Companies struggled with operating ratios in Q3 amid sluggish demand, according to earnings reports.

Knight-Swift Transportation Holdings, P.A.M. Transportation Services and Marten Transport experienced truckload difficulties in the metric, following bountiful demand last year, as the market put further sequential strain on carriers.

“Our earnings this quarter were significantly pressured by the industry-wide weak demand, cumulative impact of reduced freight rates with the resulting freight network disruption, and inflationary operating costs within the current freight market recession,” Marten Executive Chairman Randolph Marten said in an Oct. 18 earnings release.

Truckload operating ratios for Knight-Swift and P.A.M. as well as Marten’s overall business remained above 90%. Companies are striving to lower these rates to make better use of capital, and Knight-Swift is aiming to achieve that reduction by 2026 given its acquisition of U.S. Xpress Enterprises.

Carriers’ operating ratios remain high
Quarterly metrics since 2022, focusing on truckload.

Even when Knight-Swift excluded U.S. Xpress, its truckload operating ratio was 91.5%, CEO and President Dave Jackson noted in an Oct. 19 earnings call.

“We are just simply not comfortable with an OR that starts with a nine and our people are working with urgency to do all that we can,” Jackson said.

In other segments for Knight-Swift, adjusted operating ratios were mixed. The metric was 93.3% in logistics, 104.5% in intermodal and 84.9% in LTL, per an earnings presentation.

Operating ratios by trucking companies showed that this year, Knight-Swift’s truckload segment and Marten continue to worsen from Q1 onward, reaching their worst rates in Q3.

In contrast, P.A.M.’s worst operating ratio for truckload this year was in Q1 at 99.3%, and its best quarter for the metric was in Q2 at 92.7%.

“The third quarter of 2022 was one of the best in our company’s history while the third quarter this year was faced with an unprecedented unfavorable truckload market,” P.A.M. President and CEO Joe Vitiritto said in an Oct. 18 earnings release.

Despite the results, Vitiritto said in the statement that the company saw improvement in factors that the business believes will benefit the company when the market changes.

The persistent drag was in contrast to booming quarters last year. Knight-Swift dropped under 80% for its adjusted operating ratio in truckload last year for quarters in H1, and Marten reported its best operating ratios as a publicly traded company during that time.

By David Taube

Multistory warehouses have gained popularity in the U.S. over the past five years, catering to the evolving demands of the market.  Today, let’s explore the reasons behind their appeal and the impact they have on urban logistics.

First and foremost, warehouses have long been attractive to landlords due to their versatility.  Like traditional big-box warehouses, multistory warehouses offer the advantage of accommodating multiple tenants across various industries.  But unlike traditional big-box warehouses, they offer landlords the ability to maximize the use of available land by constructing vertically, providing multiple levels for tenants.

In particular, the resurgence of people moving to urban areas–like downtown Buffalo, NY–has created a need for multistory warehouses.  The rise of e-commerce and the need for faster delivery times have fueled the demand for well-located, urban warehouses.  Multistory warehouses, many of which are strategically positioned near urban centers, provide a solution that can meet these evolving needs while minimizing the impact on surrounding infrastructure.

But these warehouse-type buildings are not limited to serving logistics needs.  For example, with downtown apartments–and therefore less storage space–becoming increasingly popular, self-storage facilities have become a viable solution for apartment-dwellers.  Additionally, as more people move to these downtown apartments, there has become a need for grocery stores nearby.  Multistory warehouses, with their vertical design and efficient use of space, provide an ideal solution for meeting each of these demands.

This year marks the 5-year anniversary of multistory warehouse development in the U.S., a subset of buildings within the Urban Logistics inventory. These buildings differ from traditional big-box warehouses and have emerged to meet the growing demand and changing consumer behavior.

Recent data showing a dramatic decline in warehouse construction starts has some in the sector worrying about a lack of first-generation industrial space due to limited development activity.

