR platform. 

SONAR is the world’s deepest and freshest supply chain intelligence platform. To learn more, sign up for a demo at:


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Freight Recession Confirmed? Crashing Truck Sales Show US Growth In Jeoaprdy

Tyler Durden's Photo
by Tyler Durden
Wednesday, Apr 13, 2022 - 11:46 AM

The recent Op-Ed by FreightWaves CEO Craig Fuller warning about an imminent freight recession sparked a tidal wave of selling, but in retrospect, Fuller was spot on. As Bloomberg's Simon White writes, real economic activity in the U.S. is slowing sharply, and "this is showing up in lower demand for new trucks and autos, and a tailing off in freight volumes, leaving transport stocks facing more downside."

As White picks up where Fuller left off, heavy truck sales in the U.S. are a "very good leading indicator of economic activity, with 65% of the dollar value of North American freight moved by trucks. But new truck sales have been falling sharply, now at -23% on an annual basis. New auto sales are falling at a similar rate. Truck and auto sales combined are falling at a rate previously only associated with recessions.


That said, White cautions readers that "before you enter your equity sell orders, this is not a recession prediction. Recessions are signaled by a rapid regime shift across many areas of the economy and markets, and there is no sign we are in the process of this happening." Nonetheless, this sharp decline in vehicle sales shows slowing growth is in the mail.

There's more: freight volume growth has also been slowing.

Annual growth in containers loaded at the Port of Los Angeles is steadily heading down to 0% after hitting 20% last year. Lockdowns in China are clearly having an impact here. Cities and regions accounting for over 40% of China’s 2020 GDP are in full or partial lockdown. The Shanghai freight index is 13% lower than it was six weeks ago, the sharpest decline seen in the ten-year history of the index.

As we noted over the weekend, and as White picks up in his note, "shipping rates have been falling, but this is academic as it is virtually impossible -- while such a draconian lockdown is in place -- for exporters to load boxes in their warehouse and move the goods on to the ships."

To be sure, while lockdowns in China may be a proximate cause of falling shipping rates, "the remote cause is the fall in global liquidity as central banks step back from historically loose monetary policies to try to stem inflation." As White shows in the next chart, global liquidity has collapsed and points to continued depressed shipping rates in the coming months.


That commodities, their movement around the world, and liquidity are intrinsically linked has become starkly clear in this cycle. As a commodity producer, if you don’t have the liquidity to cover the margin on your short futures positions, bankruptcy means you can’t ship and deliver your commodities, exacerbating the rise in prices and triggering more margin calls.

This liquidity and economic-demand driven decline in shipping and truck usage points to underperformance of transport stocks. The S&P transport index is down 11% from its high made last month. Transports and autos are roughly flat to the S&P year-to-date, so should begin to lag. Furthermore, being underweight medium-to-high duration sectors is a good idea when in an inflationary regime.

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Truck Drivers Are Facing Another Bloodbath

Tyler Durden's Photo
by Tyler Durden
Sunday, Apr 17, 2022 - 10:30 AM

By Rachel Premack of FreightWaves,

For his entire life, Roy Walters managed bars and restaurants: upscale Italian eateries, dive bars and even strip clubs. Then, in March 2020, the pandemic shuttered his livelihood.

A truck driver buddy suggested that the newly unemployed Walters join him in the industry. So Walters drove an 18-wheeler around the country, seeing places like Seattle and the Grand Canyon, before he decided to own his own fleet. Today, the Clearwater, Florida, resident operates seven trucks....


Truck drivers are facing another bloodbath

A key trucking rate has tumbled by 37%

Rachel PremackThursday, April 14, 2022



For his entire life, Roy Walters managed bars and restaurants: upscale Italian eateries, dive bars and even strip clubs. Then, in March 2020, the pandemic shuttered his livelihood.

A truck driver buddy suggested that the newly unemployed Walters join him in the industry. So Walters drove an 18-wheeler around the country, seeing places like Seattle and the Grand Canyon, before he decided to own his own fleet. Today, the Clearwater, Florida, resident operates seven trucks.

Walters mostly stays at home, but sometimes he gets behind the wheel again. “For me, it’s almost like a vacation, except I get paid,” he said.

The trucking business has been burgeoning since he got into it. The pandemic sparked historic demand for durable goods, which is the kind of stuff Walters and his employees haul in their dry vans. But a maelstrom of inflation, rising diesel prices and overcapacity in the trucking market is sparking a sudden tumble of freight rates. “It’s been a struggle,” Walters said. “That’s for sure.”

The indicators are worrisome

Demand for freight has undeniably slowed. And, at FreightWaves, we believe a recession in trucking might be next.

Wednesday, the much-adored Cass Transportation Index Report declared that the freight market is in a slowdown, though the index’s experts said it’s too soon to declare a recession. Banks like Cowen and Bank of America have recently downgraded trucking stocks in their own notes to investors.

Dry van rates have tanked by 37% from Dec. 31, according to an April 8 transportation note by Bank of America analyst Ken Hoexter. Those rates are on the spot market – where loads are picked up on demand, rather than through a contract. The spot market is just a fraction of the trucking world, but spot numbers point to where contract rates will go.

Another indicator of a downturn is the drop in contracted loads rejected by carriers. Contrary to the, um, idea of a contract, truckers can reject loads they previously agreed to carry. Usually, they reject a contract load if they can get a better job on the spot market. Analysts follow the outbound tender reject index to see if the trucking market is hot or not.

Compared to last year, the market is decidedly not. Only 11% of loads are getting rejected right now, way down from 25% at this time last year.

tender-reject-414-1200x596.png.webp (FreightWaves SONAR)

Through the end of 2020 and throughout 2021, trucking was “white-hot,” said Amit Mehrotra, managing director of transportation and shipping research at Deutsche Bank. As Avery Vise of FTR Transportation Intelligence told The Wall Street Journal on Wednesday, trucking companies could expect to simply “print money” amid this market.

Now, truck drivers who have entered this industry in recent months are scrambling to stay profitable – and some have already stopped driving.

What happened?

Demand for random crap softening amid influx of driving capacity

If your high school economics education was as prestigious as mine, you know that high supply or low demand leads to decreased prices. Right now, there’s both an increase of supply (truck drivers) and decrease of demand (loads for drivers to move).

The supply of truckers is way up. Thousands of new fleets are registered each month in the U.S., and it’s reached a fever pitch in recent months. In February alone, a record 20,166 trucking companies entered the market. (Keep in mind, the typical trucking company is very small; 89% have one to five trucks.)

The labor market for truckers was unusually tight through the end of 2020 and throughout 2021 , but an ACT Research survey of trucking companies shows that driver availability has been improving. Mehrotra told me workers have finally depleted the savings they built up during the pandemic and are returning to work.

