The Pandemic has taught companies how important their supply chains are to conduct business. When they work, everything moves along as it should. When they don’t work everything breaks down, business norms are destroyed, and it leaves a big scar that lasts a long, long, time.
What will 2024 bring to the Logistics Realm? No-one has a perfectly accurate crystal ball for Logistics going forward. However, there are Macro-level influencers that should be considered when planning your Supply Chains in 2024.
For example: Medium to Small-sized truckers have been going out of business or shutting down in record numbers in 2023. The cost of capital, insurance, fuel, equipment, and labor have all impacted margins negatively in a big way. Couple that with lower freight rates and you have a recipe for more failures. Currently, capacity is soft, meaning that there are more trucks than loads. When this happens the law of supply and demand kicks in, and rates go down. Spot rates (a “Spot” Load is a load that usually falls outside of a contract, or a one-time shipment and the rate is usually for that specific load only) have dropped significantly over the last 90 days.
Business seems to be stabilizing lately, albeit at lower levels. If this is the trough during the rest of 2023 and heading into 2024, we should expect to see rates stabilize, capacity continues to be soft and shippers becoming more in control of the logistics purchase and sale process. That is what the current wisdom indicates.
But current wisdom could be wrong! This could be the beginning of a slide into recession. If it is, more carriers will go out of business, putting increased pressure on those left standing to shoulder the load. Shouldering the load means covering expense and making enough profit to justify their existence i.e., higher freight rates or better freight.
Another possibility is if the recession happens and lingers, carriers will be fighting for a diminished basket of freight. Rates could go down, forcing carriers to re-think how much business they want to handle. Once again, this could hurt Shipper’s ability to attract good carriers at a fair price point.
If 2024 is when the recession impact is felt the most, then you would be wise to hold off on long-term contracts with your Logistics suppliers. The bid-ask environment will get better for Shipper’s over time if the recession does in fact materialize.
What’s on the horizon? More of the same? Or a further deterioration in rates and a further softening of capacity?
I would anticipate both. Keep an eye on the economy. Logistics is a leading indicator for the economy, so it will feel the effects early. If the economy deteriorates further, it will impact rates and service levels. Traditionally, freight rates go down, service levels (may) go up and improve with competition.
Let’s look at some key impacts on Logistics.
Transportation companies are facing more regulation not less. This makes it more difficult to succeed in the marketplace, especially for smaller sized carriers. They will either merge with or be bought out by larger rivals or simply go out of business. Once again capacity will not increase so rates will remain soft.
Technology is providing more sophistication to the logistics environment. This allows customers to request more information and more real-time data about their freight. Today, technology is not cheap, and is expensive to maintain. This strains the smaller sized Logistics providers the most.
Then there is “trouble with the curve”. The yield curve inversion has many economists (and others) concerned that we have a recession coming. Haven’t seen it yet (at least in full form), but if history repeats then we have a recession coming. Once again that would mean lower rates and excess capacity until it stabilizes.
What’s headed your way?
Customers are requiring more touch points. Digitation is allowing technology to provide real-time inputs and make them available to a broad audience. An entire digital marketplace has developed to allow carriers and shippers to connect across a much broader spectrum of loads, shippers, and carriers. The Pandemic accelerated the onslaught of new ways to look at, handle, process and manage the overall Logistics space. Integration of the Eco-Systems (technology systems) is becoming a predominant trend in the logistics environment. Shippers require integration between their ERP systems and logistics provider TMS, WMS, and visibility tools. The 3PL community is having to integrate their WMS, TMS and Visibility software into a complete eco-system. This costs money, sometimes a lot of money.
There will probably be a push by shippers towards more frequent and smaller shipments. This lends itself to LTL. LTL carriers lost Yellow Freight recently and fortunately that capacity was absorbed by the remaining LTL carriers. The absorption process will soak up a good portion of the excess capacity in the remaining carrier base. This could lead to more rate stabilization and maybe even rate increases.
All in all, it’s a cloudy picture on the logistics front for the next 12 months. Keep your “eye on the ball” when it comes to managing your supply chain. If you need help assessing the logistics environment and or your role in it, please reach out to a consultant at Riverside Logistics. They can provide insight and recommendations for how to best tackle this dynamic environment. They can be reached at 804-474-7700. Option 4. Good luck!