Indeed, the slowdown is noticeable. Total space under construction peaked at 638 million square feet in mid-2023 before falling 17% to 546 million square feet during the third quarter. Completions are projected to peak during the fourth quarter at 180 million square feet, but are forecast to decline by an astounding 71% by the final quarter of 2024 to only 53 million square feet.

However, this will not be bearish for the booming sector’s prospects. On the contrary, the pause in development expected in 2024 is likely just what the doctor ordered.

The drop in construction starts is indicative of a healthy market responding quickly and appropriately to slowing demand and higher costs of capital. While vacancy is climbing due to record new supply hitting the market this year and next, it’s forecast to climb to only 6.5% by 2024. That is considered a functional and balanced vacancy rate where industrial users have multiple options to choose from yet the market isn’t oversupplied.

Demand for industrial space isn’t expected to return to the frenzied pace of 2021 or 2022. But it is forecast to remain robust when compared to historical cycles. This is due to continued growth of e-commerce, third-party logistics provider requirements, manufacturing onshoring, cold storage expansion and data center needs.

Typically, this imbalance between supply and demand would be cause for concern throughout the industrial sector, but a quickly contracting construction pipeline combined with a bullish forecast for demand suggests any imbalance will be short-lived and may even be good news for industrial occupiers.

In the near term, the influx of new construction product will provide industrial occupiers with more options to occupy than they have had since before the pandemic. If industrial construction were to continue unabated, some markets and submarkets would see skyrocketing vacancy rates as supply outstripped demand. Instead, balance is likely to return quickly and vacancy rates will stabilize at functionally healthy levels before beginning to fall again.

As the construction pipeline contracts over the coming 18 months, developers will be able to gauge demand for the new product being delivered and determine the best timing to begin the next wave of industrial development.

Understanding where we are today means recalling what we’ve recently been through. Over the past two years, warehouse and distribution sites were built at a pace the market could not have fathomed before COVID. Behind this activity was unprecedented demand for industrial space from occupiers like e-commerce giant Amazon, mega-retailers including Target, Lowe’s, Best Buy, The Home Depot and Kroger, as well as third-party logistics providers supporting numerous clients reorganizing their supply chain strategies and online sales approaches in response to the pandemic.

Demand was so impressive that net absorption – a demand indicator that measures the net change in occupancy – totaled 598 million square feet nationwide in 2021, more than twice the previous record of 290 million square feet recorded during a particularly strong year in 2016. Last year wasn’t far behind with an annual total of 493 million square feet.

As a result, vacancy in industrial buildings plummeted to all-time lows, dipping as low as 3.5% nationwide during the second quarter of 2022. In some key industrial markets like the Inland Empire, the industrial vacancy rate dropped below 1%, resulting in practically no options for industrial tenants to lease.

Industrial developers responded quickly by acquiring land and building warehouses and distribution facilities on a speculative basis as quickly as they could. Supply chain disruptions for construction materials complicated the process, forcing developers to get creative to get the project done. Pre-leasing of speculative projects — sometimes before construction had even begun — became common, even in markets that had never really witnessed pre-leasing in the past. Demand was still more frothy than ever for modern industrial space and tenants were leasing it more quickly than it could be built.

Higher interest rates and economic uncertainty are a couple of factors behind demand normalizing through the first three quarters of 2023. Net absorption has retreated from its record highs, averaging 60 million square feet per quarter so far in 2023 — in line with what the market witnessed prior to 2020. Developers are still as busy as ever, however, delivering the record amount of construction activity started in 2022. Vacancy is climbing in nearly all markets throughout the U.S. as a result, for the first time in years.

This disconnect between supply and demand will continue through the first half of 2024, as record construction completions outpace how quickly tenants can lease the space. The U.S. industrial vacancy rate is forecast to climb from its all-time low of 3.5% in mid-2022 to the 6.5% forecast during the second half of 2024. While the industrial market is being temporarily overbuilt, the good news is that it won’t last.

 

Russo Development and River Development are nearing the completion of more than 211,000 square feet of new logistics space just off Interstate 280 in Kearny.