A bar chart with orange and green that says improving on the top and deteriorating on below, with index on the top right, (Credit: ACT Research)

Meanwhile, demand for truckers has softened. Consumers are slashing their spending – particularly when it comes to buying more and more stuff. Core retail sales fell by 1.2% in February, the most recent number available from the feds. Those sales will likely continue to soften. In response to historic inflation, 84% of Americans surveyed by Bloomberg News said they would cut back spending. Some have already been forced to cut back, according to a CNBC poll.

And those who are still spending are increasingly going to restaurants and concerts instead of, say, buying lots of stuff from Amazon. The latter requires far more truck drivers than the former. See this study from Bank of America economist Anna Zhou:

bofamonthlycardspending-1200x713.jpg.web (Credit: Bank of America Global Research)

There are lots of truck drivers who entered the industry when our only hobby was online shopping. But, amid inflationary pressures and a society that’s mostly reopened, consumers are buying less of those durable goods. It’s an overlap of the Venn diagram that might result in a lot of new fleets being flushed right back out of the market.

I’ll let Walters explain:

“With rates being so high, everyone and their uncle bought a truck. I wish that it had a little more stability for the drivers and the small carriers. With more trucks on the market, the shippers and brokers can kind of dictate the price – because somebody is going to take the freight.”

Return of the bloodbath?

This normalization in trucking shouldn’t come as a surprise, Mehrotra said. “It’s totally reasonable to assume the white-hot demand environment we’ve been in the past two years is going to moderate,” he told me.

Still, the plummeting freight rates are stressing out the many, many new truck drivers who started their own fleets or entered this industry in the past two years. Their experience of running a trucking business has been in an unusually favorable market. Some might not have previous experience running a business. So the plummeting rates, coupled with the spike in diesel, are a slap in the face.

It’s all reminiscent of the 2019 trucking bloodbath (which I wrote about quite a bit at my old gig at Business Insider). In 2018, trucking was booming. Drivers were receiving record-high raises amid a capacity shortage that year. Many joined the industry. Unfortunately, demand for trucking services sank at the same time. That’s a very short explanation for why 1,100 trucking companies went out of business in one year

Despite this history, some drivers aren’t worried. Travis Ludi, who is based outside of Oklahoma City, has been a truck driver for 10 years. He opened his own trucking authority just one and a half months ago. He said his realm of trucking – hauling grain for animal feed – is much steadier than the dry van world. (There is one downside to this recession-proof sector, however. Ludi also hauls the “left remnants” of kill plants to pet food factories, which he confirmed to me does not smell good!)

“A lot of companies or other owner-operators get in over their heads as the rates go up,” Ludi said. “They’re buying brand new trucks at higher prices due to inflation. Whenever rates go down to a normal level, they have to go out of business.”

Others are feeling more cautious. David Guzman in San Antonio has already parked some of his trucks. 

Guzman bought three “dirt cheap” trucks from a liquidation company in early 2020. It turned out, those trucks were previously owned by Celadon, a company that pulled in $1 billion in revenue before filing for bankruptcy amid the 2019 trucking bloodbath

When diesel started to spike this year, Guzman ran the numbers and realized he wouldn’t be able to run those trucks. He has a separate fleet that runs Amazon loads and has his equipment paid off, which is helping make ends meet. “I can’t imagine what folks that have payments on their equipment are going through right now,” he said. “The way the rates are, you have to run twice as hard to make ends meet. I can’t help but feel for my fellow truck drivers.”

In the meantime, it’s another bloodbath that these Celadon trucks might be sitting out.

Thanks for reading! You can reach out to the author at or Subscribe to the next edition of MODES here.

Rachel Premack

Rachel Premack is the editorial director at FreightWaves. She writes the newsletter MODES, the go-to newsletter for supply chain insiders (and outsiders). Before joining FreightWaves in 2022, Rachel was a senior features reporter at Business Insider. She created the trucking beat at Business Insider, and has appeared on ABC News, NBC Nightly News, The Today Show, France24, and other major outlets to discuss her coverage. Prior to that, Rachel was a journalist in Seoul, South Korea. Her articles were published in The Washington Post, Foreign Policy, Bloomberg CityLab, The Verge, and others. Rachel was a Stigler Center Journalist-in-Residence at the University of Chicago Booth School of Business in the spring of 2019. Rachel grew up in Metro Detroit and received her Bachelor’s degree in history from the University of Michigan. If you’d like to get in touch with Rachel, please email her at or

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Get ready for the next supply chain shockwave

Cargo backlogs in Shanghai a precursor to global port congestion as COVID crisis drags on

Eric Kulisch Follow on Twitter Friday, April 15, 2022

Last May, the huge Yantian container terminal at the Port of Shenzhen throttled down to 30% of normal productivity for a month to stamp out a handful of positive cases there. Hundreds of thousands of shipments that couldn’t enter the port accumulated in factories and warehouses, and many vessels skipped the port to avoid waiting seven days or more at anchor. It took weeks after the port reopened to clear the cargo backlog. The effects cascaded to the U.S. and Europe, resulting in port traffic jams, transit times triple the norm and missed retail deliveries for the holidays.

The difference this time is that an entire metropolis — and highly interconnected global trade center — is essentially shut down. Not since the initial 2020 COVID-19 outbreak in Wuhan have lockdowns been this extensive in China.

“It’s probably worse than Wuhan,” said Jon Monroe, an ocean shipping and supply chain expert who runs a consulting firm. “You’re going to have a lot of pent-up orders. It’s going to be an overwhelming movement of goods” that will drown shipping lines and ports once the lockdowns are lifted.

Freight is piling up

Twenty-five million people in Shanghai have been sequestered for 18 days. Chinese authorities this week slightly eased the restrictions, dividing the city into three categories based on previous screenings and risk levels. People can wander outside their apartment buildings but are encouraged to stay home in neighborhoods with no positive COVID-19 cases in the past two weeks. Those in high-risk areas must still shelter at home.

Spanish financial services firm BBVA predicts Chinese authorities will stick to the “zero-COVID” strategy and lockdowns until at least June. Other China observers say it could take even longer to meet China’s infection standard.

Shanghai is one of the largest manufacturing centers in China, with heavy concentrations of automotive and electronics suppliers. It is home to the largest container port in the world and a major airport that serves inbound and outbound air cargo. Exports produced in Shanghai account for 7.2% of China’s total volume and about 20% of China’s export container throughput moves through the port there, according to the BBVA report. 

Most warehouses and plants are closed, nine out of 10 trucks are sidelined, the port and airport have limited function, shipping units are stranded in the wrong places, and freight is piling up. 

More and more, the logistics impacts are rippling beyond the contagion epicenter.



Impacts spread beyond Shanghai

Export containers that were already at the Port of Shanghai when the lockdown started are making it onto vessels, but most goods booked on outbound vessels are stranded at warehouses because shuttle trucks can’t make pickups or deliveries.

Truckers require special permits, which are only good for 24 hours, as well as negative COVID tests to get in and out of the city or enter certain zones, according to logistics providers. Checking COVID certificates has led to huge traffic jams at the port.

