What Does Slower Economic Growth Mean for Transportation Markets in 2022?

By Brian Whitlock | May 10, 2022 | 0 Comments

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Throughout much of 2021, the landscape across global transportation modes was similar: a lack of supply, strong demand and compounding disruptions. Demand remained relatively strong throughout the year, with global GDP growth of 5.8%. This year looks to be quite different, with global GDP growth forecasted to be 3.2%, a 45% reduction1. Lower GDP growth should result in lower demand for transportation, and, against relatively stable supply, one would expect to see improvements in transportation markets. But not so fast. Ocean, air and European road freight markets are likely to remain challenging throughout 2022. U.S Road freight, on the other hand, is already exhibiting signs of moderating demand.

Entering midyear and beyond, it’s important to understand the dynamics of supply and demand on each market and how disruption will play a role. Shippers need to modify strategies to accommodate these changes and, by making some forward looking assumptions, should ensure flexibility in their scenario plans.

Ocean Freight

Fortune reports that roughly 20% of the world’s 9,000 or so container ships remain locked up at ports around the world, continuing the challenge of reducing global capacity. This figure remains little changed from many periods in 2021. Throughout the past year, supply disruptions have caused capacity shortages by dislocating equipment and tying up ship capacity at congested ports. This year will be no different. As a matter of fact, global ports remain congested. Only now, 30% of the ship backlog is in China ports, double what it was in February2, due to aggressive COVID-19 lockdowns throughout the country.

The best measure of supply and demand is the spot market for ocean containers. And as of the end of April, all-in cost to ship a container from Asia to the United States and Northern Europe were more than $15,000 and $11,000, respectively. And while the Europe cost is down nearly 20% from the end of December, the Asia-to-U.S. cost is up slightly at 2.5%3.

The key for the ocean markets is an improved supply picture, which is not likely to transpire in the near term for two reasons: global ports remain congested due to port and inland capacity constraints and disruptions from COVID lockdowns continue to play havoc with an even flow of cargo movement.

Recommended Action: Establish contracts for capacity and price and partner closely with carriers.

Air Freight

The air freight market remains little changed. IATA reports that there continues to be a gap of 20% between supply and demand4. And as we have seen throughout 2021, spill-over demand from ocean freight will likely continue in 2022 as shippers look to avoid congestion and other disruptions, including the potential labor negotiations at ports along the U.S. West Coast. If further disruptions are experienced, nontraditional air freight shippers will add to the mix of companies looking to charter or move goods via air.

Much of the world has made significant progress in dealing with COVID outbreaks, minimizing disruptions in the economy. However, that can’t be said for the world’s largest source of products — China. With more than 28% of the world’s manufacturing output5, China’s response to COVID outbreaks reverberates around the world. And at the present time, more than 180 million Chinese residents are under some sort of lockdown6. These and future disruptions will continue to add to volatility in the air freight market, which IATA forecasts will not return to 2019 levels until 2024.

Recommended Action: Plan for volatility throughout 2022 and ensure forward demand is covered.

Europe Road

The European road freight market has experienced four quarters of increased rates, with the largest increase —  4.3% — coming in Q1 of 2022, according to Ti and Upply’s Q1 2022 European Road Freight Report7. Several factors are influencing rising cost, including record high fuel prices (up 52.7%) combined with supply constraints. In particular, the Russian invasion of Ukraine has impacted the driver pool, with Ukrainian drivers returning home to fight and Russian drivers losing contracts. The current driver shortage of 400,000 is forecast to increase to 425,000 later this year. And the EU Mobility package has yet to really show through in the numbers, with only five countries having fully implemented the legislation in February.

While GDP growth will slow the most in the Eurozone compared to much of the rest of the world, supply constraints coming from high fuel costs, driver shortages, the yet-to-be-felt impacts of the mobility package, inflation and consumer sentiment will all weigh on supply, keeping capacity tight and rates high.

Recommended Action: Plan for further capacity constraints and cost increases in operating plans.

U.S. Road Freight

The United States is the one market that is seeing a change due to slower growth. Spot market truckload rates have been falling since early February and tender rejection rates that ran above 20% throughout 2021 are now less than 10%. The softness in these figures is being driven not only by demand moderation but also from an increase in supply from small operators who entered the market in 2021. CH Robinson’s analysis shows a 10% increase in the number of tractors that entered the market in 2021 from this group. Load volumes have also decreased throughout April, further evidence of slowing demand8. And while load volumes are still roughly 25% higher than prepandemic levels, they are on a declining trajectory.

Some analysts believe the U.S. truckload market will be entering a recession in 2022, but at this point growth still exists, it’s simply slowing. Load volume is up 25%9 over prepandemic levels and 10% of all loads are still rejected. Nonetheless, there is potential for a continued decline. Headwinds to lower costs include higher labor, fuel, equipment and insurance costs.

Recommended Action: Assess the impacts of moderating demand but be prepared for supply shocks from ocean market spillover and other potential disruptions.

In summary, disruptions — especially COVID lockdowns in China — are likely to continue affecting supply. High costs for energy, labor, equipment and insurance will also weigh heavily on transportation markets, adding further pressure to price.

Brian Whitlock
Senior Director Analyst
Gartner Supply Chain
Brian.Whitlock@gartner.com

 

  1. The Global Economy Disrupted: Higher Inflation and Slower Growth in the 2022 Outlook, IHS Markit / S&P Global
  2. China’s COVID-19 Lockdown is Inflaming the World’s Supply Chain Backlog, With 1 in 5 Container Ships Stuck Outside Congested Ports, Fortune
  3. Freightos Baltic Index (FBX): Global Container Freight Index, Freightos
  4. International Air Transport Association (IATA)
  5. China Is the World’s Manufacturing Superpower, Statista
  6. 180 Million People Impacted by China’s Covid Lockdowns. Here’s What You Need to Know, CNN
  7. The Ti, Upply & IRU European Road Freight Rate Development Benchmark Q1 2022, Transit Intelligence
  8. North American Freight Market Insights, C.H. Robinson
  9. Will the Bullwhip do the Fed’s Job on Inflation?, FreightWaves

 

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