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MODE INSIGHT

November 2023 – Transportation Market Overview

TRUCKLOAD INTERMODAL LTL PARCEL INTERNATIONAL

November 2023 MODE Insight

TRUCKLOAD A Shipper Friendly End-of-Year Key indicators of the truckload (TL) market, FreightWaves Outbound Tender Rejection (OTRI), DAT National Spot Rates and Internet Truck Stop (ITS) National Spot Rates are all showing downward trends. The OTRI, which measures carrier tender rejections across some of the largest TMS providers in the transportation industry, is showing a decrease of early October levels to 3.5%. As illustrated by the graph below, this OTRI is lower than levels going back to 2020. Going back to pre-pandemic levels, and a historically down market in 2019, we still observed an OTRI at roughly 5%. This is a good indicator that we are in one of the worst peak seasons in recent history. Source: sonar.surf

DAT National Spot Rates and Internet Truck Stop (ITS) National Spot Rates are valuable macro-market indicators on pricing trends. They have both been indicating decreases in rates since September, which has been observed to have a direct correlation to the National OTRI. As illustrated by the Truckstop 7-Day Van RPM chart, rates have historically seen an increase toward the end of the month. Capacity will tighten as drivers go home for the holiday season, leading to increases in both national and market-to-market averages. This typically lasts through the New Year; however, during bear markets the holiday capacity constriction tends to be less than bull markets. Annual decreased profits for small fleets and owner operators motivates them to be more active during the holiday season and take advantage of the national rate increases. This benefits shippers as they see less of a peak-season transportation premium than they do during bull markets.

November 2023 MODE Insight

TRUCKLOAD UPDATE Source: DAT.com/trendlines

National Spot Rates Spot load posts increase by 9.5%

$2.49 $2.51 $2.48 $2.45 SEP OCT AUG NOV est.

$2.08

$2.11 $2.09

AUG SEP

$2.50 $2.52 $2.46 $2.47 AUG SEP OCT NOV est.

$2.07

OCT NOV est.

DRY VAN

FLATBED

REEFER

Source: sonar.surf

November 2023 MODE Insight

INTERMODAL Current Market Union Pacific is trimming the ranks of the railroad’s management employees as part of the new CEO’s push to eliminate layers of bosses involved in decision-making. The railroad, based in Omaha, Nebraska, said Wednesday that it is eliminating less than 5% of its roughly 5,600 management jobs. Everyone who is losing their job was encouraged to either apply for a job helping operate or maintain Union Pacific’s trains or to stay on for several months to help tackle one of about a couple dozen special projects. To improve Intermodal service, railroads including giants CSX, Norfolk Southern and BNSF have said they cut too deeply in 2020 when the global economy went into a tailspin during the early months of the COVID-19 pandemic. They have stated it has been difficult to recruit and train new workers to increase operations as volume levels have picked up and they plan for future increases, later in the decade. “We need to highlight what we’ve put into our operations to make the experience better for our customers; how we’re making intermodal more reliable, more consistent and show we’re now in a different place today,” BNSF Vice President of Domestic Intermodal Katie Hower said. Lawrence Gross, Intermodal Expert and Freight Transportation Analyst, says intermodal service is improving and he and others pointed to figures that showed in the first week of September, year-over-year train speeds improved by 3.8% and on-time performance climbed by 12%. The U.S. Department of Transportation's Maritime Administration announced $653M to fund 41 port improvement projects across the nation under the Port Infrastructure Development Program. These projects are designed to strengthen supply chain reliability, create workforce development opportunities, speed up the movement of goods and improve the safety, reliability and resilience of ports, U.S. Department of Transportation officials stated. Auto and machinery volumes in September jumped 61% at the Port of Brunswick in Georgia. Colonel's Island Terminal handled 70,645 units of roll-on/roll-off cargo, up from 26,750 units in the same month last year, according to a news release. Meanwhile, containers moved by intermodal rail at the Port of Savannah also registered strong growth in September, increasing 8% year over year to a total of 45,386 units. Rail containers accounted for 20% of total cargo handled by the GPA in September.