The French logistics provider Geodis reports that truck drivers in the Shanghai area are being forced to wait up to 40 hours at certain highway entrances. Trucking rates have soared because of the limited supply, and shippers are waiting three to five days for cargo to get picked up, according to San Francisco-based Flexport.

Reduced manufacturing output, along with limited truck access to the port and airport, are causing a significant drop in air and ocean export volumes. Less demand is translating to lower freight rates.

In response to the lack of labor and cargo, air carriers have announced widespread cancellations, and some ocean carriers are skipping Shanghai port calls.

Several shipping lines have also begun offloading refrigerated containers at other ports along their voyage because the storage area with electric plugs is too crowded in Shanghai. Customers face extra port fees and delays routing the cargo to its intended destination. Maersk, the second-largest container vessel operator, said Thursday it has stopped accepting bookings to Shanghai for refrigerated cargo, some types of gas and flammable liquids.

More omissions are expected and liner companies may temporarily idle vessels or cancel some outbound Asia sailings altogether, according to Crane Worldwide Logistics and other service providers.

Asia-U.S. East Coast rates have fallen 7% since the outbreaks in March, said freight booking site Freightos, which also publishes an ocean rate index.

“But even if the lockdown persists and demand drops significantly, ocean carriers will likely reduce capacity which could keep rates from plummeting, just as they were able to do in the first few months of the pandemic when ocean volumes fell significantly but transpacific rates declined by less than 15% and were about level year on year,” it said.

The supply chain is backing up like water behind a dam. When water is released, the landscape gets flooded.

At Shanghai Pudong airport, ground handling companies are operating with skeleton staff. 

Shanghai Eastern Airlines Logistics, a cargo terminal operator, ceased bulk loading of containers after a positive COVID case, which will further slow cargo processing, said Dimerco, a Taiwan-based freight forwarder. Airlines report that Pactl, which operates three other cargo terminals, has suspended acceptance of dangerous goods and temperature-controlled cargo because the warehouse is full.

Flexport said in a market update that 80% of commercial freighter services have been canceled and airlines are considering shifting operations to nearby airports. Qatar Airways announced that freighter flights will remain canceled until next Thursday, saying “the latest COVID-19 restrictions announced by local authorities limit our ability to operate flights in and out of Shanghai with sufficient cargo loads.”

Freight forwarders have been rerouting cargo to alternative airports such as Zhengzhou, Xiamen, Shenzhen and Beijing, as well as the Port of Ningbo, but those facilities are beginning to feel congestion effects themselves. Rates to ship from those locations are increasing.

Flights at Zhengzhou Xinzheng International Airport are reduced by 50%, according to Geodis. Most inbound cargo there is transit cargo to other cities, such as Shanghai — which is compounding backlogs because the cargo isn’t allowed to move to the final destination. That means logistics companies can only clear shipments that customers can pick up in Zhengzhou. 

Dimerco advises that Zhengzhou airport is not accepting loose cargo – only palletized shipments – because of labor challenges. And it has just implemented a 14-day closed-loop program in which workers live on-site to minimize the potential for virus transmission, forcing the logistics provider to pivot again and reroute shipments to other airports, including back to Shanghai’s second airport – Hongqiao International.

Everstream Analytics, which helps companies manage supply chain risk, predicts U.S. and Canadian automotive assembly plants will quickly face delays and disruptions because the lockdowns will affect shipping of parts such as seats, tires, engines, bodies and brakes.

Ships delayed at port of Hong Kong and Yantian

Shipping schedules in South China are being impacted by irregular feeder vessels and large barge services, creating delays for transoceanic vessels at the ports of Hong Kong and Yantian, according to a situational update from supply chain data platform project44. Both ports have been coping with disruptive COVID restrictions for months.

Nearby manufacturing hubs in Vietnam and Cambodia are already suffering from a shortage of Chinese components for their manufacturing industries, project44 reported. And pharmaceutical companies in India, which source 70% of their active ingredients from China, are facing limited supplies.


Ocean shipping delays from the top three Chinese ports to Hamburg, Germany, and Amsterdam had already doubled to more than 12 days during the first quarter, before the Shanghai lockdown fully materialized, according to project44 data.

Ocean freight expert Lars Jensen, CEO of Vespucci Maritime, summed up the situation on his LinkedIn page this way: “Until this situation is resolved — which appears next to impossible when matching the omicron variant with zero-tolerance — we should expect drops in export demand, port omissions and more blank sailings in the near term future as well as Shanghai-bound cargo increasingly being discharged elsewhere.”

COVID lockdowns spread

Meanwhile, COVID infections are spreading beyond Shanghai, according to news reports and logistics companies. The southern manufacturing hub of Guangzhou, for example, has started mass COVID testing, introduced travel restrictions and shifted schools to online learning — steps that often portend a wider lockdown.

The city of Kunshan — an important production center for electronics near Shanghai — is closed down until April 19. Part of Taicang, another manufacturing area in Jiangsu province, is also locked down. A surge of new COVID cases is hitting the coastal cities of Dalian and Tianjin in the north, Ningbo in the east, and Xiamen and Dongguan in the south. 

Ningbo officials ordered residents in two downtown districts to sequester at home, but so far the seaport is not affected. Nantong is on a partial lockdown until April 15. Port operations have been severely impacted, with logistics companies diverting shipments to Nanjing. Zhangiagang is also under partial lockdown until April 19, resulting in slower port operations and some factory closures. 

Many shippers are exercising contingency plans and using alternative import/export gateways when possible, but road transport is increasingly difficult.

The outbreaks have led to a virtual ban by authorities on truck drivers from high- and medium-risk areas transporting cargo to low-risk areas. That includes transporting cargo from Shanghai and Kunshan to the Port of Ningbo. No cargo will be accepted if drivers have been to medium- or high-risk areas within the last 14 days or the factory is located in medium- or high-risk areas, said UPS Supply Chain Solutions in a customer update. 

As of Friday, Dalian, Tianjin, parts of Beijing, Shanghai, and Dongguan are all in high- and medium-risk areas.

Dimerco said in a notice that traffic control for road transportation is getting more strict and it is difficult to secure trucks to bring freight to Shanghai or alternative ports.

Lockdowns ease U.S. supply chain strains before flood of cargo

The slowdown in China exports should provide temporary relief to congestion-plagued U.S. ports on both coasts, as well as in Europe, but logistics experts say the breather is likely to be followed by a tsunami of deferred cargo once the lockdowns are lifted. The cargo volume will far exceed the handling capability of the ports, with containers jamming up terminals faster than they can be transferred to inland transport and pushing vessels into long queues at sea.

Delta Air LInes President Glen Hauenstein said on an earnings call Wednesday that once the Shanghai restrictions are lifted, the airline expects a boom in cargo bookings that more than offsets the current export lag.

A mass quarantine that lasts until June could mean the drawdown of backlogged air and ocean freight pushes into the peak shipping season, as more volume enters the system. 

“Even with air and ocean ports open, the length of the shutdown could make this iteration the most significant logistics disruption since the start of the pandemic,” Freightos said in its update.

