MercuryGate Logistics Landscape

Freight Industry News Affecting Your Q1 2024 Supply Chain Performance

After an estimated 3.1% increase in year-over-year holiday sales, optimistic freight industry trends analysts anticipate transportation markets to normalize toward mid-year thanks to various factors.

Among them, inventory levels returning to pre-pandemic status, increasing cross-border domestic commerce, improving durable goods orders, and declining fuel costs all give cause for hope.

At the same time, the ongoing environment of sudden disruptions, supply chain shifts, and trade route adjustments pose logistics management challenges in 2024. Those risks mean freight transportation’s “new normal” may be marked by slower growth and a rebalancing of markets instead of a complete rebound for ocean shipping, air freight, trucking, intermodal rail, and parcel.

Let’s examine transportation trends and economic conditions affecting your supply chain cost and service during the year ahead.

Retail Industry Environment

MasterCard Spending Pulse reveals 2023 holiday sales grew thanks to a 2.2% in-store sales increase and a 6.3% y/y increase in online sales. The e-commerce increase between Nov. 1 and Dec. 24 is down slightly from the 7.8% Q3 y/y increase that brought quarterly online sales to $284.1 billion – 14.9% of total retail sales, according to the U.S. Department of Commerce.

Now, the returns season intensifies. Last year, shoppers returned 16.5% of items worth $817 billion purchased online and in stores. Merchants are estimated to spend $27 to handle a return for a $100 order, and Gartner reports that companies lose 50% of their margin on returns. Organizations’ ability to manage returns and reverse logistics significantly affects bottom-line performance during 1H.

Wholesale inventories for November were estimated at $895.7 billion – down 0.2% from October and 3.1% from November 2022.
Retail inventories for November were estimated at an end-of-month level of $794.9 billion, down 0.1% from October, but up 5.1% from November 2022.

Manufacturing Environment

Up two of the past three months, new orders for manufactured durable goods in November increased $15.1 billion or 5.4% to $295.4 billion. Also up two of the past three months, transportation equipment led the increase, climbing 15.3% or $14.3 billion to $107.8 billion.

At the same time, shipments of manufactured durable goods in November increased 1% or $2.9 billion to $283.2 billion. Again, transportation equipment led the increase, rising 2.3% or $2 billion to $90.3 billion.

Within this environment, the international trade deficit grew to $90.3 billion in November, up $0.7 billion from $89.6 billion in October. Exports of goods for November were $165.1 billion – $6.2 billion less than October exports. Imports in November were $255.4 billion, $5.5 billion less than in October.

Preliminary Class 8 orders increased to 36,750 units from October to November.

Preliminary trailer orders in November dropped to 21,362, down 38% compared to October and down nearly 42,000 units year-over year, according to FTR.

Freight Transportation Industry News

November’s Logistics Manager’s Index reveals transportation capacity increasing at a faster pace, while prices are declining at higher rate. While November’s LMI reflects mild contraction due largely to inventory shifts, it says, “the North American economy continues to chug along.”

Record profits and diesel price declines allowed many carriers to remain in operation, allowing excess capacity to linger, but DAT Freight & Analytics’ outlook for 2024 predicts the truckload market could normalize by mid-year.

Anticipated interest rate cuts in 2024 could spur housing starts and flatbed demand, especially in the Southeast, where about 60% of the nation’s family homes are built. Nearly one-third of Americans expect mortgage rates to fall, while home-buying sentiments continue to improve.

Expect domestic, cross-border commerce to drive ongoing demand after Mexico surpassed China as the U.S.’s largest trading partner.However, U.S. Customs and Border Protection on Dec. 19 wrote that it violates U.S. Customs laws to use an offshore and unlicensed third-party company to review shipping documents such as bills of lading and commercial invoices. As a result, U.S. brokers can’t use inexpensive offshore labor to reduce costs for import entry preparation.

Meanwhile, geopolitical conflict continues to jeopardize international costs and service times, affecting supply chain performance in the process. Air freight demand is rising, shipping rates are increasing, and transit times are growing. Reliable shipment and order visibility is an asset that helps protect priorities while shippers navigate tumultuous waters.