November 2023 MODE Insight

LTL Yellow Asset Liquidation Old Dominion and Estes were the big stalking horse competitors for Yellow’s network of 174 owned terminals, and subsequent land, with Estes coming out on top with a bid of $1.525B. Yellow will now consider offers on individual assets, from a variety of interested parties, in an effort to drive the total price up and beyond the Estes stalking horse bid. Bids were due on November 9, with the possibility of an auction at the end of the month, if needed. Jack Cooper, one the largest U.S. privately owned auto transport companies, is also making a push to have the U.S. Treasury extend the terms of its $700M infusion from the COVID days in a long-shot attempt to rescue Yellow from bankruptcy liquidation. Either way, we should know the “winner” before the end of the year.

LTL Market Update As we move into the Q4, it is clear many LTL carriers are picking up steam sequentially and capitalizing on the recent landscape change regarding Yellow. On average for Q3 2023, shipments were up 4% to 5% over Q2 2023, with revenue coming in ~7% up and carrier yield rising 5% to 6% on average. Considering current economic conditions and changes in shipment dynamics, while also understanding the sequential gains predominately come from what once was Yellow’s book of business, which had a lower weight per shipment compared to many of their competitors, tonnage only increased 1% to 2% over Q2 2023, and average weight per shipment dropped 2% to 3%. Source: Freightwaves

November 2023 MODE Insight

LTL UPDATE LTL Pricing LTL carriers are locked in on price increases, and we expect that to continue through the end of the year. While contracts are renewing in the mid-single-digit range at the moment, expect renewals on unfavorable freight profiles, especially with extreme length configurations, to renew at a much higher clip. You could potentially see your renewal come in from your carriers earlier than normal as well. Saia has already announced their GRI and it’s coming early December, compared to early Q1 2024, and it’s at 7.5%. The renewed yield improvement focus has some shippers testing the market for rates and new providers, while others are doubling down on internal cost improvements and working strategically with their existing carrier partners on lowering their costs to the carrier.

Fuel U.S. highway diesel retail prices had been on the rise three consecutive months heading into October, with September’s price per gallon coming in at $4.563, which is $.193 higher than August’s average price per gallon. While October started off with the first weeks U.S. average cost per gallon sitting at $4.593, up $.03 over September’s average price per gallon, we ended the month of October with diesel retail prices declining to average $4.507 per gallon for the month. After consecutive weeks of price per gallon declines, we start November trending down on the U.S. average cost per gallon coming in at $4.366.

November 2023 MODE Insight

PARCEL Parcel Outlook The last three years have been a rollercoaster in our industry, with higher demand and costs than we have ever seen. So where are we now, and where are we going with parcel costs in the future? Several pivotal factors will shape our trajectory: Macro Economic Influences: The prevailing macroeconomic conditions in the United States are poised to exert upward pressure on costs, fueled by sustained elevations in fuel and labor expenses. While inflation is anticipated to stabilize at around four percent, the overarching impact on our industry remains a dynamic challenge. UPS/Teamsters Agreement: The recent accord between the Teamsters and UPS is a positive development. Nevertheless, the concessions and heightened wages translate to an increased cost for UPS. Given the company's unwavering focus on margin preservation, these increased costs are likely to cascade down to shippers and, ultimately, end consumers. FedEx's Strategic Shifts: In response to a shifting landscape, FedEx is streamlining its diverse business units to enhance efficiency and curtail costs. Although the primary objective is cost reduction, it remains to be seen if these benefits will be reflected in reduced rates for shippers and consumers. FedEx's priority is channeling these cost savings to fortify its margins. Competitive Dynamics: The competitive landscape is another significant factor influencing parcel rates. The USPS is rolling out its Ground Advantage program, a strategic move to attract new volume. Simultaneously, Amazon's strategic shift toward handling a larger share of its shipping volume is reshaping the competitive landscape, thereby diminishing its reliance on UPS. With a constrained overall volume, heightened competition among carriers is inevitable. Historical Price Trends: Looking over the past 10 years has shown a much higher growth of surcharge increases (15%/yr) than freight increases (5%/yr), the highest ones have to do with residential shipping, size and rural deliveries. As we gaze into the future, understanding these multifaceted factors positions us to navigate the evolving terrain of parcel costs with strategic acumen and foresight.

November 2023 MODE Insight

INTERNATIONAL Key Market Themes in November Supply: Ocean carriers go overboard on blank sailings while still removing some services. Demand: U.S. Import volumes unexpectedly show some increases in October. Outlook: Trans-Pacific rate indexes show some strengthening in late October.