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Global Shipping Update: China Is About To Wreck Your Summer

Tyler Durden's Photo
by Tyler Durden
Sunday, Apr 24, 2022 - 06:30 PM

Authored by Mike Shedlock via,

Let's review shipping updates from Craig Fuller, Founder/CEO of FreightWaves and American Shipper.



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Freight is tricky. As Japan/China by Ship takes very long. Russia North-Route is only available for Russian Friendly Government.

China - Kazakhstan - Russia - Rotterdam only for Russian friendly Government.

Turkey - Finland is possible across Russia Don - Wolga -Moscow - St. Petersburg by Ship and Train

Don - Volga Canal started in the 16 Century–Don_Canal

usually I'm not a Fan of Wiki. The only limitation is the depth of 3.5 Meter - but the Russian have transported Millions of Tons through this waterway.

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...The recent slowdown in U.S. truckload markets is likely a precursor to a steeper decline in the coming weeks. The lockdowns in China were not a factor in slowing U.S. truckload volumes in February and March, as evidenced by record container imports at nearly all major U.S. ports. 

But that shouldn’t give anyone comfort because the slowdown is about to hit U.S. ports – and the trucking companies that service them – in a dramatic way. FreightWaves estimates that container imports from China represent approximately 16% of U.S. truckload volumes and an even larger percentage of U.S. dry van truckloads. After all, nearly half of the containers that come into the United States originate in China. 

The lockdowns in Shanghai began on April 2 and the lockdowns in Guangzhou began on April 11. As geopolitical analyst Peter Zeihan described the situation on Twitter: 


Xi's Lockdowns Will Pull The Rug Out From Under US Truckers This Summer

Tyler Durden's Photo
by Tyler Durden
Tuesday, May 03, 2022 - 04:00 AM

By Craig Fuller, CEO of FreightWaves

Whenever the trucking market slows, truck drivers look for someone to blame. Normally, a slowdown is just a function of supply and demand. The market has too much dispatchable capacity compared to the total number of loads on any given day. 


This summer, the trucking market could have one of its steepest declines in recent years and there is an entity that deserves much of the blame – the Chinese Communist Party and its draconian and inhumane lockdowns. 

china%20containership.jpg?itok=VsbeXJYSA Chinese containership. (Photo:

While the motivations of the Chinese government are unclear, one thing is certain – anyone subjected to a Chinese state lockdown compares it to being imprisoned in their own homes. As seen in several widely shared media posts, the Chinese government has started to erect metal barricades to block people from leaving their homes, preventing passage even for food or medicine. 

While Americans watch in horror as innocent Chinese citizens are caught up in an ill-conceived, reckless, or nefarious – take your pick – act by the Chinese Communist Party, there is little Americans can do about it. But like most geopolitical events these days, the lockdowns in Shanghai and other Chinese cities are also a supply chain story that will have a dramatic effect on domestic freight markets. 

The recent slowdown in U.S. truckload markets is likely a precursor to a steeper decline in the coming weeks. The lockdowns in China were not a factor in slowing U.S. truckload volumes in February and March, as evidenced by record container imports at nearly all major U.S. ports. 

But that shouldn’t give anyone comfort because the slowdown is about to hit U.S. ports – and the trucking companies that service them – in a dramatic way. FreightWaves estimates that container imports from China represent approximately 16% of U.S. truckload volumes and an even larger percentage of U.S. dry van truckloads. After all, nearly half of the containers that come into the United States originate in China. 

The lockdowns in Shanghai began on April 2 and the lockdowns in Guangzhou began on April 11. As geopolitical analyst Peter Zeihan described the situation on Twitter: 


Beijing, which is the political capital of China, was expected to be spared the lockdowns by many analysts. This appears to be wishful thinking and Twitter lit up on April 24 with reports of Chinese state police starting to implement similar measures to those seen in the preparation for lockdowns in other cities.

The three largest cities in China are going to be removed from the world market. According to analysts, at least 40% of China’s GDP has been taken offline and this was before lockdowns began in Beijing. The vast majority of this GDP is directly related to global manufacturing. Removing it means removing the flow of containers from the world economy. 

Container volumes from China to the United States started to fall on April 6. It hasn’t been a direct line down; more like a roller coaster. In the first 10 days, container volumes dropped by 31%. Volumes have since rebounded about halfway, to “just” a 16% drop. But according to FreightWaves SONAR’s volume booking forecast, volumes have started to drop once again and could fall to 50% of the April 6 number by May 9. This would be nearly the same level of a drop that China to U.S. exports saw during the Chinese New Year in 2022 and lower than any other point since July 2020. 



Chinese ports are operating, but the bigger risk is with Chinese trucking operations. According to a report in Bloomberg, only 20% of Shanghai’s trucking capacity is operating. Trucking is a bigger part of the flow of containers in and out of the Chinese ports than in the United States. Over 75% of container volumes in China ports enter or exit on a truck, while in the U.S. both trucks and railroads move freight from our ports.

The loss of trucking capacity in China means that raw materials and components can’t get from the ports to factories and finished goods can’t leave the factories to the ports to be put on ships for export. The temporary blip (dead cat bounce) was likely containers that were already in the queue at the port prior to the lockdowns. 

Since factories can’t receive new components or raw materials, they will also stop operating once their supplies are exhausted. Supply chains involve large webs of suppliers that are interconnected and just because one supplier is online does not mean that other suppliers are. Once they shut down, it will take much longer to bring them up to full productivity. 

According to SONAR’s ocean intelligence dashboard, it currently takes 27 days for a vessel to travel from a Chinese port to a U.S. port. Since the volume of containers from China to the U.S. started its drop on April 6, it will likely be May 3 before U.S. ports experience a drop in volume. 


It takes approximately 10 days to three weeks after a vessel arrives in the U.S. before the containers that traveled on board enter the domestic surface freight market. This would put a slowdown in trucking freight volumes related to Chinese imports between May 13 and May 24.

We have seen this play out before. 

During the second half of Donald Trump’s presidency, the U.S. declared a trade war on Chinese imports. The first tariffs on Chinese goods were set at 10% and went into effect in December 2018. That was intended to be a shot across the bow and had little effect on import volumes. However, President Trump also threatened that if his demands for Chinese policy changes were not met, he would raise the tariffs to 25% by March 31, 2019. 

Reacting to a threat that most importers and Chinese manufacturers thought had legitimacy, a surge of goods started to flow from China to the U.S. in what was described as a “pull-forward.” 

The last of the “pull-forward” surge containers to leave Chinese ports was on April 7, 2019. SONAR’s Ocean TEU Volume Index of containers leaving Chinese ports to the U.S. dropped by 28% from April 8, 2019 to April 16, 2019. 


The first signs of U.S. trucking volumes dropping took place 35 days after the drop in container volumes out of China. From May 9, 2019, to May 16, 2019, U.S. national contract truckload volumes (OTVI.USA) dropped by 6%. 