The Cass Truckload Linehaul Index declined 0.3% in November and it is down 7.5% year-over-year.

Freight Trucking Spot Market

Truckload markets are back in gear after holiday week demand and capacity constraints created a spike in spot rates based on DAT Freight & Analytics Trendlines analysis. After the spike, load-to-truck ratios for each equipment type continued to climb between the week of Dec. 25-31 and the week of Jan. 1 – 7, including dry van (+28.9%), flatbed (+68.5%), and reefer (+0.5%).

Spot load posts declined 23.3% between November and the end of December, according to DAT Freight & Analytics. Spot truck posts dropped 14.3%.
In that environment van spot rates increased 1.7% as the van load-to-truck ratio declined 9% month-over-month. December van spot rates are down 12.4% compared to last year.

Flatbed spot rates decreases 0.7% m/m, while the flatbed load-to-truck ration declined 7.1%. December flatbed spot rates are down 12.5% compared to 2023.

Reefer spot rates decreased 1% from November to December as the reefer load-to-truck ration declined 18.3%. Reefer spot rates are down 12.6% compared to December 2022.

Descending Fuel Prices Alleviate Freight Industry Cost Pressure

Eight weeks of price declines for on-highway diesel fuel ended on Dec. 25, but the first two fuel reports of 2024 reflects a return to price drops. Since the start of the year, the national average for on-highway diesel declined 8.6 cents to $3.828 a gallon. According to the Energy Information Administration report for Jan. 8, the current U.S. average is 72.1 cents below last year.

Average diesel prices dropped in all 10 of the EIA’s reporting regions for the Jan. 1 and Jan. 8 reports. The average price is highest in California ($5.152) and lowest in the Gulf Coast region ($3.531).

Regular gasoline prices follow a similar trend, with the Jan. 1 national average dropping 2.7 cents to $3.089 per gallon after an uptick that followed several weeks in declines. The U.S. average for gasoline is 13.4 cents below the same period last year.

Average prices for on-highway diesel continued to decline during Q4 2023, decreasing 10 out of the past 11 weeks for the U.S. average. In the Jan. 8 report from EIA, the national average is $3.828 per gallon, down 72.1 cents from the same period last year. Prices are lowest in the Gulf Coast region at $3.521, and the highest in California at $5.152 per gallon.

The U.S. average for regular gasoline is down 18.6 cents compared to last year. The national average price in the Jan. 8 report from EIA, $3.073, is down 1.6 cents from the prior week. Gasoline prices are the lowest in the Gulf Coast region ($2.676) and highest in the West Coast region ($4.072).

Freight Industry Mergers & Acquisitions

Global mergers and acquisitions declined 17% to a value of $2.87 trillion during 2023, the lowest level in over a decade, according to London Stock Exchange data. U.S. M&A outperformed international activity, falling 6% to $1.36 trillion.

Still, in the freight logistics sector Q4 M&A moved the value needle, including Hub Group’s acquisition of Forward Air’s Final Mile unit and the TFI International acquisition of flatbed truckload carrier Daseke. Already in 2024, Denmark’s Maersk Tankers acquired Penfield Marine, a U.S. pool operator.

Economic Volatility Sways Q4 Transportation Trends & Logistics Industry News

Economic indicators point to a strong start for Q4 – with inflation cooling to 3.2% in October due to lower gas prices. Likewise, the services and manufacturing sectors experiences modest expansion. At the same time, a 17% year-over-year gain in single-family home sales and increases in new residential construction offer more signs for optimism. Year-over-year construction spending is up 4.6% through the first 9 months of 2024, after inching up 0.4% from August to September.

Signs of an economic rebound appear in a 4.6% increase in new orders for manufactured durable goods – the first uptick following 2 months of decline. New orders for manufactured goods during September increased 2.8% – the sixth increase in the past 7 months. More positive momentum comes with National Retail Federation’s expectations for holiday spending to exceed last year: $875 per household, with $620 going to goods and $255 toward consumable items.

Freight volumes for less-than-truckload carriers continue growing in the wake of the Yellow exit from the market. XPO, ABF Freight and Old Dominion Freight line all report strong growth in shipment volumes and pricing power. However, the Journal of Commerce reports that pricing surges are abating.