The firms on Monday said the project, located at 1100 Harrison Ave., will bring new life to a former manufacturing site that was contaminated but has since been cleaned up. They’re now on track to deliver the speculative industrial building during the fourth quarter, seeking to capitalize on a location that is less than six miles from Newark Liberty International Airport, nine miles from Port Newark-Elizabeth and just under 11 miles from Midtown Manhattan.

They added that the single-story, 211,287-square-foot distribution center will have 38-foot clear ceiling heights, 41 loading docks and parking for 251 cars and 64 trailers, along with office space built to the tenants’ specifications.

“The most critical factor in logistics is project location. At Russo, we strategically select our locations to maximize efficiency and transportation costs for our tenants and that is exactly what 1100 Harrison Avenue’s location will provide, located less than a mile from the New Jersey Turnpike,” said Michael Pembroke, chief operating officer at Russo Development. “The connectivity that this development offers to New Jersey will be invaluable for our future tenant.”

River Development sourced the property in an off-market deal, according to a news release. Working closely with the multigenerational business owners, the firm advised and executed preclosing environmental remediation across local, state and federal agencies, while working with Russo and local officials in Kearny to lay the groundwork for the redevelopment.

NAI James E. Hanson’s Tom Vetter and Jeff DeMagistris lead the leasing team for the property.

“Russo Development was the partner of choice for us as much for their integrity as their bandwidth,” said Warren Waters, a principal and partner with River Development. “We interact with a wide cross-section of the company and its not a coincidence that we are developing multiple projects together.”

The firms noted that 1100 Harrison Ave. will have excess parking in a supply-constrained market and is minutes from other major highways including the New Jersey Turnpike and interstates 80 and 78. In addition, there is a workforce of more than 4.8 million within a 15-mile radius of the development and some 50 million consumers within a day’s drive.

Additionally, the site is within Kearny’s Urban Enterprise Zone, making it eligible for incentives such as a 50 percent reduction in sales tax for retail customers, corporate employee tax credits and priority financial assistance in accordance with state programs, the news release said.

 

New construction is outpacing leasing volume in New Jersey’s industrial real estate market, but a new report suggests that could change as development becomes increasingly difficult.

The research by JLL found that vacancy continued to tick up in the third quarter, to 4 percent, thanks to 8.1 million square feet of newly completed space. That represents the market’s second-largest quarter of deliveries on record, the firm said, while leasing activity in the state declined slightly in the summer to 6.4 million square feet, which is 21.3 percent lower than the trailing four-quarter average.

It all points to continued near-term growth in the supply of available warehouse and logistics space, but JLL noted that construction starts have leveled off as developers face increasingly fierce local opposition to their projects. That pushback and rising interest rates “have deterred and paused many projects,” the report said, noting that owners broke ground on just 1.8 million square feet of industrial space in Q3.

That’s 62.2 percent less than the quarterly average from the start of 2019 to mid-2023.

“We expect rents to plateau in the coming quarters as the recent wave of deliveries will need to lease up before landlords (and) developers push rents again,” JLL’s Vince Melchiorre, a research analyst, wrote in the report. “However, given the slowdown in groundbreakings, we expect rents to rise over the longer term due to the normalization in construction.”

In the meantime, the market has entered the fourth quarter after a period of subdued leasing activity, JLL said. And while vacancy remains below long-term historic trends, tenants have preleased just 30.5 percent all new space completed this year, well below the mark of 88.3 percent when the industrial sector was at its peak around two years ago.

Roughly 19.1 million square feet of industrial space was under construction heading into Q4.

“The state recorded just one new lease over 300,000 (square feet), dipping below the average of 3.25 seen over the trailing eight quarters,” JLL wrote. “The slowdown in big-box leasing comes as users have become increasingly judicious with capital expenditure, as the uncertain macroeconomic environment has occupiers looking closely at rent, as well as the total cost of outfitting and operating a new facility.”

