What is the domestic logistics market looking like for 2024 ?
First, let’s define what we mean by the domestic logistics market. I typically break it into two distinct sections, Warehousing and Transportation.
Let’s look at Warehousing first.
All the data from the domestic warehousing markets looked weaker in 2023. Commercial real estate broker CBRE in its 2023 forecast predicted overall leasing activity in the industrial and logistics sectors would drop 10% to 15% during the year. However, “Richmond’s and Norfolk’s quick rise as key industrial hubs is due to infrastructure improvements in and around the Port of Virginia, a deep labor pool, the region’s affordability and site availability. Richmond and Norfolk are attractive options for distributors because they are within a 48-hour drive of 75% of the U.S. population,” per Bradley Flickinger, CBRE Senior Managing Director. That statement supports what we saw during the first 6 months of 2023. Warehousing-related activity and active utilization rates were up in the market from our vantage point so early in 2023 was relatively strong. It started tapering off near the end of the year and appears to be softer going into 2024. At Riverside Logistics we have clients with a mixture of Food, Chemical and Health related products as well as several Retail supporting clients. So, overall, a broad mixture and one that allows us to draw conclusions about what we think is going to happen in 2024.
Warehousing demand in 2024 looks to be relatively stable or slightly decreasing at least for the first half of the calendar year. We currently don’t see an expanding pipeline of new potential warehouse opportunities. Inventory needs and/or requirements and market space availability are key drivers to warehousing demand, and right now, and for the next 6 months, we don’t anticipate strong demand in the warehousing sector. If and when, the second half of 2024 starts to pick up, and available warehouse capacity begins to tighten, then demand will increase, and costs will go up. At this stage of the game, it’s speculative to think that will or will not happen. The best advice I can give now is to lock into your warehousing contracts for space you know you’ll need for the 2024 timeframe. If capacity tightens in the second half of the year, then you will be okay; if it doesn’t then you can look for more favorable terms and/or longer contracts.
Now let’s turn to domestic transportation, specifically Truck transport.
The Truck to Load ratio is a key ingredient in trucking costs and capacity availability. It looks at how many trucks are available versus the number of loads tendered in the (same) market. Right now, the common wisdom is that the market is headed toward relative stability and should remain so through the first half of the year. This stability masks what’s going on behind the curtain. Demand is lower. Said a different way, there are too many trucks chasing too few loads. Data analyzed by CarrierOK indicated that there were 88,000 truckers and 8,000 brokerages who went out of business in 2023. There were too many trucks chasing too few loads. Consequently, rates and revenues dropped which culled the trucker herd. Rates appear to have stabilized or bottomed out in the LTL and FTL markets. When you look closer, depending on your business needs, the variety among transport modes is affected differently. There are more dry van trucks than loads. That’s not the case when it comes to reefer and flatbed carriers. Their balances are closer to equilibrium. The closer to equilibrium the more stable the rates.
As we approach midyear 2024, two factors should present themselves to affect pricing and availability of trucks. First, demand should start to increase. Second, capacity should be lower due to carriers getting out of the market or going bankrupt. These two forces, higher demand and less trucks, will put upward pressure on rates. Truckers run on slim margins, so any opportunity to increase rates that presents itself is usually taken advantage of. The Less-than-Truckload (LTL) market is a different story from the Full Truckload (FTL) market. LTL rates should remain where they are and start to go up later in the year depending on when contracts expire. LTL capacity hasn’t eroded as much as FTL capacity. The demise of Yellow Freight certainly was a big chunk of capacity, and the substitution of remaining capacity was expensive for clients who were used to Yellow’s traditionally low rates. That substitution has already been absorbed by the market and shouldn’t have an appreciable impact on 2024. LTL is a different animal than FTL. It has a lot more infra-structure and fixed assets, such as terminals and handling equipment. FTL has trucks and drivers. LTL has terminals, local pickup, terminal handlers and equipment, in addition to long-haul drivers. They (LTL) have a lot more fixed costs to absorb and moving parts to make themselves function. Consequentially, they need to cover all these costs and do not really operate in a spot market like FTL does.
At the end of the day, here’s how I would look at the 2024 domestic transportation market. I would lock in LTL and Parcel rates for the entire year now, or in the first quarter, to ensure that I know what my costs for those modes will be for the whole year. The first quarter is usually the weakest for carriers so it’s the best time to negotiate. Remember, fuel is a wild card for all modes. If something causes it to spike, then costs will go up. In most cases the rates are bumped higher as a percentage of revenue and track relative to national or regional average diesel prices which fluctuate weekly with the cost of oil. But it doesn’t appear right now that any spikes are imminent, so just keep that in mind. Otherwise, all truck transport costs should be relatively stable or lower cost through the first half of 2024, but if the economy lights up in the second half, your rates will too. And don’t forget that it doesn’t matter what rates do, if you can’t get a truck to move your shipments.
The last piece of advice I’ll give regarding the 2024 logistics market is to find and keep good logistics partners and put them under contract. If you currently have a good working relationship with a third-party logistics provider(s) in warehousing and/or transportation, lock them into contracts and work on maintaining and cultivating those relationships. If you don’t have any 3PL relationships, now would be a good time to try to find and establish them. Riverside Logistics has many long-term and successful working relationships with clients and would be happy to get to know you as a potential client and improve your network and make it better in terms of potential logistics needs, in either the warehousing or transportation space. Call us at 804-474-7700 to discuss your needs. I think you’ll be surprised at how much we can help you.