US Import Volumes Improve in October Container volumes for U.S. imports showed a surprising recovery in the second half of October and remain strong going into November. Whether due to inventory restocking or some other reason, inbound volumes in the last two months of the year could be stronger than expected. October 2023 U.S. container import volumes increased 4.7% from September 2023 to 2,307,918 TEUs. Compared to October 2022, TEU volume was higher by 3.9% and up 11.4% from pre-pandemic October 2019. The growth in import volume over the first ten months of 2023 is within 3.4% of the same period in 2019.

November 2023 MODE Insight

INTERNATIONAL UPDATE Over the past six years, import volumes have increased from September to October as it is one day longer and has no major holidays. October 2023 import volume maintained this trend with a solid increase over September volumes. It was the third best October ever for U.S. imports, with the exception of the COVID boom in 2020 and 2021. The overall U.S. volume of imports continue to outpace pre-pandemic levels. Total imports in January through October of this year were up 3.4% versus the same period in 2019, up 4.4% versus 2018 and 11.8% versus 2017.

Aggressive Blank Sailing Programs Manipulate Capacity In an effort to reverse rate erosion in September, transpacific capacity was slashed by 600,000 TEU in October – more than 20% of effective Transpacific capacity. Ironically, carriers may have cancelled too much capacity through October and now have moderate-to-severe backlogs at main Asia ports. Carriers are now facing cargo backlogs in the thousands of TEU in Asia as services try to normalize. However, some of the recent capacity rationalization will be longer-term. THE Alliance has already removed its PN3 service in October – representing 13% of total capacity between Asia and the Pacific Northwest. They will also remove the EC4 service next, so their Asia-U.S. East Coast supply is expected to shrink by 7% with that move. Ocean Alliance and 2M carriers are also rumored to be finalizing a rationalized deployment plan for the winter months as well. Shippers will likely see some backlogs and rollovers because of these capacity changes into midNovember.

November 2023 MODE Insight

INTERNATIONAL UPDATE Rates in the Trans-Pacific Trade Showing Some Improvements Trans-Pacific spot rates have strengthened recently and remain within the normal pre-COVID range. The Drewry World Container Index for spot rates from Shanghai to Los Angeles was $2,175 per forty-foot equivalent unit in the first week of November. Current rates in this lane are 20% below the WCI index of 2018, when rates were inflated by the Trump tariff effect, and 38% above 2019 levels, when rates were depressed because imports had been pulled forward due to the tariffs. The Shanghai-Los Angeles index is currently 33% above 2017 levels.

Delays at US Ports Show Improvement in October Overall, port transit delays improved in October. West Coast ports saw transit time reductions versus September 2023 and now at some of the best levels in recent history. East and Gulf Coast ports stabilized with Norfolk and Houston seeing overall transit delay decreases.

November 2023 MODE Insight

INTERNATIONAL UPDATE Panama Drought Not Impacting US Container Import Volumes Yet While Panama’s severe drought continues, the Panama Canal authorities continue to reduce the number of ships passing daily. However, the drought still does not appear to be impacting U.S. container import volumes. Volumes at Gulf Coast ports are following overall U.S. container import volumes and were at their highest for the year in October. And, as referenced in the previous graph, port delays in Houston have improved as well.

Forward Market Outlook Although load factors are high today and will likely remain so through early November, we expect rates to start a downward trend again by mid- to late November. Spot rates should increase in early November but will likely finish the month $200-$300 lower. Once the majority of October backlog is cleared in mid-November, expect rates to inch downward, particularly to the U.S. East Coast where demand is softer than to the U.S. West Coast. Capacity, notably to the Pacific Northwest and U.S. East Coast, will be fluid in November as blank sailings continue. Capacity to the Pacific Southwest looks to be stabilizing, and this will likely cause rates to soften in November. And although short-term capacity projections are recovering, carriers are still not finished with broader winter capacity restrictions that may further alter supply dynamics to close the year.

ILA Contract Negotiations With the International Longshoremen’s Association (ILA) contract expiring with the USMX, representing the East and Gulf Coast ports, negotiations have been ongoing regarding many issues including wage increases and limitations of automation within the marine terminals. With the many carriers and terminals cashing in during the pandemic disruptions, the ILA, like their counterparts on the West Coast, have their eyes set on significant wage increases for their members, but at this time, the two parties appear to be far apart on the negotiations. In the first week of November, the president of the ILA advised his membership that they should start saving money with the prospect of having to strike next October with the contract expiring on September 30, 2024. This would be the first coast wide strike in over 40 years. There are around 45,000 members of the ILA locals that would be walking off the job if this occurred.

November 2023 MODE Insight