The report also pointed to notable bankruptcies by Bed Bath & Beyond and Yellow Trucking and tenants that are consolidating and moving south or west to lower-cost markets. That has contributed to 3.2 million square feet of negative absorption, or a net decline in overall occupied space, in northern New Jersey year to date, while central and southern New Jersey have benefited with 3.5 million square feet in net absorption year to date.

 

As MSCI noted in its expansive analysis of the first half of 2023, “Industrial properties are facing a more muted decline in prices than seen in other property sectors. With less evidence of price declines, lender behavior is different for industrial properties as well, with groups that have pulled back elsewhere stepping up their lending for the sector.”

Knowing who is lending is a good first step toward knowing where to look for financing. In this case, there have been some changes over what had been normal.

The report didn’t have all the data available but did have some significant amounts. In the years from 2015 through 2019, the average percentage of financing for industrial was 26%. For national banks, 23%. CMBS was 19% and insurance was 17%. Investor-driven lenders, which are largely debt funds but also mortgage REITs and hard money lenders, were something under 10%, international banks maybe 5%, and private/other, a few percent.

Things began to switch in 2022. Local banks shifted upward in importance to 31%; national banks down to 20%; international banks about the same 5%; private/other dropped to 15%; investor-driven up to 10%; and CMBS slipped to 14%.

The shifts became more expansive in the first half of 2023. CMBS dropped to something under 10%; investor-driven was 12%; private/other stayed at 15%; international banks the same as they were; national banks slid to 15%; and regional and local banks expanded to 39%.

But those are all averages. In the first half of 2023, the percentages shifted largely by property subtypes, market tiers, and loan sizes. For example, regional and local banks provided 37% for flex spaces, 33% for single-tenant, 40% for warehouses, and 41% for R&D and tech. But national banks were 12% of flex, 16% of warehouses, 10% of single tenant, and hardly present for R&D and tech. But then CMBS was 19% of flex, 28% in R&D and tech, and then 26% in single tenant. Market tiers also have different mixes of lenders.

As markets become smaller, they have lending more concentrated in fewer types of lenders. For example, major metros are split 38% regional and local banks, 11% national banks, 15% insurance, 11% investor-driven, and 15% CMBS, with private/other and government agency making small appearances. In secondary markets, 10% are investor driven, 22% are insurance, 18% are national banks, and 36% are regional and local banks.

For tertiary markets, though, 15% is investor driven, 16% national banks, and 47% local and regional banks.

Similarly, the smaller the loan, the more concentrated the lenders. For loans under $10 million, regional and small banks are (65%), with national banks at 13%. But for deals over $25 million, small and regional banks are only 11% and national banks are 10%. International banks come in at 12%, with 25% to insurance, 19% are government agencies, and 23% to CMBS.

 

There’s an existential crisis facing the office market, with phrases like “urban doom loop” and “office-to-residential conversions” becoming commonplace. That environment might seem like an unfavorable one for young adults looking to start a career.

But many early career brokers who spoke with Bisnow said they felt energized by the chance to hone skills during a downturn, despite the increased competition and widely acknowledged financial hardships of starting out in CRE. In conversations with nine young office brokers, many of whom entered CRE since the pandemic, and a few in their older 20s and early 30s with some experience, most saw great opportunity and excitement despite the difficulties.

“You can have the highest high and the lowest lows within 20 minutes of each other,” said Orlando, Florida-based Foundry Commercial office brokerage associate Maria Lombardi, a 24-year-old who graduated college in 2022.

Lombardi was the only one of her 48 classmates in her master’s real estate program at the University of Florida who went into office.

“My classmates asked me, ‘Are you sure you want to do this? Is this the route you want to go?’” she said.

There is also widespread agreement that the financial challenges of launching a career as an office broker haven’t gotten any better.

“I would say it’s more difficult,” William O’Daly, 31, a San Francisco-based associate for Avison Young, said about the challenge of starting right now. “There are less transactions, which makes it much more competitive.”

Despite the challenging office landscape and the befuddlement some contemporaries have over pursuing commercial real estate — one broker said her friends asked if the job was “like Selling Sunset,” the popular Netflix show about pricey LA homes — most of the younger brokers Bisnow spoke to were sanguine, if not energized, by the state of the market.

