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Freight Market

Freight Market Outlook 2024: Thoughts On What's To Come

Nathan McGuire
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December 17, 2023
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Freight Market Outlook 2024: Thoughts On What's To Come
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Here at the end of 2023, the freight industry picture isn’t a pretty one. From Ken Hoexter of Bank of America calling it “a really elongated freight recession” on CNBC, to high-profile shutdowns at Convoy and Yellow Freight (temporarily on government life support), troubling signs abound.

There doesn’t even seem to be a letter we can use to describe the shape of the current freight recession, such as a U-shaped, V-shaped, or W-shaped recession, as the bottom has lingered for some 18 months, much longer than industry observers thought.

There have been some positive indicators, such as spot rates coming off the floor a bit, and J.B. Hunt signaling some daylight on intermodal volumes in its Q3 report.

In brief, it’s a basic Economics 101 equation: an imbalance of supply and demand (too much of the former and not enough of the latter). According to FreightWaves/SONAR’s Outbound Tender Volume Index, freight volumes were up 16% over 2019 levels as of mid-November. However, its Outbound Tender Rejection Index is near a historical low, at 3.5%, indicating excess capacity leading to a reluctance on the part of carriers to refuse loads

A glass-half-empty (or even three-fourths empty) view of the situation heading into 2024 might be akin to that of Bill Murray as the stuck-in-the-present Punxsutawney, Pa. TV weatherman in “Groundhog Day”: "It's going to be cold, it's going to be gray, and it's going to last the rest of your life.” Sorry about that, Andie Macdowell!

There are conflicting opinions on what the New Year will bring for the freight market, after 2023 yielded a couple of lumps of coal from Santa. UPS, which has been hit hard by volumes falling below forecast in 2023, appears to be squarely in the “glass half empty” camp. The major carrier notes a “combination of excessive available capacity and low demand are pointing to an extreme overcapacity in the market.” UPS also references the Drewry Supply/Demand Index, saying its forecast for 2024 is 74.3, with 100 indicating market equilibrium, the score ever reported.

Also telling was CNBC’s late October survey of major 3PLs like SEKO, DHL, and C.H. Robinson, with just a third of respondents predicting truckload rates will increase by 5% in 2024; the rest said the numbers will head south.

A Freight Market Turnaround?

On the positive side of the equation, UPS unit Coyote Logistics sees spot rates increasing in Q1 2024, even though they were down 16% from 2022 levels as of September. However, year-over-year comparisons are tricky as truck tonnage rates peaked that month, according to the American Trucking Association’s for-hire index.

Nearshoring is another bright spot in the mix for 2024, as cross-border activity with Mexico is expected to continue trending upward as shippers diversify sourcing as a risk mitigation strategy. During 2023, Mexico surpassed China as the number-one trading partner with the U.S.

As well, influential logistics expert Jason Miller, a professor of supply chain management at Michigan State University, said in a recent LinkedIn post that with several manufacturing sectors at the bottom or rebounding, there is a basis for optimism in terms of higher trucking volumes in the New Year.  

Transportation Rate Dynamics By Mode

LTL: Old Dominion Freight Lines president and CEO Marty Freedman told DC Velocity that the LTL market is relatively stable in the wake of Yellow Freight closing, although much of the displaced volume hasn’t found a permanent home. A recent Old Dominion customer poll found that expectations in LTL for 2024 called for flat to modest growth. The CNBC poll of 3PLs found an even split on the outlook for LTL rates in Q1, with half looking for a 5% increase while the other half expect a 5% to 15% drop.

TL: Crete Carrier President and COO Tim Aschoff is among those bullish on full truckload (TL) contract rates next year. At the Journal of Commerce Inland Distribution Conference, he said a TL rate increase between 3% and 5% could be on the low end, based on improving tender lead times indicating volume pickup. Research firm FTR also sees TL improving next year, predicting a 7% increase in spot rates and a 1% in contract rates, compared to -18% and - 7%, respectively YTD in 2023.

Intermodal: Like the West Coast port operators this year, rail companies settled a contentious labor battle in 2022. This year, rail companies are getting creative in an effort to win back volume from trucking in 2024, including creating new domestic and international intermodal services, the Journal of Commerce reported. Rail’s share of freight volume has fallen from 7% in 2018 to 5.6% in 2023, according to the Intermodal Association of North America. Morningstar analyst Matthew Young, in a note on CSX’s Q3 earnings, said he is looking for operating revenue to improve next year, “assuming intermodal recovers modestly.”

2024 Freight Impact Across Key Industries

As the freight landscape evolves in 2024, rate dynamics will uniquely impact different industries. Each sector faces challenges and opportunities in the context of changing freight rates and logistics practices. Here are some examples from key verticals:

Oil & Gas: There will be fluctuating freight demand due to global energy policies and shifts towards renewable energy. Transportation costs and geopolitical factors could significantly impact supply chains. The U.S. Energy Information Administration (EIA) expects global oil inventory draw to fall about 200,000 barrels a day in Q1 as consumption slows and production accelerates.

Solar: According to the Solar Energy Industry Association (SEIA), there were 3.3 million U.S. homes with solar panels installed in 2022, growing about 24% a year. According

to Deloitte, announced projects could see solar photovoltaic (PV) module

capacity more than triple in 2024, with reshoring to the U.S. as new plants open, shortening supply chains and lowering costs.

Paper and Packaging: While demand for packaging surged along with e-commerce in the pandemic era, environmental regulations and the sustainable push are expected to dampen demand and thus freight needs. PMMI, The Association for Packaging and Processing Technologies, projects a modest 1.3% CAGR between 2019 and 2025.

