Q&A: FourKites’ Koepke examines major factors impacting global trade

Logistics Management Group News Editor Jeff Berman recently spoke with Glenn Koepke, GM, Network Collaboration, for Chicago-based FourKites, a provider of real-time tracking and visibility solutions across transportation modes and digital platforms. Koepke provided Berman with an overview of the how FourKites views global trade activity and the things impacting it. Their conversation follows below. 

LM: Recent data issued by FourKites is showing that dwell times for Chinese exports are down 62% annually, as the volume of shipments from China tracked by the FourKites platform is down 44% annually. What factors are causing those swings leading to those numbers, do you think?

Glenn Koepke:  I'd say there's three major drivers of it. One is just global economy; it's hard to ignore that. There is the U.S. and Europe being major markets, a potential recession and where things we stand. The global economy is down. We know that. So that's one driver of it. Secondly, inventory has been high even before the economy started to slow. What is known as the bullwhip effect before right where no one could get anything in and even if they could get the product, it just sat on water in the U.S. at LA or Long Beach, or at the Chinese ports, trying to get out. So, the second reason is really that bullwhip effect where companies had excess inventory. And then third one is the continued shift away from China. Statistically it's hard to say, though. So, when we talk to a lot of the shippers on the manufacturing side, less so 3PLs—and this has been the case even in the Trump administration—this is not just a short-term thing. If you go back to the Trump administration, a lot of the tariffs and duties companies were forced to look at nearshoring or moving production out of China. Then the third part with moving production out of China, the main theme there is companies still are sourcing from China for the local Chinese market, in terms of sales, to where their critical supply base is that they can't necessarily compete with, on a normal basis.

Things like talent, infrastructure, raw materials, and R&D are all just pure cost. There are many things to consider. It's hard to move production to Vietnam or Thailand or India or Mexico, or other places in Latin America. That that third lens of just this reshuffling of where you source from is there… and I think my take is, since the early days of NAFTA, if companies could source and produce at a cost adequate level, obviously they would do it as close to the end consumption as possible. But when you look at all the trade prices, when you look at labor cost, infrastructure, these things are just hard to compete with. If I were to say “OK, just looking at the data, those are the three main drivers and thoughts that are forward looking,” but those are really on the volume side. There's two things that really kind of sway things. It's consistency of the volume and also the overall volume. It's just hard to create an even path because of the physical nature of loading containers and drayage moves and so on. So, the reduction is primarily driven by lower volume. And it's also just to help with just the consistency of volume as well, that is allowing just the throughput to be much more stable than it has historically been.

LM: Following its Covid lockdown, a few reports have described the Chinese kind of middling compared to what they're used to or what their expectations are. Consumer demand is down. There's deflation going on, and it's hurting corporate profits. Youth unemployment is also high. Based on things like this, do you think that the Chinese economy isn't at its usual place of strength, at 5% GDP or higher?  Does that have any lag effects into this data?

Koepke: In looking at if the domestic consumption and kind of growth rate or lack thereof in China matter, relative to this data, I would say no. It's a parallel to the general global economy, I would say. This data is really primarily looking at export, which is servicing the rest of world. There is that is a natural path that you see in other global buying markets. And that's consistent. I think it's an interesting point where we're just in a softer economy around the world.

It was a gold rush for all the producers. And whenever there's constraints, at least in capitalistic terms, you can take advantage of that from a pricing standpoint, like creating fear from a marketing lens. But I think on a forward-looking basis, we are looking at how does the data reflect what's probably going to happen in Q3 and Q4.  What we've seen is a big shift and focus on inventory balancing. If I can get inventory, I could care less how much or how little—just get it—otherwise we have no sales. When we talk to see CSCOs and some of the 3PLs that are running warehouses, it's really around the inventory balancing equation. Generally, a lot of companies are comfortable with where they are. What will likely happen as we see Q3 and Q4 Peak is we will see volume go up, likely not to what it was last year. So, the 40% dip is going to shrink, and then dwell will kind of increase slightly. That is not a forecast of troubling times. The good news is that overall demand will increase back but not as good as last year. It will tick back off, but still within moderate levels. And the wildcards are pending COVID shutdowns. Ocean carriers are probably the biggest thing that is a wildcard. On the ocean side, it's anytime profitability in the year is not there, they may be forced to make decisions on you know, canceled sailings, blank sailings and that kind of creates havoc on the shipper market. COVID and then the carrier response to profitability are two pending wildcards that are there right now.