The downturn didn’t scare off Nate Hruby, 30, a retired Air Force officer who became a tenant rep broker for Stream Realty Partners’ Dallas office in 2021. Regardless of whether he enters during a good or bad run for commercial real estate, it’s a cyclical market, and he still needs to spend three to five years honing his skills.

“I was surprised to learn just how it’s just a matter of grit and persistence,” he said of the role. “That’s the hardest part.”

Like Hruby, many saw this moment as one to build connections and build lasting impressions by helping clients navigate tough times. Time is on their side to build trust and relationships in an uncertain market.

“This is the only market I know,” said Claire Koeppel, 23, an associate who works for Newmark in New York City. “This is the exact time where young brokers should be forging new relationships and opening doors that will then help them once the market picks back up.

“In my generation, we’re on our phones all the time anyway. I’m not complaining about always being on. I actually enjoy it.”

For many, there is a sense that real estate helps tap into their entrepreneurial spirit. Joe Conner, a 32-year-old first-year broker in Colliers’ Seattle office, left a marketing and management career at Starbucks and Nike, where he worked on campaigns for famous shoes like the Air Force 1.

After a friend suggested he try out CRE, Conner was initially turned off by what he thought was a “super salesy” position. But then the risk and reward of commissions hooked him. He has even tried to make up for lost time by taking a crash course in real estate via ChatGPT, asking the AI program to fill him in on industry terminology and financials.

“Your success, it’s up to you,” he said. “I came from a corporate environment where you’d get these reviews that said you did really, really well, but there’s no promotions, no ability for us to pay you more, so just keep doing what you’re doing for multiple years. Here, you get empowered, but it comes with a lot of stress.”

Consensus suggests that, optimism aside, the beginnings for anybody in this industry are rocky. Many young brokers spoke of the grind, taking calls whenever they come in and working 10-hour days, often more than more senior members of their team and doing whatever it takes, no matter how challenging or how small the initial reward. Others said that due to the low deal volume, tenant representation has become especially competitive. Brokers needed to be relentlessly focused on their clients to keep them from being poached.

Isabella Zelinger, 29, who started in 2020 and is now a senior adviser at Cresa, said brokers need to “check their egos at the door” and “work on anything that’s thrown their way.”

“I think a lot of younger brokers look at the successful players who have been at it for 30 years and ask how they get there,” she said. “It’s mostly about having the grit not to leave. It’s a game of ‘can you weather it?’”

Side Gigs Despite ‘Investment Banking Hours’
A big part of the grind is the challenge of making it on a beginning broker salary, especially with the recent escalation in the cost of living. Brokers tend to focus on a combination of agency work, when they represent a building looking for tenants, or on tenant representation, helping someone find space. Most young brokers are adept in both, and skills are fungible. But in a market with fewer deals, it can be that much harder to earn a commission.

“I do have friends who aren’t going to the rooftop bar on a Saturday and coming up with an excuse because they’re trying to hold on to their cash,” Zelinger said. “The reality is that you’ve got to put food on the table. I think we’re going to lose a lot of talent just because of the circumstances.”

Young office brokers typically start off with either a draw — prepaid commissions that need to be paid back if sales numbers aren’t reached — or small salaries, often augmented with commissions. The challenge of making it is longstanding, leading many young workers without connections or support to drop out before they are able to build up enough of a book of business to be self-sustaining. Many repeated the “eat what you kill” cliché about the job. They had enough of a salary to pay for necessities, but it was certainly stressful to make ends meet and served as a strong incentive to close deals and “stay hungry.”

Hannah Hutchins, 29, a broker with Stream in Dallas who previously served as a recruiter for the firm for two years, said it was a real challenge finding talent. Young applicants don’t really know what they are signing up for, she said: long hours and low pay with the potential for six-figure income in a few years, but only if you make it through those first few years. Roughly half of those she hired dropped out within the first two years, she said, and “the highest dropout rate that we’ve seen was in the last three years.”

