The Impact of Global Freight Recession on Major Shipping Companies

Current Trends in Freight Rates

Major shipping companies like Matson and UPS expect higher average freight rates in 2024 compared to 2023, driven by strong e-commerce demand and capacity constraints. Conversely, Amazon reports lower transportation rates, indicating mixed trends across different segments of the freight industry.

"We also expect average freight rates to be higher than the 2023 levels. We're in a good position with CLX and MAX, and our primary focus with these two service is to consistently demonstrate the speed and reliability that our customers have enjoyed." --- (MATX, earning call, 2024/Q1)

"Within international air freight, strong e-commerce demand particularly in China outbound, drove an increase in volume and lifted market rates as demand outpaced capacity, resulting in an increase in revenue. On the ocean side, total volume and revenue was down year-over-year." --- (UPS, earning call, 2024/Q2)

"- 50 -   The following graphs for FedEx Express, FedEx Ground, and FedEx Freight show selected yield trends for the years ended May 31:   (1) International export revenue per package relates to our international priority and economy services." --- (FDX, sec filing, 2024/Q4)

"Operating margin was 5.8%, up 460 basis points year-over-year. We saw improvements in our cost to serve, including continued benefit from our work to regionalize our operations, savings from more consolidated customer shipments, and improved leverage driven by strong unit growth and lower transportation rates." --- (AMZN, earning call, 2024/Q1)

"The Company also expects average freight rates in 2024 to be higher than the levels achieved in 2023." --- (MATX, sec filing, 2024/Q1)

Changes in Shipping Volumes

Shipping volumes have generally decreased, with UPS and FedEx reporting declines in ground commercial shipments due to economic conditions. Matson also experienced a 5.1% drop in container volume in Alaska. However, UPS anticipates an increase in air cargo volumes from a new USPS agreement, potentially offsetting some declines.

"While there were no significant changes to our allocation methodologies in the first quarter of 2024, we expect additional air cargo volumes from our recently-announced agreement with the USPS will result in a greater share of air network expense being allocated to Supply Chain Solutions beginning in the second quarter of 2024." --- (UPS, sec filing, 2024/Q1)

"And as a result, we're going to play out our contractual commitments and then aggressively go after the network changes, not only the changes, but also the opportunities that it creates to be more flexible with our network once that contract is no longer in place because it's currently burdened by lower volume requirements on us that are not as profitable as they once were." --- (FDX, conference, 2024/05/13)

"In Alaska, the Company's container volume for the first quarter 2024 decreased 5.1 percent year-over-year primarily due to one less northbound sailing." --- (MATX, press release, 2024/04/30)

"Average daily volumes for Ground commercial shipments decreased by 5.6%, due to the general economic conditions discussed above." --- (UPS, sec filing, 2024/Q1)

"Awesome. Within Ground, let's switch over to Ground for a bit. Starting with volumes, virtually again no growth as economy and Ground Commercial have offset home delivery declines. Just a statement of the economy or is there" --- (FDX, conference, 2024/05/13)

Supply Chain Disruptions

Supply chain disruptions have led to significant changes in shipping patterns, with FedEx experiencing a bullwhip effect and UPS expanding operations in response. Both companies are adapting by optimizing supply chains and anticipating shifts, such as moving operations to Mexico.

"And so the supply chain bullwhip effect that we are seeing right now. So from a FedEx perspective, we've if you go back like Rip Van Winkle, I went to sleep in 2020 and woke up today, we grew roughly 6% CAGR in the last 4 years and comparable to the last 25 years, except the fact that there was a huge spike for 2 years and then a modest decline in the last year." --- (FDX, conference, 2024/05/29)

"We expect the same thing we are ahead of the supply chain shift into Mexico." --- (UPS, earning call, 2024/Q2)

"Yes. The supply chain patterns are fundamentally changing and we can see it." --- (FDX, conference, 2024/05/29)

"customers by reaching their destination in just two business days. And in supply chain solutions, we've expanded our supply chain operations at our Frankfurt Airport Gateway, by adding nearly 25% more warehouse space." --- (UPS, earning call, 2024/Q2)

"But most importantly, we were able to then let our customers know how best to optimize their supply chains given the latest in weather, traffic conditions and so on." --- (FDX, conference, 2024/05/29)

Regulatory Changes and Impacts

Regulatory changes significantly impact major shipping companies by altering business levels, increasing operational costs, and affecting project timelines. Companies like FedEx, UPS, and Amazon face challenges from regulatory approvals, climate change policies, and waste management regulations, which can lead to higher expenses and potential financial risks.

"However, such amounts may differ materially in the future due to changes in business levels, technological obsolescence, accident frequency, regulatory changes, and other factors beyond our control." --- (FDX, sec filing, 2024/Q4)

"The acquisition is targeted to close by the end of this year, subject to customary closing conditions and regulatory approvals." --- (UPS, press release, 2024/07/22)

"The most relevant assumptions associated with forward-looking statements on announced projects and projects under construction, including estimated in-service dates and the realization of anticipated benefits, include the following: the impact of litigation and government, regulatory and stakeholder actions and approvals on construction and in-service schedules; the availability and price of labour and construction materials; the effects of inflation and foreign exchange rates on labour and material costs; the effects of interest rates" --- (AMZN, press release, 2024/05/22)

"end up being an immense waste of time, money and effort. 2nd, that this mass climate change doomsday hysteria, which the company is directly participating in by setting these goals by putting out an anti energy message and by contributing to organizations that advance this agenda generally has a negative impact on the affordability and availability of fossil fuels for everyone everywhere, thereby making operations for the company more expensive and reducing investment in the company." --- (UPS, event transcript, 2024/05/02)

"The growing plastic pollution crisis poses increasing risks to Amazon. Corporations could face an annual cumulative financial risk of $100,000,000,000 should governments require them to cover the waste management costs of the packaging they produce, a policy that is increasingly being enacted around the world." --- (AMZN, event transcript, 2024/05/22)