In Asian import-heavy Los Angeles, the drop was much worse. Truckload volumes dropped by an astounding 28% from May 8, 2019 to May 16, 2019. The drop was so significant that I wrote my first article warning of the freight recession and stated that “Conditions for fleets are deteriorating and it will get bloody.”

The recent drop in container volumes is eerily similar to the one that took place in 2019. 

The drop in 2019 started with the same speed and depth as the one we are currently facing. The trucking industry had just come through one of the hottest freight markets in history in 2018, with more new fleets entering the market than in any previous period in history.  

The abrupt drops in container outflows from China in 2019 and 2022 happened almost exactly three years to the day, which means the freight market seasonal calendar was roughly identical and makes for easy comparables. 

Since April 2019, maritime shipments from China to the U.S. have grown by 28%, while U.S. truckload volumes have increased by 24% in that same timeframe. 


A slowdown in freight volumes from China in May 2022 will be more equitably distributed throughout the U.S. and less concentrated in Southern California, as compared to the 2019 slowdown. 

Why? While Southern California’s ports are still the primary ports of entry for Chinese goods, recent port congestion has encouraged importers to shift volumes away from the ports of Los Angeles and Long Beach. This is showing up in SONAR’s truckload market share data (OTMS).  

In April/May 2019, the Los Angeles and Ontario freight markets represented 7.69% of all U.S. contracted truckload shipments. Today, those two markets represent just 6.74%. 

Watching daily market conditions will be critical to fleet operators in their search for headhaul markets. A headhaul market is a freight market in which there are more loads than dispatchable trucks. In SONAR, this map is updated daily and markets are shaded in blue. The deeper the blue, the better conditions for fleets.

We always coach trucking companies to go “blue to blue” to stay loaded, and since the data comes from tenders and not load board activity, it is far more accurate of current conditions in the market because it avoids “ghost loads” from brokers. 

Eventually, the lockdowns will end and Chinese production will begin once again. However, the longer China stays offline, the longer it will take for production to ramp up. Supply chains don’t come online instantly. 

china%20containership%202.jpg?itok=vdL9tA drayage truck picking up cargo at the Port of Los Angeles. (Photo: Jim Allen/FreightWaves)

And just how long it takes for the lockdowns to end and the supply chains to begin operating again is a guessing game. But there is reason to believe that the Chinese lockdowns are far from over.  

FreightWaves’ Eric Kulisch reported on April 15, 2022, that BBVA suggested that the lockdowns in China could continue until June.  If this prediction plays out, it will be a difficult summer for many U.S. trucking operators.

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Wednesday June 8, 2022 

Article QUOTE:  Which begs the question: does anyone even remember how to do simple fundamental analysis any more?

Shipping Stocks Crash After JPM Points To Latest Freightwaves Recession Alert

Tyler Durden's Photo
by Tyler Durden
Wednesday, Jun 08, 2022 - 10:20 PM

Yesterday, in "US Import Demand Is Dropping Off A Cliff", we noted that Freightwaves (best known for sparking a crash in freight stocks at the end of March when the company's CEO said that a "freight recession is imminent") warned that "despite the strong levels of inbound cargo during the first five months of 2022, import demand is not just softening — it’s dropping off a cliff" or 36% in just the past few weeks...


... as retailers (ahem Target and Walmart) "suddenly" realize they have over-ordered way too much inventory, and noted that as a result, "Drewry’s container spot rates from China to the West Coast have plunged 41% month-over-month to $9,630." While there is much more in the full note, the gist was simple: shipping rates are sliding and are set to fall further as demand for cargo evaporates with the US sliding into recession.



We bring this up because this morning JPMorgan also brought it up, with the bank's European Transport and Logistics analyst Samuel Bland writing that a note titled "Freight Markets" (available to pro subscribers in the usual place), in which he draws attention to the FreightWaves article which he says "suggests that US import volumes of containers have fallen sharply in recent weeks. We see a similar thing in weekly data from LA and Long Beach ports." Some details excerpted from the JPM note:

  • For context. March 2022 container volume vs the 2019 level was 4% higher globally and 43% higher on the Asia - North America lane in particular. "Normal" volume growth might be 3-4% CAGR, such that globally volume is quite weak, but very strong on Asia-US in particular. This focusing on demand on one lane, straining infrastructure and labor availability has driven up supply chain  congestion. Presumably, lower US volume would help to unwind this, freeing up to c.12% of ship capacity currently stuck in congestion.
  • Freight rates. Freight rates show a mixed pattern depending on which index is used. On a global basis, all the indices are down c.20% YTD, and by closer to 25% on a bunker-neutral basis. On the China-US West Coast lane in particular, SCFI is flat YTD, whereas the equivalent Freightos index is down 31% YTD. Importantly, the Freightos decline has all happened in the last month, with the indexed having been up YTD until early May.
  • Freight forwarder exposure. It is important to remember that sharply falling freight rates can be positive for freight forwarder  profitability in the short run. This is driven by forwarders not passing on all the saving to customers in the near term.
  • Bunker costs. We’d also highlight that the spread between low and high sulphur bunker fuel has widened sharply in recent weeks, to around $360 / tonne currently, up from nearer $120 / tonne in early May. This is most negative for those container lines with a high level of spot exposure and low level of scrubber fittings, both of which point to ZIM

JPM concludes that since the strength of the US consumer has been a key ingredient in the level of freight rate increase seen since COVID, "this is negative for the sector generally, particularly container shippers and particularly ZIM."

The market's reaction was quick, and just as FreightWaves crashed truckers two months ago, this time they demolishes shipping stocks which tumbled Wednesday: the Russell 3000 Index Marine Transportation Subsector dropped 4.8% for its biggest decline in a month, with all 15 members of the index were down Wednesday. Among the components, Eagle Bulk Shipping plummeted as much as 12%, its biggest intraday decline in a month, to lead a drop among index members Other notable decliners include Matson -9.3%, Genco Shipping & Trading -8.3%, Costamare -7.4%, Safe Bulkers -6.9%.


The news of a looming shipping recession quickly spread around the globe. In Europe, shares in major shipping companies including Maersk, Hapag-Lloyd and Kuehne & Nagel fell, on both the JPM note and also after Nordnet Bank economist Per Hansen noted similar concerns about lower freight rates as the container shipping market normalizes and about the impact of a possible recession in the US. Maersk dropped as much as 8.3%, the most intraday in a month, while Hapag-Lloyd falls as much as 8.3% and Kuehne & Nagel drops 4.4%

A similar dumpfest was observed in Asia too, with shipping stocks in Japan and South Korea following their global peers lower following the JPMorgan reference to the FreightWaves article:

  • Japan’s Mitsui OSK -7%, Kawasaki Kisen -7.6%, Nippon Yusen -6.7%
  • South Korea shipping companies: HMM -3.8%, Korea Line -2.1%, Pan Ocean -3%
  • Taiwan’s Evergreen Marine -3.1%, Yang Ming Marine -2.3%, Wan Hai Lines -3.1%
  • Hong Kong-listed Cosco Shipping -6.7%, Orient Overseas -7%, Pacific Basin -5.5%, SITC International -6%
  • China’s Cosco Shipping Holdings -4.6%, Cosco Shipping Energy -3.4%, China Merchants Energy Shipping -3.1%, Ningbo Marine -1.1%

And while shipping is certainly one of the most leading recessionary indicators, and a recession most certainly is looming, what we find fascinating is just how little work the "market" had done on shipping stocks: after all, all Freightwaves - and by extension JPM - did was to look at the latest shipping rates and volumes, data that is available to every Bloomberg terminal subscriber. And yet, not a single one appeared to have pulled it up... until today. Which begs the question: does anyone even remember how to do simple fundamental analysis any more?

