National Hardwood Magazine - February 2024

Stephen A. Zambo The AGL

Stephen A. Zambo The AGL Group Jacksonville, FL Lumber Shipping Companies Are Cautiously Optimistic As Traditional Trends Return Lumber shipping companies saw that their trends year over year have begun to revert back to how traditional markets have been in the past, but they hold a cautious optimism as geopolitical factors can easily affect the supply chain strategies. One shipper noted, “We slowly saw the industry normalize over the last 12 months and it is back to pre-pandemic levels. I do not foresee any substantial increases in our export shipments over the next 12 months.” Despite seeing their markets slowly return to the traditional trends, a lumber shipper remarked, “Asking me to predict shipping volumes in the first quarter of 2024 is akin to throwing spaghetti at the wall and seeing ‘what sticks.’” A shipper stated, “The only constant across all industries is that margins are being squeezed. Going into the New Year, we can all be hopeful that the economy starts to pick back up, but I am not sure that is what we will see.” 2023 was a very interesting year. There are trends within the marketplace that we see year over year, decade over decade. The trends may have some variability, think COVID, but outside of that, trends have remained relatively spot on over the long term. In 2023, we saw the first quarter buck normal export trends. We typically see a slow January and February with freight picking up in March. This past year we saw a very strong first and second quarter. Export volumes took a large hit from June all the way through about October in 2023. That is more in line with how traditional markets have been in the past. In 2023, the supply chain issues were nothing in comparison to 2021 and 2022. 2023 has been stable. Trucking availability has been a non-issue and steamship lines on most lanes have availability. Of course, this fluctuates from time to time, but rarely is a booking more than two weeks out as it stands. One item to keep an eye on is a potential strike on the East Coast sometime in 2024. After negotiating record deals on the West Coast, the union on the East Coast is saying that it will hold firm by striking in 2024 if there is not a new deal negotiated. That would be a very large issue for the forest products industry as 80 percent of Hardwood exports are routed via the East Coast. Until there is more concrete information and the date of strike approaches, this is something to monitor. A very important topic no one talks about when looking forward at freight rates is the amount of steamship line capacity coming onto the market in the next 18 months. On average there are about 375,000 containers worth of new space entering the market annually. In 2024 alone there is north of 1,200,000 containers worth of new ship builds coming online. Unit economics lead us to the obvious conclusion of continued cheap freight rates. More space with the same demand equals low freight rates. More space with less demand equals low freight rates. I am confused as to what the steamship line carriers are doing from a unit economics standpoint. At the end of 2023, we were back to enjoying historically low freight rate levels. The rates have no where to go but up. I do not believe we will see large increases, 10-15 percent over the course of 2024 on the ocean carrier side. Trucking companies on the other hand are having a very challenging time. There is less freight both on the export and import side, with more trucking capacity leading to reduced trucking rates over the last six months. I believe you will see some companies reduce fleet size, close their doors or start to increase prices. They do not have an option. Containers are readily available at the ports and are not readily available at some inland locations. I expect this trend to remain as it typically does. The cost of containers are stable for now, and may increase over the next year or so by about 10-15 percent. Shipping volumes in the fourth quarter were higher than what we forecasted based off of the second quarter and the third quarter. Economists and banks are calling for around 2 percent global growth in 2024. If that actually happens, we will see modest gains in export volumes, however, I am not so certain that we will actually see 2 percent growth. Asking me to predict shipping volumes in the first quarter of 2024 is akin to throwing spaghetti at the wall and seeing “what sticks.” Where the economy goes is anyone’s guess. We are heading into an election year with much uncertainty. There are currently multiple wars globally, interest rates have been elevated compared to the last decade and inflation has been a major issue. The only constant across all industries is that margins are being squeezed. Going into the New Year, we can all be hopeful that the economy starts to pick back up, but I am not sure that is what we will see. J Please turn to page 49 28 FEBRUARY 2024 n NATIONAL HARDWOOD MAGAZINE www.RealAmericanHardwood.com/industry www.RealAmericanHardwood.com/industry FEBRUARY 2024 n NATIONAL HARDWOOD MAGAZINE 29