“It’s frustrating, for sure,” said Micah Gray, 25, a former college football player working in Albuquerque, New Mexico, for NAI Sun Vista. “You do all this work, put in time and energy and effort and really long days just for a very small commission. But it’s part of the learning curve, and we try to put one foot in front of the other.”

When Avison Young’s O’Daly started in CRE in 2016 in Phoenix at the boutique firm Lee & Associates, he spent his first two years with a very small salary — he declined to give specifics — that necessitated side gigs and work at a restaurant. He was still regularly working 10-hour days, including at least one day on weekends, which added up to weeks of 60 hours of work or more, what he called “investment banking hours.”

That difficulty of making ends meet is one reason O’Daly, who didn’t have any links to the industry, said he is seeing more young people in recent years coming into the industry with family or friend connections to real estate.

‘You Can’t Be Successful At 40 Hours A Week’
There are many reasons many young adults don’t end up in office brokerage. Those interested in real estate tend to see analyst roles or busier sectors like industrial as more promising. Part of that can also be blamed on schools and universities not prioritizing real estate as a career option. David Horwitz, vice president of DLC Management Corp., which focuses on retail properties, said after years of recruiting college students, he has found that most real estate programs bifurcate students, pushing them toward either the analytical or sales tracks, pushing some away from brokerages.

Of course, most schools don’t even offer real estate as a major. Koeppel, who graduated from the University of Virginia in spring 2022, said many classmates were steered toward banking and consulting.

“People just didn’t know enough about this industry,” she added.

But there are also simply fewer brokers being hired right now. According to Avison Young principal and U.S. President Harry Klaff, brokerages are putting the brakes on hiring, mostly due to lack of demand. There isn’t a lack of interest in joining the business. Per AY records, the firm hired 41 brokers nationwide under the age of 34 in 2018 and 64 more in 2019. But that has decreased steadily year-over-year amid the pandemic, on par with overall hiring by the firm: 37 in 2020, 33 in 2021 and 21 in 2022. This year, as of the end of August, the firm had hired 20.

The cost for firms to hire young brokers isn’t that substantial, especially compared to more expensive experienced talent. Hiring has simply slowed.

But it hasn’t stopped entirely, in part, Klaff said, because “young brokers tend to be the business development engines for real estate brokerage firms.” They are cold calling, walking buildings and getting out in the market, aspects of the job that always bring value, even in a down market.

Some believe locating leads is one aspect of the job that is actually easier for young brokers now. Utilizing a new crop of CRE databases to find potential leads is very common, and many younger brokers said LinkedIn was one of their favorite tools. The platform’s Sales Navigator tool, which basically functions like Salesforce integrated into a social network, can be very helpful for leads.

That said, it is still a tight job market, and Klaff said the firm needed to be competitive when it came to offering mentorship opportunities, a “people-first” culture and competitive pay. He said compensation packages varied considerably between offices, roles and individuals, spanning from salary to straight draw to various combinations. Klaff said he hoped a starting broker working in the Washington, D.C., market, where he is based, would make $100K annually by the end of their first two years.

Can you be a successful young broker working 40 to 50 hours a week?

“You probably can’t be that successful at 40 hours a week, like you can’t be a successful attorney as a young associate at 40 hours a week,” Klaff said.

“There’s just so much to learn,” he added. “It doesn’t mean you won’t be successful at some point in your career, but let’s say that the pace of your success might be delayed.”

Others said they have noticed firms altering hiring strategies to meet the down market.

Cresa’s Zelinger said part of corporate strategy is being more selective about new hires, looking for those who show signs of being good business developers, as well as those whose parents are local, allowing them to move home and save money. She said that is part of the reason pushes for diversity within the industry have stalled and will take a long time to pay off: If this was a fully salaried business, it would be that much easier to hire and retain workers from more disadvantaged and diverse backgrounds.

‘There’s Not A Book You Can Read That’ll Tell You How To Do This Job’
Despite significant market headwinds and the financial difficulties of making it today, most of the young brokers Bisnow spoke to said they were optimistic about their futures and felt their investment was paying off. Those with five or more years in the business underscored how vital it was to join good teams and find mentorship opportunities within their firms.