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The Baltic Exchange Dry Index fell 68 points, or 2.8% to 2,342 points on Thursday, the lowest since April 22, extending losses for the fourth straight session, as both activity and demand remain subdued due to lower grain shipments led by the Russian blockade of the Black Sea ports, and China's strict zero-COVID policy. The capesize index, which tracks iron ore and coal cargos of 150,000-tonnes, slumped 3.6% to 2,369 points; and the panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and grains, declined 2.7% to 2,674 points. Among smaller vessels, the supramax index lost 58 points to 2,527 points.

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DataTrek: Oil Prices Hitting $140 Would Mean Recession In The Next 12-18 Months

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by Tyler Durden
Thursday, Jun 09, 2022 - 10:45 AM

By Nicholas Colas of DataTrek Research

1970s Debt Vs. Today

Two “Markets” items today:


Topic #1: Let’s talk about US Federal government and business debt levels. Such conversations are usually laden with fire and brimstone narratives, but we will avoid those as much as we can. Let’s just focus on the facts and see where they lead us.

First, here is total Federal public debt as a percent of GDP. This does not include intragovernmental holdings ($6.5 trillion currently, mostly held by entitlement programs), but it does capture the general trends quite well.


Three points about this graph:

  • US government debt as a percent of GDP has risen dramatically over the last +50 years, from lows around 30 percent in 1980 to 125 percent today.

  • The pattern of this growth is both structural and cyclical. Debt/GDP was at its lowest during this time series in 1980, when Treasury yields were at their highest. As yields fell, borrowing increased. But … Debt/GDP actually declined in the mid-late 1990s as strong labor and stock markets increased tax receipts. The Great Recession, which brought lower tax receipts and stimulative fiscal spending, increased debt issuance once again. The Pandemic Crisis had the same effect.

  • The US now has a higher Debt/GDP ratio than the Eurozone (95 pct) and the United Kingdom (88 pct), as well as China (78 pct) and India (87 pct).

Now, let’s look at US non-financial business debt (both bonds and loans) as a percent of GDP:


Two points about this data:

  • Corporate debt/GDP is 40 percent higher now than in the inflationary/high interest rate 1970s. The offsetting positive is that public and larger private companies have much higher equity valuations now versus the 1970s. Issuing stock to pay down debt may not be any CEO or shareholder’s favorite idea, but it can be done if debt service costs become too burdensome.

  • Current corporate debt/GDP levels in the high 40-percent range are still higher than the 2 prior peaks (2001 and 2008) of 45 percent.

Takeaway (1): debt is now a much larger part of the US economy than in the 1970s, and any discussion of inflation-fighting monetary policy must acknowledge that difference. Neither the US government nor private business can afford +10 percent Treasury/corporate debt yields. Those were commonplace in the 1970s; they would be very damaging now. This is why we say the famous “Fed Put” has shifted from stocks to the Treasury market. Chair Powell and the FOMC know that they must keep structural inflation at bay and Treasury yields low. Much, much lower than the 1970s …

Takeaway (2): we think this is one reason US equity markets get into trouble when Treasury yields hit 3 percent. That was the case in Q4 2018, and the same is true now. It’s not that a 3 percent cost of risk-free capital is inherently unmanageable, either for the Federal government or the private sector. Rather, it is the market’s way of signaling the manifold uncertainties if rates don’t stop at 3 percent, but instead keep rising.

Topic #2: The latest reading of the New York Fed’s Global Supply Chain Pressure Index was out this morning. This metric covers US, European and Asian purchasing manager surveys as well as real-time shipping cost analysis. The output is based on standard deviations from pre-pandemic “normal”, which for this index’s purposes is zero.

The following chart shows the index’s readings from late 2014 to the present. As noted, the first peak was in the early stages of the global pandemic crisis (April 2020, 3.4 standard deviations from pre-pandemic levels). The second was in late 2021, at 4.3 – 4.4 standard deviations.


May 2022’s reading of 2.9 standard deviations is down from April’s 3.4 level but still above February and March’s 2.8 level. The Fed’s own commentary noted “The moves in the GSPCI over the past three months suggest, for now, a stabilization of global supply chain pressures.”

Takeaway: global supply chain snarls continue to exert inflationary pressure on the US and global economy. At the margin, however, they are easing slightly. We’ve gone from +4 standard deviations of “pressure” down to just less than 3 standard deviations in the last 6 months. On Friday we will get the latest US CPI inflation report, and that will tell us if this is enough to reduce overall inflation.

As an aside: in other inflation-related news, WTI crude broke $120/barrel today.

We still believe $140/barrel is the level to watch as a recession indicator.

That would be a double from last summer’s $70/barrel level, and any time since 1970 when oil prices have gone up 2x in a year a recession has followed in the next 12-18 months.

The July 4th weekend typically marks the start of peak gasoline demand in the US; oil most likely tops out around this period in the near term. Let’s hope it does so with a $130-handle rather than anything higher.

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"The Demand For Random Crap Suddenly Vanished, Taking Everyone By Surprise"

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by Tyler Durden
Friday, Jun 10, 2022 - 04:45 AM

By Rachel Premack of FreightWaves

At the beginning of 2022, things were economically pretty peachy. Too peachy, one could argue: People were buying so much stuff that our ports and terminals could barely handle the massive import volume. Companies were desperate for someone, anyone, to come work for them. And movie theaters, offices, planes and other locales many eschewed during the pandemic were poised to bounce back; the omicron wave appeared mild compared to previous bouts of the coronavirus. 

The vibes were good. Now, the vibes are completely terrible. 



More and more spooky recession signs are cropping up seemingly every day, ranging from cooling housing starts to meek GDP growth, all amid the Fed tightening rates. Record-setting inflation – particularly for gas – is only adding to the premonitions, as Vox’s Emily Stewart wrote Wednesday in a piece aptly titled “The bad vibes economy.” But even as things feel bad, many still cast doubt that we’re headed for a recession this year, pointing out persistently low unemployment and the fact that certain indicators, while not as strong as the beginning of this year, are still unusually healthy. 

No one is shocked that what goes up must go down. What’s shocking us all is how quickly the situation changed.

Glum transportation indicators confirm the bad vibes

A downturn, if not a full-on recession, is clear in the transportation world. While the rest of the economy debates whether things are that bad, it’s been clear for months to logistics providers that the situation has worsened — and the velocity of that change is still stunning. 