Transportation headwinds Persist in Q4

In addition to moderating LTL pricing, that same NRF forecast reminds us that the normalized, pre-pandemic inventory-to-sales ratios won’t help a depressed freight marketplace. A pair of purchasing managers indices released Nov. 1 reflect manufacturing industry contraction and staffing reductions – in spite of a recent uptick in new orders for durable goods.

More evidence tempers Q4 expectations:
  • U.S. Business inventories barely changed in September and August (up 0.4% both months).
  • End-of-month wholesale inventories in September were up 0.2% from August.
  • Advance monthly retail sales for October are down 0.1% from previous month, while total sales from August through October are up 3.1% compared to last year.
  • Total cargo volume dipped in August at 11 of the top 12 U.S. container ports.
  • Loaded container imports at the Port of New York and New Jersey in September declined 19.9% from the prior year, reaching the lowest import level since June.

Global outlook for container trade in 2024 forecasts sagging demand and falling rates – down 48%-67% from a year ago. Shipping and logistics company Maersk plans to cut 10,000 jobs as ocean demand dips. The company reported a third-quarter profit decline of $521 billion, with the Ocean division posting a quarterly loss.

French-based shipping company CMA CGM reported third-quarter profit declined to $388 million – down from $7.04 billion in the prior year. South Korean shipping link HMM saw a 96% decline in profits during 3Q 2023.

The U.S. deficit in goods and services increased 4.9% between August and September. September exports were $261.1 billion, $5.7 billion more than August exports. September imports were $322.7 billion, $8.6 billion more than August imports. The total deficit, $61.5 billion in September is up $2.9 billion from August’s revised total.

Following the pattern, American Trucking Association’s seasonally adjusted for-hire truck tonnage index for September declined 4.1% from prior year – the steepest decline since November 2020. Muted trucking demand will likely push more carriers out of business – despite a significant jump in preliminary Class 8 truck orders.

During Q3, total trucking capacity declined by 4,312 carriers.

  • 19,837 carriers saw their operating authorities revoked by the Federal Motor Safety Carrier Safety Administration.
  •  15,525 were authorized by the Federal Motor Carrier Safety Administration in Q3 – a decline of 34.1% compared to last year.

Growing risks – including volatile diesel fuel costs and increases in cyberthreats – exacerbate challenges in the trucking industry and jeopardize profitability across supply chains. Shippers face more cost pressure with matching 5.9% General Rate Increases (GRI) and additional charge increases announced by UPS and FedEx.

Meanwhile, the U.S. Postal Service plans 2024 rate hikes effective Jan. 21. Price increases will affect Ground Advantage, Parcel Select, Priority Mail, and Priority Mail Express according to a filing with the Postal Regulatory Commission. 

Despite consistent annual parcel GRI, ground parcel rates in 3Q declined year-over-year for the first time since 2019. The decrease in the TDS Cowen/AFS Freight Index was fueled by larger pricing discounts and reductions in added fees and fuel surcharges.

In this logistics landscape, supply chain players are finding solutions in technology. Logistics Management’s 32nd Annual Study of Logistics and Transportation Trends surveyed supply chain leaders about the role of technology – like freight forecasting, route optimization, and back-office automation.

  • 82% say modern technology is “a strategic necessity to compete in the marketplace.”
  • 75% believe that without technology they would lose customers to competitors.
  • 74% believe adopting modern technology is essential to increasing profitability.

Q3 Transportation Trends Shaping Global Supply Chains in 2H 2023

U.S. Logistics costs reached record levels in a 2022 transportation marketplace that put shippers in control through the first half of 2023. For Q3 and the year’s second half, expect to navigate transportation trends influenced by labor challenges, increasing costs, uncertainty in customer demand, and capacity volatility that could put power back in the hands of service providers.

Now is the time to fine-tune. Strategies to survive the pandemic may no longer be sustainable, according to the 2023 State of Logistics Report from CSCMP, which reported that U.S. Business Logistics Costs reached a record $2.3 trillion last year, representing 9.1% of the GDP. Solutions that leverage automation to reduce costs and protect profit continue to provide value in this environment.

