The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
It is no secret that the logistics industry is facing a challenging landscape characterized by low freight rates and excess capacity. This situation is a result of several factors, including the lingering effects of the pandemic-induced demand surge, geopolitical tensions and a slowdown in global economic growth.
Carriers have been plagued by high operating costs, according to the recently published 2024 Council of Supply Chain Management Professionals “State of Logistics Report,” while lackluster demand and the capacity glut have made it hard to charge the kinds of rates that would allow them to protect their margins. Operating costs have mainly been affected by elevated fuel, labor and insurance costs as well as growing costs of regulations. One example is the new emissions standards that are impacting cab costs in a major way. So far carriers have not been able to relay these costs to their customers.
This has resulted in a loss of capacity in U.S. logistics. According to the Federal Motor Carrier Safety Administration, we saw a decrease of 10.7% in freight brokers and 7.6% in asset-based carriers from December 2022 to March 2024. We are not seeing any improvements in this trend. Just this past week, U.S. Logistics Solutions, a Texas-based logistics company with 500 truck drivers, abruptly ceased operations. This incident highlights the challenges faced by smaller carriers in the industry.
3PLs face some significant challenges in 2024, such as low freight rates and excess capacity. This will lead to further consolidation among 3PLs. We have already seen the recent sale of the Transfix brokerage business to NFI and the sale of Coyote Logistics to XRO. At the same time, larger players have an opportunity to invest in their internal capabilities. According to the “State of Logistics Report,” 3PLs need to understand how to balance technological advancements and the traditional people-based approach that characterizes the logistics industry.
Shippers are creating new business models to create competitive advantages. Not only are they investing in routing optimization, new transportation management systems, supply chain visibility and other technologies. They are also entering the transport services market with examples such as Amazon and PepsiCo. We even see 3PLs and shippers working together to optimize their networks. This requires insights in the networks based on high-quality data as well as a willingness to collaborate.
While some signs of recovery, such as a slight rebound in container demand, are emerging, overall demand for freight services is expected to remain subdued due to persistent inflation, high interest rates and a tight labor market. Most likely, we will continue to see excess capacity and low freight rates for the remainder of 2024.
However, there are potential bright spots on the horizon. The ongoing trend of nearshoring, driven by geopolitical tensions and the desire for more resilient supply chains, has domestic manufacturing growing at a faster pace than imports from Asia. This will result in the longer term in increased demand for trucking services in North America. We have already seen this positively affecting carriers offering cross-border services from Mexico into the U.S. Additionally, the eventual easing of supply chain disruptions and a potential rebound in global economic growth could lead to increased demand for freight services.
But it is important that companies prepare for when the much-needed market demand returns and capacity tightens. This will require further digitization, hiring of the right talent, enhancing market presence and focusing on improving the companies’ logistics networks.
Shippers can leverage their position of power to negotiate favorable rates and secure capacity for their shipments. They can also explore alternative transportation modes and routes to optimize their supply chains. Further, they should invest in integrated transportation management systems that provide connectivity, communication and collaboration between shippers and carriers, which in turn will provide better customer service, visibility and operational efficiency.
Carriers, on the other hand, need to focus on improving operational efficiency, reducing costs and differentiating their services to attract and retain customers. They can also explore partnerships and collaborations to expand their reach and offer more comprehensive solutions.
The logistics industry is facing a period of significant change and uncertainty. However, by adapting to the evolving landscape and embracing innovative technologies, both shippers and carriers can position themselves for success in the years to come.
Look for more articles from me every week on FreightWaves.com.
About the author
Bart De Muynck is an industry thought leader with over 30 years of supply chain and logistics experience. He has worked for major international companies, including EY, GE Capital, Penske Logistics and PepsiCo, as well as several tech companies. He also spent eight years as a vice president of research at Gartner and, most recently, served as chief industry officer at project44. He is a member of the Forbes Technology Council and CSCMP’s Executive Inner Circle.
The post The state of logistics in 2024: Low rates and excess capacity appeared first on FreightWaves.