The cost to move a container from Asia to a major port in North America or Europe has sunk by 23% since the beginning of this year, according to maritime research firm Drewry. Spot rates have plummeted even faster; marketplace Freightos said rates from China to the West Coast are down 38% month-over-month. FreightWaves forecast this week that ocean shipping volumes will “drop off a cliff” by this summer, based on slumping bookings out of China. 

Spot van rates in trucking are down 31% since the beginning of this year, with some truck drivers reporting that rising diesel and plummeting rates have already harmed their business

Even our mighty railroads are reporting a 3% year-to-date decline in volumes across the board, with only carloads of coal, chemicals and “stone, sand and gravel” (aka, frac sand) increasing


The pullback in transports has been quicker and swifter than anyone imagined. In the ocean world, carriers have deployed more vessels than ever before, according to research firm Sea-Intelligence. In March, Sea-Intelligence forecast carriers to increase their capacity following Chinese New Year by 20% over 2019 levels. Asia-East Coast services were forecast to grow an eye-popping 40%.

And in trucking, small carriers flooded the market. Since the beginning of the pandemic, the number of trucks available to haul a load is up 10%

Transporters built up record capacity to move loads that are suddenly shrinking. Even if volumes merely settled to pre-pandemic marks, rather than collapsing to a 2008-like recessionary volume, carriers would still be in trouble

And this isn’t a trend that’s exclusive to transportation.

Retailers are a little embarrassed right now

Walmart, Amazon, Home Depot, Best Buy and most every other retailer are having their own mismatch of supply and demand. They stocked up too much this past year. Now they’re struggling with something called “inventory bloat.” It is even more painful than regular bloating, I imagine, if you are a shareholder in a large retail firm.

While we were buying more and more crap, seemingly without any regard for our dwindling savings, our favorite retailers were doing anything to get more product in.

At some point this year, though, the thirst for buying stuff finally quenched. Some of us got spooked by inflation, others got hit by a hefty tax bill and still others decided to spend their apparently boundless cash on trips abroad and fine dining. Or some weird combination of the three. 

The retailers weren’t aware that we were all going to stop ravenously buying this quarter, apparently. They quietly kept amassing their own inventories, many of which were still depleted from 2020 and 2021. And concern over another black swan after years of oddities – trade wars, the pandemic and so on – probably drove many transportation managers to keep ordering stuff. Just in case.


Retailers realized this spring that they built up too much. Amazon said in an April call to investors that it had to scale back after doubling its warehouse footprint. Bloomberg reported weeks later that the mega-retailer was quietly trying to end or sublease at least 10 million square feet of warehouse space. It was a stunning about-face for the company that many investors believed had not only endless growth but an unmatchable logistics machine

It’s not just warehouse space that Amazon loaded up on – it’s the stuff in the warehouses. According to federal filings concerning the first three months of 2022, the value of Amazon’s total inventories increased 47% compared to the same period last year. But its North America net sales only popped 8%.

Amazon was hardly alone in its uncomfortable first-quarter report. Walmart’s inventory jumped 32% from the previous year, compared to a 4% increase in sales. Best Buy’s inventories increased 9%, while sales declined by 8%. 


Target really wants you to buy a bunch of televisions and lawn chairs

America’s top retailers messed up – particularly the ones that focus on durable goods rather than groceries. Most of them released their earnings reports last month, saw shares take a beating and moved on.

Target followed that at first. Its earnings report on May 18 fell short of investor expectations, with an anticipated profit margin of 5.3%. Over-the-top inventories of kitchen appliances and electronics were the top culprit. Its stock sank by 25%. 

Then, the mega-retailer did something no one was expecting. On Tuesday, Target told investors it anticipated a profit margin more around 2%. It would slash prices on certain goods and cancel incoming orders. It’s highly unusual for a company to slash its profit expectations within weeks of its earnings report.

Target said in its Tuesday press release that the profit slash comes from a need to “right-size” inventories. People aren’t buying items like televisions, outdoor furniture and kitchen appliances like they were last year. Those are some of the delicate, bulky items Target paid dearly to bring over from Asia in 2021, amid record-high shipping rates. 

It’s all leading to what Forbes’ Madeline Halpert called “markdown mania,” and not just at Target. Gap is hawking $60 leggings for just $12. Target is selling televisions for 25% off and patio sets at a 52% markdown. In total, shares in consumer staples stocks have tumbled by about 9% from mid-April highs, while consumer discretionary shares are down by about 20% over the same period.

Few of us in the logistics world were surprised. After all, if trucks and ships are moving less stuff, it’s a sign that consumers aren’t buying as much and that manufacturers have curtailed their output.  

Sometimes it can be hard for us who toil in logistics to get the attention of lofty economists and traders. Even though I write about the companies that move everything we eat, wear, drink and most any other verb you could think of, I’m still told that I cover a niche industry. The ongoing downturn in trucking seems like it would only affect truckers – never mind the fact that a trucking recession has preceded nearly every recession since the 1970s, per research from freight brokerage Convoy.

The demand for random crap suddenly vanished, taking everyone by surprise

As my colleague Mark Solomon wrote last month on this “inventory bloat,” it’s challenging to forecast demand – even if you’re one of the biggest retailers in the world. We can return to that key metric of inventories-to-sales ratios, which, conveniently, the federal government tracks. 

We generally don’t like an inventories-to-sales ratio that’s too high – it indicates that people don’t have the cash to buy stuff. But if it’s too low, like it was through much of 2020 and 2021, it means that there isn’t any stuff to buy. See: The “everything shortage” that dominated headlines last year. 


As you can see, the inventories-to-sales ratio is still very low, even if it is creeping up from the nadir of last year. That gives credence to some who argue that a recession isn’t in the cards for this year and could explain why the National Retail Federation declared on Wednesday that it expected port volume to roughly match the crazy numbers seen in 2021. (FreightWaves’ own research, which JPMorgan analysts lent credence to in a Wednesday note to investors, counters that.)

The ratio is more marked when you look at the major consumer goods, as Solomon reported (emphasis mine):

Furniture, home furnishings and appliances, building materials and garden equipment, and a category known as “other general merchandise,” which includes Walmart and Target, among others, reported higher inventory-to-sales ratios, according to government data analyzed by Michigan State.

For the latter sectors, the change has happened fast, according to Jason Miller, logistics professor at MSU’s Eli Broad College of Business. As of November, inventory-to-sales ratios were at pre-COVID levels, Miller said. They have since exploded upward.

To end, I’d like to emphasize that the vibes are abruptly off and no one really knows what’s happening. My colleagues who went to the Gartner supply chain conference in Florida this week found that executives were confused and not feeling very zesty. Transportation managers canceled orders in early 2020 predicting a recession, then found their hastiness left shelves empty and consumers furious. Now that they’ve built back up, customers aren’t buying anymore and their balance sheets are destroyed.

The whiplash is baffling.