LM: Based on your observations, is it fair to say that the outlook for the 2023 Peak Season is tempered and not at the level that we saw a year ago because everyone was rushing to get stuff due to logistics and supply chain issues? Also, in in terms of the inventory aspects here, do you think we get we do get to a point where the inflection point is hit and there is going to be a need for increased freight increased throughput on behalf of the BCOs to get this stock levels back up?

Koepke: Inventory is one of the largest costs in the supply chain. I think you're going to see a steady ramp, and that's a lot of volume growth. Shippers have become very sophisticated in their planning. The wildcard is consumption and yeah, swans Black Swan events to some degree. My take is what's going to happen is you're going to see a steady ramp up, and that's really attributed to volumes increasing, but slightly lower than last year. And it's going to be built in there. I don't think you're going to see shockwaves like the bullwhip effect right now. I think we've seen it based on the excess inventory and now people are course correcting. Will there be a shockwave where people are out of stock and things like that? I don't think it's going to be there. I think it's going to be a very balanced approach. And for better or for worse, you know, I think for those in the supply chain, taking somewhat of a year off of like crisis mode is kind of nice, right? But from a sales standpoint, and from a marketing standpoint, anytime you can capitalize on fear and disruptions and all that, oftentimes, it does help your growth engines. I think this will largely be a blasé type of Q3 and Q4, which isn't necessarily bad for the [logistics] operator, but not great to a CFO or a Head of Sales.

LM: Do you think we've already been in or perhaps are still in a freight recession, while we maybe haven't entered an actual recession? If a real recession was to happen, what do you think the impact of that would be on cargo flows?

Koepke: I would say that we're pretty darn close to bottoming out right now. Whether you call it a freight recession or not, yes, I think I think we've been in it and I think we're kind of close to the bottom. It's part of why you see just easing numbers on dwell time and some other things. We don't necessarily get into a lot of the pricing side. But when you look at ocean pricing and when you look at truckload pricing, things are super soft. Usually, this time of year it does generally bottom out kind of year to year but, overall, compared to last two or three years 3PLs and carriers are dying. A prediction I made earlier in this year started to happen a little bit with like US Xpress being acquired. We will see more bankruptcies, I think, and on the trucking side, we will see more acquisitions. And part of it was that everyone lives in a year-to-year mindset in the logistics landscape, right. For example, steamship lines saw insane profitability the last three years. But who cares about it now and it's more about what are you doing now? I think what we're going to see on the trucking side still is more consolidation for bankruptcies and mergers. We are we are definitely in a freight recession. We are at the bottom of market. I don't see it getting much better this year. Freight rates are going to rise a little but not back to the crazy prices…and shippers needed a break. It was a carrier market for a long time. And, generally, these shifts last for 18 months to 24 months. I would also add that fuel costs have generally been very high, right when you look back to other freight recessions are bottoming and market generally, fuel prices were a heck of a lot lower. And so that is still a large carrying cost for trucking companies. You obviously got fuel surcharges in effect to account for that. But I'd say fuel costs still remain high. And obviously with summer peak right now yeah, these are prices will continue to get higher.

LM: How do you view the current state of tariffs, in that the Biden administration has kept the ones implemented by the Trump administration intact?

Koepke: With the election coming towards the end of next year, that could change things, but I would say that they are baked in at this point. On a geopolitical basis, we will need to look at how China aligns with Russia. Overall, the way I look at a few different factors in global trade like what happens with China. It will always be dominant but was going to be chipped away and going elsewhere. Regarding the election, a sitting President tends to double-down in certain areas, with new candidates trying to create some noise, so there is always some level of disruption there. Also, you see do see a shift away from the ports of Los Angeles and Long Beach, which is a key artery. I do think some of that is temporary, in that you are seeing the East Coast taking more volume for the first time in a long time. As we ramp back through Q3 and Q4, Los Angeles and Long Beach will continue to be the dominant ports, however, companies realize they have to diversify, whether it is through ports in Houston, Seattle, Savannah, Charleston, Baltimore, or New York/New Jersey, you have to have a distributed profile of how you import cargo and export out of the U.S. to minimize risk.

LM: How do you view the ongoing West Coast port labor situation between the Pacific Maritime Association and the International Longshore Warehouse Union?

Koepke: This situation forces shippers to think about diversification, like changing routings now so they are not caught up in a bad situation and is part of why you see the shift to the Eastern and Southeastern ports. The federal government will need to step in here. We are at a point where if you cut off a major artery, it would be catastrophic to the current administration and the U.S. economy. Personally speaking, I don’t see this getting to a point where there is a lockout and getting shut down. There is a lot there, but I think a lot of it is really a dance to get favorable terms, knowing that certain parties have the upper hand while things are soft.