The year 2023 was a challenging one for those involved in the freight transportation industry. Here are some of the major forces shaping 2024.
Supply and Demand are Moving Toward Equilibrium
Many industry experts used the term Freight Recession to describe the state of the industry in 2023. There is no doubt that there was excess truck capacity in 2023, a carryover from the freight boom during the early stages of the pandemic. As consumers shifted their financial resources in 2023 from buying goods to purchasing travel and services, trucking companies expanded their fleets, creating the disconnect.
It is also clear that an uptick in inflation, caused by higher interest rates and a rise in the prices of food, gasoline and other products put a damper on demand. However, many citizens experienced an increase in compensation. Consumer spending remained solid and consumer confidence is high at the beginning of the New Year. The Freight Recession was really a Carrier Capacity Surplus, too many trucks chasing too little freight.
Freightwaves is calling for a rapid “burn-off” in fleet capacity as excess trucking companies exit the market. Freight rates will likely stabilize in the latter half of this year. John Larkin, operating partner at Clarendon Capital, mentioned in yesterday’s Freight Market Outlook, that “low freight rates are causing some carriers to fail, downsize or reposition”. Interest rate hikes have slowed demand for housing and autos.
The Inventory Replenishment Process Will Drive Growth
An end to a prolonged disconnect between supply and demand could be approaching sooner than some investors may think. This was recently predicted by one equities analyst, Morgan Stanley (NYSE: MS) analyst Ravi Shanker.
It is largely centered on the need for inventories to be replenished after companies have spent the last few quarters drawing down overstocked levels. “Shippers continue to remain on reorder ‘strike’ while they wait for stronger signals or more favorable conditions on macro but while destocking at the same time, which could lead to everyone wanting to restock at the same time, when the coast clears (or they run out of inventory)”.
Cost Management will be a Key Initiative for Many Companies in 2024
The rapidly rising costs of goods and services is forcing companies to revisit their cost structure, their procurement and budgeting processes, and the effectiveness of their cost management tools. The need for effective cost management is manifesting itself in the layoff notices being issued in a range of companies. It is driving companies to revitalize their bid processes and to examine their partnerships with customers, employees, and vendors.
Another key element of cost management is technology. Trucking companies are exploring data analytics and dynamic route optimization to reduce costs and improve driver safety.
A Set of Unpredictable Geopolitical Events May Shape 2024
There is a set of variables that are beyond the control of most companies. The impact of these variables must be closely monitored. It’s an election year in 40 countries, including the United States. These elections impact 2 billion of the world’s citizens. The full impact of these elections will likely be felt in succeeding years.
A set of unpredictable geopolitical events may shape 2024 – war in Ukraine, war in Gaza, ships being attacked in the Red Sea. These events “could disrupt global supply chains in unexpected ways”. Here are some of the possible impacts.
Shippers may be driven to reroute freight or source locally, when possible.
This could push up freight and insurance rates.
They could dampen the willingness of supply chain managers to take risks.
They could produce an increase in Reshoring and Nearshoring.
In addition to this set of issues, there are potential health and climate disruptions that could create turmoil in supply chains and transportation operations. Buckle up for a very turbulent 2024.
To stay up to date on Best Practices in Freight Management, follow me on X (formerly Twitter) @DanGoodwill and join the Freight Management Best Practices group on LinkedIn. If you are looking for ways to improve the effectiveness of your freight management processes or to save money on freight, contact me at dan@dantranscon.com.