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Forget China, There's Now A Ship-Jam In The North Sea

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by Tyler Durden
Saturday, Jun 11, 2022 - 06:35 AM

Tankers and cargo ships are currently jammed in front of the European ports of Rotterdam and Antwerp, as Statista's Martin Armstrong shows in the infographic below, based on a snapshot from FleetMon, an online tracking portal for ships. Further north off the mouth of the Elbe, a number of cargo ships are also moored and waiting to be allowed to enter the port.

This map illustrates how the global economy is once again suffering from delays in container shipping.

Infographic: Ship Jam in the North Sea | Statista

According to the "Kiel Trade Indicator" compiled by the Kiel Institute for the World Economy (IfW), almost two percent of global cargo capacity is currently stuck in the North Sea off the ports of Germany, Holland and Belgium. According to the IfW, the affected ships can neither be loaded nor unloaded.

"In the German Bight, about a dozen large container ships with a total capacity of about 150,000 standard containers are waiting to dock in Hamburg or Bremerhaven. The situation is even more dramatic off the ports of Rotterdam and Antwerp," the IfW reported.

Freight and container ships have also been jammed for weeks off the port of Shanghai and the neighboring province of Zheijang, as this Statista infographic shows.

Infographic: Shanghai Ship Jam Spells Supply Chain Trouble | Statista

You will find more infographics at Statista

The reason for the traffic jam was the stringent lockdown imposed on the city by the Chinese government.

This also affected port employees, which is the reason why the world's largest port currently has to make do with significantly fewer staff.

Following the relaxation of these measures, things are now looking up again with exports increasing significantly in May.

Fleetmon uses Automatic Identification Systems (AIS) signals from ships to display traffic volumes. These are used in shipping to exchange navigational data via radio. Every ship over 20m has to transmit an AIS signal. It transmits, among other things, call sign, vessel type, GPS position, dimensions and similar data.

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How New EU Sanctions On Russia Will Shake Up Global Energy Trade

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by Tyler Durden
Saturday, Jun 11, 2022 - 07:10 AM

By Greg Miller of FreightWaves,

The Ukraine-Russia war has already shaken up global energy markets. Sanctions finalized Friday by the EU will shake them up a lot more — not only for the tanker industry but also for American diesel and gasoline consumers.



The EU is a vastly larger buyer of Russian petroleum than the U.S., which banned imports from Russia in early March. The new EU sanctions will end Europe’s imports of Russian seaborne crude by Dec. 5 and refined products by Feb. 3, 2023.

Perhaps even more importantly, the EU will phase in bans on EU insurance, reinsurance, technical services or any financial services for tankers carrying Russian crude and products to any country, including current buyers in India and China, over the same time frames.


The U.K. is also set to ban insurance and reinsurance for such tankers.

Over 90% of the world’s ships are insured in Europe and the U.K. The insurance ban could have “a dramatic impact on seaborne trade of Russian oil and oil products,” said brokerage and consultancy Poten & Partners. “The potential implications cannot be overstated.”

Russia crude exports

What does the new EU import ban have to do with U.S. fuel buyers? And how could tanker owners be affected?

Since the war began, Russia has been able to keep its crude exports flowing. It is replacing lost sales to the West with sales to India and, to a smaller extent, China.

Even before the ban, the EU has replaced 1 million barrels/day (b/d) in crude purchases from Russia, according to a Morgan Stanley report on Monday. But “there are limitations to the degree this ‘swap’ can extend further,” it said. As a result of those limitations, as well as supply contracts due to expire, it expects Russian crude production to decline by 1 million b/d between now and year-end.

Lower crude production in Russia — to the extent it’s not replaced by OPEC, the U.S. and others — is a tailwind for oil prices.

In tanker trades, the longer distance traveled by post-invasion Russian cargoes has boosted spot freight rates for Aframaxes (tankers with capacity of 750,000 barrels) and Suezmaxes (1-million-barrel capacity). These small and mid-sized tankers can be accommodated at Russian terminals.

To the extent Russian cargoes are eventually replaced by Middle East exports, tanker demand would shift toward higher-capacity VLCCs (very large crude carriers; tankers with 2-million-barrel capacity), according to Evercore ISI analyst Jon Chappell.

Yet there are a lot of moving pieces. Ship brokerage BRS made the counterargument Tuesday that the EU would source more crude from the U.S. — cargoes largely carried on Suezmaxes — leaving less U.S. crude to be exported to Asia, cargoes that move aboard VLCCs.

Russia diesel exports

The Russian export situation is much different in the product sector, particularly for diesel, than for crude, according to Morgan Stanley.

With the EU ban on top of the U.S. ban, Morgan Stanley believes Russian petroleum products will have a much harder time finding sufficient alternate buyers.

“If [Russian] refineries indeed struggle to find alternative buyers, it is likely that their own production would need to decrease. It seems likely that both crude oil production and refinery runs will decline over time, reducing supplies of both crude [and products] — especially diesel — to the rest of the world.”

To the extent lost Russian flows can’t be replaced by new refinery output elsewhere, that’s more bad news for diesel buyers. The average retail price of diesel in the U.S. hit a new record high of $5.703 per gallon this week.


EU restrictions on shipping insurance

Those outside of shipping circles may not yet grasp the significance of the EU (and expected U.K.) ban on insurance for ships with Russian crude and products cargoes bound for non-EU destinations.

“This is a critical measure” that will affect “a significant portion of the global tanker fleet,” emphasized Poten & Partners.

“This will likely prevent many mainstream owners from lifting Russian cargoes,” said BRS.

When the U.S. levied sanctions on tankers carrying Iranian and Venezuelan crude, exports ultimately kept flowing. Cargoes were loaded aboard older tankers with obscured ownership and no Western insurance and finance ties. Transactions were not conducted in U.S. dollars.

Tanker owner Euronav (NYSE: EURN) frequently highlights this issue on conference calls, referring to it as the “illicit trade.” At last count, Euronav estimated that this fleet had stabilized at around 55-60 elderly VLCCs, plus around 30 Suezmaxes.

‘Illicit’ trade to surge?

In order to maintain export flows after EU sanctions kick in, Russia and/or its cargo buyers would have to find enough replacement tankers, either by using already sanctioned Russian vessels or tapping the “illicit” fleet.

According to BRS, “Although [the insurance ban] will discourage mainstream tanker owners from lifting cargoes, it will not likely discourage niche tanker owners whose vessels are already involved in the transport of illicit Iranian and Venezuelan oil.”

The question is: Are there enough crude and product tankers available to enter this legally grey trade by the time EU sanctions kick in, beyond those already serving Venezuela and Iran? Poten estimated that “if the insurance ban takes most of the international fleet out of the equation,” Russia would need to secure services of 20 Aframaxes (for ship-to-ship transfer), 51 Suezmaxes and 43-48 VLCCs.

“Finding these vessels and arranging insurance could be very challenging,” warned Poten. “It may also make it difficult for these vessels to get employed in regular international oil trades.”

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“Companies just need to switch to electric trucks” 

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