Shipping & Freight News

As the fiscal third quarter draws to a close, the freight market is slowing, but not collapsing like the spot market just yet. A muted fall freight season can be expected as consumer spending shifts focus from goods back to services. Inflation, which continues to increase prices on essentials, will also eat into consumer spending overall, further weakening freight demand. The Federal Reserve is staying its course with further rate hikes expected in the coming months in response to continued inflation.

“It looks like we’ve hit peak inflation in terms of goods,” explains Bob Costello, Chief Economist Senior Vice President at the American Trucking Associations. “But services [inflation] is going up and accelerating, so that’s really what the Federal Reserve is grappling with.”

The global fuel market continues to cause concern in the transport industry. As European nations look for alternatives to Russian fuel exports, the US market is expected to shoulder some of the burden in the form of diesel exports. These pressures could add strain to a stressed domestic fuel market, where the supply of diesel is already running lean. This strain will only worsen this winter as temperatures drop and a greater portion of the fuel supply is needed for home heating.

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This issue presents a tough choice for Federal policymakers torn between supporting our interests abroad and maintaining a functioning domestic fuel market.

“One of the things this administration is grappling with is, do we put an end to diesel exports? That’s a tough thing to do, because it’s out allies in Europe that are going to need it as they’re weaning themselves off of Russian energy products,” says Costello.

The Biden administration has tapped the nation’s strategic oil reserves to alleviate some of the strain on the fuel market. This move comes after the OPEC+ nations’ announcement that they were cutting overall oil production. As a result, the US strategic reserves are at their lowest inventory level in decades. This could be a tenuous position if emergency should strike, further bolstering the argument for suspending diesel exports.

Part of the nation’s fuel supply woes can be chalked up to reduced production. The number of refineries operating in the US is decreasing rather than increasing in a time when demand for fuel is higher than ever. Again, policy decisions may have a direct impact on this outcome.

“Do you really want to invest billions of dollars into a refinery when you see that the US government is pushing alternative fuels? I don’t know that you want to do that,” says Costello.

The refineries that are still operating are often not compatible with the types of oil that are produced in the US, leading to back-and-forth trade on the global fuel market. Shale oil extraction, which accounts for a large portion of oil obtained domestically, yields a so-called “light-sweet” crude product, whereas most US refineries are set up to refine the “heavy-sour” product traditionally imported from sources such as Venezuela.

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Venezuelan oil has been off the menu since that nation’s shift toward socialism and the resulting US trade embargos. With demand pressures mounting, there is some suggestion that the Biden administration might look to reopen trade relations. This highly controversial move would do little to ease current pressures, as complex international trade relations take time to establish.

With high inflation and mounting energy concerns, where is the economy headed as the year draws to a close?

“I think the likelihood of a recession happening has definitely gone up,” says Costello. “The baseline forecast right now is for a not-terrible recession, but a recession nonetheless, probably early next year. And it’s going to be relatively short.”

It will take at least 6-9 months to see if the Fed’s aggressive rate hikes have had their intended cooling effect on inflation. With this window in mind, a moderate recession in the early part of 2023 does seem increasingly likely. Energy prices are more difficult to forecast, but trends also point toward continued increases. In short, the economic outlook for the transport economy remains rocky.

For a logistics partner you can trust through whatever the market has in store, look to the 3PL experts at Triple T Transport. Our team has decades of experience in the transport industry and are standing by to assist you with the world-class services you’ll need to survive the challenges to come.