Alliance Shippers Inc. 2024 Market Projections

2023 Review

In 2022 we saw many Companies move away from a just-in-time inventory management model and increase their inventories so they could avoid further disruption that we saw throughout 2021. This led to record high inventory levels entering 2023 and an inventory glut. Consumer spending patterns have continued to shift from goods to services, evidenced by 11 consecutive months of expansion in the services section reported by The Institute of Supply Chain Management. These two events have created a softer than recent year for demand in the freight market. This softer demand level has allowed freight flow to return to normal and a leaner supply chain is starting to emerge. Routings have become more efficient removing excess volume from the market. We also are seeing more loads move from the spot market to the contracted market creating stability. Throughout 2023 we have slowly worked through the inventory excess and are starting to see positive signs of healthy inventory levels.

Demand

The Logistics Manager Index is a monthly measure of logistics activity created by compiling the components of 8 different metrics to create the overall index listed in the top row below. This is a diffusion index so any number under 50 represents contraction, and any number over 50 represents expansion. As you can see in the below chart, inventory levels have been contracting throughout the year. What’s interesting here is that we see a contraction in the overall index from October to November of 7.1% for a reading of 49.4% into contraction territory, that is not reflective of the market position and seasonal norms. This is due to a significant drop of 9.1% in inventory levels from October to November. Inventory levels also dropped at a higher rate than inventory cost which signals a quicker turnaround time for inventory, and the likely return to a just-in-time model. This means freight is moving and flowing through the system as intended.

Supply

While the cooling of demand and a chance to catch their breath was a welcome relief for shippers, many carriers did not share the same sentiment. This optimization of the supply chain has had a negative effect on shipping rates for carriers. As you can see below, the linehaul rate did not fluctuate much this year and will finish 2023 15 cents per mile lower than 2022. The current carrier rate compared to carrier operating costs has not been sustainable and we have seen record numbers of bankruptcies throughout the year.

The truckload market moves in consistent cycles illustrated by Act Research in the below image. When demand is high and supply is low, this will attract new carriers into the market quantified by the granting of new carrier authorities by the FMCSA. This happened at an unheard-of pace starting in 2020 during the Under Supply cycle when carrier rates were nearing record highs. Supply caught up with demand at the beginning of 2022 and we started moving into the Over Supply cycle. This is the cycle we experienced in 2023. We are nearing the exit of that cycle now and moving into the Early Supply cycle. As the net change in trucking authorities granted by the FMCSA illustrated on the right continues to remain negative, we are shedding capacity which is nearing the right size for the current demand levels. ?

2024 Projection

The supply chain industry is entering 2024 in a much better position with inventory levels. Supply chains are healthy and efficient. Excess capacity has been shed throughout 2023 and will continue to exit through Q1, but supply is starting to balance. Lunar New Year will decrease import volume temporarily in Q1, as it does every year, briefly dropping demand and carrier rates, but other than that demand is expected to stay consistent as it did throughout 2023. The Us Truckload Cycle will firmly be in the Early Cycle position going into Q3. The expected headwinds for demand in 2024 would be centered around consumer’s financial health, inflation, debt levels, student loans, and unemployment rates. Possible tailwind scenarios are an increase in demand and over correction of supply so that demand once again outpaces supply. Now is an excellent time to review your routings and 3PL relationships to ensure you are prepared for the next cycle.