“To be successful, you need to be in as many pitches and as many conversations as you possibly can in order to get experience,” Hutchins said. “[Older brokers] need to let them kind of look over their shoulder as you’re signing a lead. What do you look for? What are the gotchas? That’s the only way. There’s not a book that you can read that’ll tell you how to do this job.”

That learning curve is why, for all the promise of making substantial salaries as a somewhat self-directed, entrepreneurial free agent, the role of office broker doesn’t have nearly the cultural recognition or cachet as working for a startup, Hutchins said. Most of the young brokers said this is a role that you have to be wired for, though it is fair to question whether that would be different if it was easier to get a start in the industry.

“Everybody wants to have overnight success, but you have to be prepared to wait on that success,” Hruby said. “And frankly, that’s kind of still where I am. I don’t know that I’ve made it, but you have to just be willing to keep the faith.”

 

CHICAGO – Carriers optimistic the freight market was starting to show signs of a turnaround should prepare for weak conditions to linger possibly into late 2025, according to economic analysts.

Behind the bleak forecast was weak U.S. economic data shared during the Journal of Commerce Inland Distribution Conference. Saturated retail inventories, rising interest rates, and elevated costs continue to weigh on freight markets’ ability to recover, despite some positive short-term signals behind consumer spending, three panelists said during a Sept. 26 session.

“We’re on a downward path,” said Paul Bingham, director of economics and country risk transportation consulting for S&P Global. “Really, if we’re going to get into any recovery in terms of the overall economy, it’s not going to be until 2026.”

A bright spot in analysts’ prediction, however, is that the U.S. economy will not fall into a recession this year. Instead, growth will be slow: S&P Global forecasts the nation’s GDP will grow by 2.3% this year, and may only top 1.5% in 2024.

Consumer spending compicates bleak forecast
While carriers still face a freight recession, some positive signals are emerging.

The Federal Reserve’s efforts to curb domestic inflation have had some impact on consumer spending, said Bingham, though not enough to tip the country into a full economic recession. Instead, consumers continued to buy goods but not at levels needed to drive down inventory.

The spending patterns have led retail inventories to start normalizing. Meanwhile, the number of trucking firms exiting the market has started to slow as rates and capacity stabilize.

But higher costs for assorted consumer staples including fuel and food, as well as rising interest rates on everything from credit cards to car loans and mortgages will further hinder spending, Bingham said.

If consumers aren’t buying that means manufacturers aren’t producing, which translates to no demand for shipping, said Bingham, noting, “there’s no rebound coming in terms of a reversion to the online spending and so forth on goods that would drive freight demand.”

A more typical peak season?
In the short term, Larry Gross, president and founder of Gross Transportation and Consulting, said the 2023 peak season will be normal when compared to historical trends.

Gross, who specializes in intermodal services, said peak in intermodal historically occurs the last week in September. Recent data shows intermodal volume is about 6.4% above the average non-holiday week, which he noted, “is what a normal peak season looks like.”

Gross’ forecast reinforced pessimistic messages shared by trucking executives who spoke during the Deutsche Bank’s 2023 Transportation Conference in August. J.B. Hunt Transport Services Intermodal President and EVP Darren Field said that customers weren’t predicting a significant peak season, while Werner Enterprises Chairman, President and CEO Derek Leathers anticipated a muted peak season based on an uncertain holiday outlook.

Looking further ahead, Bobby Holland, vice president and director of freight business analytics at U.S. Bank, said he is watching for improvements in new home construction for signs the economy will turn a corner.

Though an economic rebound depends on many things, when new home sales are strong, it lifts other sectors through heightened shipments of building materials to sales of assorted home goods and appliances.

“We know that interest rates are still higher and that housing starts are at their lows,” Holland said. “When you couple that with minimal housing inventories in some areas of the country, we’re watching to see whether this continues to suppress freight.”