Automotive: The shift toward electric vehicles (EVs) is running into some headwinds as consumer demand falls and dealers push back heavily against federal and state deadlines for transitioning from gas vehicles. Global supply chain issues and material shortages continue to be a concern.

Food and Beverage: Freight demand could be challenged by factors like climate change affecting crop yields, changing consumer preferences, and the need for more cold chain logistics. Research group Circana is calling for modest growth after three years of volume declines.

Retail: Retail demand in 2024 is expected to fall in the low-single-digit range, particularly in discretionary categories, according to Fitch Ratings. Supply chain resilience and inventory management strategies will be key.

Robots, Drones and Driverless Trucks

A sluggish economy, crimped by high inflation and a lack of consumer confidence, was no match for demand in the hot warehouse robot sector. Even though a slowdown in e-commerce has hit warehouse development, sales of mobile robots (AGVs and AMRs) have not slackened, growing 33% in 2023, according to a recent report from Interact Analysis. Demand for fixed robotic solutions for warehouses, on the other hand, has fallen off. The research firm predicts mobile robot sales will increase even more in 2024, growing 45%. This is because they allow companies to do more with less in a tight labor market, providing greater flexibility and enabling cost savings through operating efficiencies.

The prospect for autonomous trucks, which saw a spate of activity in California, Texas, and Arizona a few years back, is a bit of a mixed bag. Lawmakers and consumers continue to worry about the prospect of robotic trucks on highways and roads. In June, the California legislature passed a bill that called for a five-year moratorium on driverless trucks, only to see it vetoed three months later by Gov. Gavin Newsome.

At the same time, TuSimple, one of the formerly high-flying autonomous providers, has recently decided to exit the U.S. in favor of the Asia-Pacific region, a year after losing its co-development partnership with Navistar.  Still, Aurora Innovation and Kodiak Robotics are still betting on the market here, with plans to roll out autonomous trucks in 2024.

Delivery drone makers have been working with and lobbying the Federal Aviation Administration (FAA) for years, seeking permission for non-line-of-sight operations without human observers. Recently, drone maker Zipline broke through the barrier, conducting the first Beyond Visual Line of Sight (BVLOS) flight in the Salt Lake City area, with the FAA’s blessing. Zipline has a few high-profile retail clients, including Walmart and GNC.

In addition to deliveries, drones have been used for years with much less regulatory scrutiny for inventory management in warehouses, primarily in cycle counting, an application that will continue to grow.

Managing Risk, Building Resilience with Technology and Collaboration

The intersection of technology and cooperation among public and private entities will continue to reshape supply chain strategy in the wake of pandemic-era disruptions. Even though the economic slowdown has all but eliminated the massive supply chain snarls seen in 2020 and 2021 – except for a dried-up Panama Canal – steps are being taken to lessen the impact of future issues.

In late November, the Biden administration held the first meeting of the cross-agency Council on Supply Chain Resilience, as well as a multi-pronged effort including the creation of risk assessment tools and public-private data sharing. The Department of Commerce will also host a Supply Chain Data and Analytics Summit in 2024, inviting expert input into supply chain risk assessment models and tools.

Marrying technology and cooperation is also giving rise to a trend toward supply networks, an interconnection of suppliers, manufacturers, customers, carriers and distributors. All these stakeholder groups will form collaborative workflows tying together plans, forecasts, orders, shipments, ETAs and inventories in real time. The improved flow of information provides end-to-end visibility, reducing errors, increasing efficiency and driving down costs, making companies more competitive. Onboarding and off-boarding suppliers can also happen more quickly

Advances in AI and algorithms are also making supply chain control towers smarter. They are now better able to anticipate issues before they arise through the use of predictive analytics, and then propose solutions to resolve them by leveraging prescriptive analytics.

Continued Pursuit of Sustainability in the Supply Chain

Sustainability weighs heavily on the supply chain as the logistics industry is responsible for 60% of the world’s carbon emissions. This plus a variety of initiatives by government and international organizations have forced companies to think more in terms of circularity in the creation and dissemination of goods.

There is also a push from the consumer side, as more people think along sustainable lines when making purchasing decisions. This further incentivizes companies to align with those preferences to remain competitive. Companies that lead in this regard are being rewarded with greater customer loyalty.

WickerPark Logistics: A Strategic Partner in a Dynamic Market

As Ferris Bueller famously said, “Life moves pretty fast,” and the same can easily be said for the world of logistics and supply chain. Considering the rapid pace of technology and disruptive forces, companies need a battle-tested partner to successfully navigate the changes and chart their course.

In today's competitive retail landscape, adaptability, scalability, and visibility are crucial capabilities. Wicker Park Logistics provides comprehensive solutions to address all aspects of your retail shipping needs, helping you stay one step ahead in a volatile market.

With the increased complexity of today’s supply chains, Wicker Parks’ innovative control tower approach drives network-wide efficiency. This robust technology creates “smart” systems that constantly learn and surface new ways to optimize your logistics and transportation operations.

An advanced tech stack optimizes your operations and reduces costs, including advanced predictive analytics to empower a more intelligent decision process.

The Future Is Now; Are You Ready?

Time will tell if we’ll see a freight market rebound in 2024 or if it will continue to be a “Groundhog Day” scenario of depressed spot and contract rates. Well, that’s good news for shippers, anyway! Freight demand – and therefore capacity and rate dynamics – will vary by sector, as noted.

But whichever way the wind blows, be prepared to meet industry and market challenges by partnering with Wicker Park Logistics. We bring a collaborative, consultative approach to every engagement, crafting an approach that’s tailored to your business needs. Speak to an expert today.

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