Meanwhile, the U.S. economy grew 2.4% during Q2. The quarterly increase in Gross Domestic Product comes after a 2% increase was projected during Q1.

U.S. Business Logistics Costs as a Percentage of GDP

U.S. Business Logistics costs from 2012 until 2022, including revised figures (R). Sources: Kearney Analysis, Logistics Management

As supply chain costs spiral, logistics is no longer a side function for modern businesses. Instead, according to the State of Logistics report, it is “widely seen as a core determinant of service and revenue outcomes and a strategic differentiator.”

That’s driving continued success for supply chain service providers that deliver 4PL capabilities, illustrated by MercuryGate resellers fortifying their global modern 4PL service with Redwood Logistics’ Acquisition of Rockfarm Supply Chain Solutions.

Transportation Labor Challenges Drive Uncertainty

High-profile labor disputes and business bankruptcies threaten significant supply chain disruption. Logistics companies cut payrolls heading into 2H, with freight and parcel carriers eliminating more than 14,000 jobs. Warehousing and storage employment fell for the eighth straight month in June, with companies cutting payrolls by 6,900 jobs.

Yellow’s bankruptcy filing expected on July 30 puts 30,000 jobs at stake within the nation’s third-largest less-than-truckload carrier. A Yellow bankruptcy would be the largest for a trucking firm in U.S. history, according to experts. The LTL carrier reported $5.2 billion in revenue last year, but laid off much of the Yellow workforce ahead of bankruptcy filing.

UPS and the Teamsters reached a tentative agreement before a July 31 contract deadline, appearing to avert a strike for 340,000 parcel delivery drivers and package sorters. According to some estimates, only 10-20% of the company’s shipments could be picked up by other carriers in the event of a UPS strike. FedEx is accepting parcel volume for a limited time as part of a plan to manage a capacity spike that would accompany a UPS labor shutdown. Volume during July 17-21 will be the baseline measurement for capacity in the company’s network.

Labor negotiations for East Coast ports in the U.S. and Canada’s West Coast ports create additional jeopardy for international supply chains, even though a June labor agreement between the International Longshore and Warehouse Union and the Pacific Maritime Association keeps 22,000 workers on the job in 29 West Coast ports. Port Tracker estimates that import volumes for 12 U.S. ports will reach 2.03 million TEU in August, the first month to exceed 2 million TEU since September 2022.

Transportation Costs Trend Up for Shippers

From the smallest letter to the largest shipment, transportation costs are climbing.

The U.S. Postal Service raised stamp prices 3 cents to 66 cents on July 9. The 4.8% increase is the second this year and the third uptick for domestic letters in the past 12 months. Other rate increases apply to mailing a letter outside the U.S., mailing a postcard in the U.S., and sending metered letters.

At the same time, while FedEx and UPS are expected to announce General Rate Increases later in the year, the postal service launched USPS Ground Advantage. The move aims to take business from the two dominant parcel players who have increased costs consistently since 2015, including a 6.9% average rate hike in 2023.

Those parcel delivery cost increases prompt some retailers to set higher thresholds for what shoppers must spend to qualify for free delivery. In a recent survey, 47% of merchants said they spend more than 10% of an order’s total value on shipping.

Cost trends continue to increase across other transportation modes, especially compared to pre-pandemic levels, according to CSCMP’s 2023 State of Logistics.

  • Trucking costs rose 6.1% year over year to $896 billion, a 29.3% increase compared to 2020.
    • Full Truckload up 6.2% YoY and 28.8% from 2020.
  • Rail costs increased 17.6% to $99.2 billion, up 33.1% from 2020.
  • Parcel costs climbed 4.7% to $217 billion, up 20.1% from 2020.
  • Air freight costs were flat in 2022, as global air cargo is projected at $150 billion this year, 25% below last year. Air cargo demand was down for the 15th straight month in May.

Soft Transportation Demand Persists, Limits Rate Growth

Expectations are muted for a 2023 peak season.