 

The commercial real estate market is headed for a severe collapse due in large part to sky-high interest rates and declining property values, according to a survey of investors.

Around two-thirds of those who responded to a Bloomberg News survey said they believe that the commercial real estate market will recover only after a crash.

When asked when they believe the price of office properties will hit bottom, 44% said they expect that to happen in the second half of next year while 22% said it will be in the first six months of 2024, according to Bloomberg News.

Just 6% of the 919 respondents said that prices would bottom out this year while 29% predicted that it would happen in 2025 or beyond.

The Fed has raised interest rates aggressively, which is increasing the cost of financing commercial properties at a time when there is also reduced need for them, which has hit rent levels.

Investors are bracing for a possible crisis triggered by default on $1.5 trillion in debt that is coming due by the end of 2025.

Some $270 billion in commercial real estate loans held by banks are set to mature in 2023, according to Trepp.

Over the next four years, commercial real estate properties must pay off debt maturities that will peak at $550 billion in 2027, according to analysts at Morgan Stanley.

Earlier this month, a study released by economists from NYU Stern Business School, Columbia Business School and the National Bureau of Economic Research showed that vacancy rates are at 30-year highs in many American cities.

In New York City, the vacancy rate was 22.2% in Q1 of 2023.

Office buildings in New York City — the world’s largest commercial real estate market — have lost $76 billion in value from their most recent sales prices, according to broker JLL.

Blackstone and RXR sold the office building at 1330 Avenue of the Americas for $320 million — a third less than the listing price in 2006.

Real estate firm Cushman & Wakefield recently predicted that there could be 1 billion square feet of unused office space in the US by 2030.

The New York Fed said earlier this year that it was unclear when or if the commercial real estate sector would return to its prior strength.

“While the residential rental market has bounced back, the retail and office markets have remained slack – largely due to the shift to remote work and online shopping,” the bank said in a posting on its website.

Commercial rents in Manhattan are down a lot from where they were before the pandemic, and “this weakening trend may continue as more and more commercial tenants roll off leases that were negotiated when demand for office and retail space was far stronger.”

 

After a busy July that saw the Port of New York and New Jersey record its largest total cargo volume since October 2022, August brought a normalizing of activity to pre-pandemic levels at the port. The port moved 662,740 TEUs (366,339 containers) in August versus 843,191 TEUs (466,640 containers) in August 2022, a 21.4 percent decrease, which brings its total volumes handled through August to 5,128,563 TEUs (2,847,453 containers). These declines are largely due to U.S. retailers continuing to draw from their overstock of inventory that was delivered during the record cargo surge over the past two years.

Imports decreased by 18.6 percent in August compared to the previous year, totaling 348,921 TEUs (192,889 containers) and 428,721 TEUs (236,681 containers). From January through August 2023, imported loads at the Port of New York and New Jersey reached 2,618,556 TEUs (1,455,034 containers) versus 3,345,305 TEUs (1,851,998 containers) in the same period of 2022, a 21.7 percent decrease.

Exports for August totaled 106,025 TEUs (57,230 containers) compared to 109,058 TEUs (59,120 containers) in August 2022, a 2.8 percent decrease. From January through August, exported loads reached 857,552 TEUs (463,834 containers), a 1.5 percent decrease from the 870,505 TEUs (470,862 containers) recorded in 2022.

Export empties decreased 32.1 percent, totaling 206,064 TEUs in August and 303,662 TEUs in August 2022. Export empties totaled 1,638,833 TEUs from January through August, a decrease of 28.6 percent compared to the 2,294,395 TEUs recorded in the same period in 2022. Import empties rose 8 percent from January through August versus the same period in 2022.

Compared to last year’s August figure, rail volume decreased by 15.4 percent this August, totaling 56,469 containers. Rail volume from January through August 2023 was 13.2 percent less than in the same period in 2022.

A total of 28,443 autos moved through the Port of New York and New Jersey in August, a decrease of 12.3 percent when compared to the previous year. Auto volume from January through August is 13.1 percent less than during the same period in 2022.