Despite a freight volume uptick that increased spot rates at the end of June, the load count is still down significantly, based on 1.6 million loads posted to the DAT Freight & Analytics DAT One Load Board. By comparison, 3.2 million loads were posted during the same period in 2022. Truck posts on DAT were about 350,000 during the same timeframe, the lowest total since June 2018.

For the week of July 17-23, spot load posts decreased 9.9%, week over week. June’s spot load posts are 54.4% below last year according to DAT.

National spot rates for the week of July 17-23 on the DAT One Load Board for Van, Flatbed, and Reefer Transportation. Compared to the prior week, spot rates decreased for Dry Van, Flatbed and Reefer transportation modes. Dry van decreased 0.3% to $2.07. Spot rates declined 0.9% to $2.54 for flat bed. Reefer spot rates declined 0.6% to $2.44. 

In tandem with soft spot rates, contract trucking rates continue to adjust down, driving an ongoing decline in the Truckload Linehaul Index, according to Cass Information Systems. Compared to May 2022, the index is down 15.3%.

Cass Information Systems Truckload Linehaul Index includes both spot and contract freight. The 142.8 index reading reflects a 2.6% decline from April until May, and it is down 15.3% from May 2022.

As a result of freight transportation trends in the market, new motor carrier registrations are declining to pre-pandemic levels. New registrations spiked following a pandemic dip, but with rates going down, smaller carriers who previously benefitted from a volatile spot market were forced to decide between switching to contract freight, joining a larger carrier, or leaving the market, according to the State of Logistics.

Fewer new capacity providers may allow tightening in the market to continue as 2023 progresses, especially as new trailer orders continue to sag.
New motor carrier registrations increased in recent years but dropped sharply to pre-pandemic levels at the end of 2022.

Economic Indicators Hint at 2H Transportation Trends

Industry-wide sales of new autos in the U.S. jumped an estimated 13% in the first half of the year, according to the WSJ, with about 1.9 million vehicles on dealership lots or being shipped to stores in June, a 52% increase from last year. As a result, shipments of motor vehicles and auto parts on U.S. railroads rose 21.1% from last year.

Total U.S. business applications in June were up 6.2% compared to May. Those applications included the following (with month-over-month comparison to May):

  • 75,320 in the Retail Trade (up 3.2%).
  • 59,595 in Professional Services (up 0.8%).
  • 48,739 in Construction (up 12%).
  • 34,278 in Transportation & Warehousing (up 7.4%)

In the Business Formation Statistics report for June, the U.S. Census Bureau projects a 4% increase in the formation of businesses with tax liabilities during the next four quarters.

U.S. Monthly Business Applications in June 2023 increased to 465,906, including 48,126 created by Corporations, according to the U.S. Census Bureau. Of all June applications, 32,148 are expected to become businesses with payroll tax liabilities during the next four quarters.

Meanwhile, new orders for manufactured goods increased $1.6 billion or 0.3% during May. However, the Institute of Supply Management reports that economic activity in the manufacturing sector contracted for the eighth consecutive month in June. In an ISM Purchasing Manager’s Index registering a 12-month low, transportation equipment was the only category to register growth among the nation’s six largest manufacturing sectors.

Monthly wholesale inventories for May ($913.7 billion) were unchanged from April and up 3.7% from May 2022. May 2023 monthly sales of merchant wholesalers, except manufacturers, were $650.2 billion (seasonally adjusted), down 0.2% from April’s revised number and down 4% from the revised May 2022 level.

Total construction activity in May was also relatively flat, with a 0.9% change (+/-0.5%) above the revised April 2023 total.

Transportation Industry Trends to Watch

Hopes are high for electric vehicles, but plenty of EV myths remain. Amazon plans to put 100,000 electric vehicles on the road by 2030, and more than 5,000 hit the streets in the past 12 months.

The Digital Freight Marketplace benefits shippers and carriers who streamline procurement with seamless connections between freight and spot and contract capacity.

Education, training services, and task automation empower organizations to sustain the value of their TMS tools in a global labor shortage.

Advances in artificial intelligence open the door to new supply chain applications, but there are perils. How will supply chain strategists combine human know-how with AI power to maximize both?

Visit the MercuryGate Blog for Market Updates, transportation Industry Trend Analysis & Actionable Advice.