Navigating a dynamic freight market | Universal challenges facing shippers, carriers, and 3PLs

What supply chain leaders are saying today?

Investing now is Jet Fuel for the Future- Freight cycles historically run about four years, two years favoring carriers then the inverse two years favoring shippers. Analysts and experts agree the freight market has been in a lull for the past 24 months. The risk of market fluctuations increases daily, companies investing today will have an advantage in the future.

Be a Shipper of Choice- Be flexible, take pride in your driver facilities, reduce detention and delays, offer drop & hook (if possible), over-communicate, show compassion, be transparent, and be proactive.

Sustainability, Data Density, Workflow Automation- Grow your network with partners that align with your vision and values.

Follow your Customers- Customers drive markets, drive production, drive innovation. Listen to your customers.

State of the Lower 48:

2024 market conditions remain similar to 2019.? The more traditional seasonal “norms” have impacted a soft market through H1. Market rates have fluctuated briefly around winter weather, DOT week, and produce season, all historical market movers.

Consumer spending has maintained its momentum thus far continuing the volume gains in 2024 compared to 2019 statistics. Both higher Federal Interest rates and CPI continue to cause reason for pause.? Consumer debt levels also continue to rise begging the question of when consumers will slow down.?

FMCSA data shows 315,000 MCs registered and 37,000 left the market in 2024. Of those remaining only about half actively operate, 160,000 MCs. Trucking is a cash-flow business with a constant focus on OPEX. Expenses are magnified with owner-operators and small to midsize fleets.? The resiliency of smaller carriers has led to a prolonged soft market.?Broker-owned freight has been fueling owner-operators and 1-6 truck outfits. Today statistics show ~40% of all volumes flow through brokerages fueling the current uber-competitive marketplace. ?SMB carriers must afford their truck note and fuel to stay afloat, common practice in a soft market shows carriers “kick the can” on maintenance and truck replacement in a low-margin market. As conditions continue SMB carriers are forced to default against debt obligations shutter operations and capacity is removed from the market.

OTRI Dry Van data shows ~4.5% of all loads rejected (Slight Increase recently). Historical averages show that a 7-8% rejection rate is a more balanced market. Spot rates remain $0.71 below contract rates, but we're slowly beginning to see the gap closing between spot and contract rates. Class 8 truck net orders were up 49% Y/Y in initial May Data. As the freight economy shifts out of a "freight recession" market volatility will increase. Many shippers will find themselves evaluating their tolerance levels between cost and compliance.

International Markets, China and Mexico:

2024 is seeing a significant push to nearshore both manufacturing and talent. The race is on to secure prime border real estate to stay competitive.? The United States was the largest trading partner with Mexico in 2023, trading $798B.? Much of the push for Mexico's manufacturing and distribution footprint has risen around the border, however, future investments are moving into more centralized Mexico City. Interest in the Chinese region has slowed over the past years due to geopolitical factors, increased labor costs, and tariffs. The North American Trade Agreement USMCA, implemented in 2020 benefited regional expansion (Mexico), combined with lower labor costs than China, and closer proximity to the end consumer (U.S.) has propelled Mexico into the spotlight.? Challenges in Mexico are not unknown, safety and security are major concerns in transportation. Global partners continue to upgrade tracking technology, alter driver routes, and even ship goods through unmarked vehicles to combat the ongoing challenges of transporting goods in Mexico.

Chinese exports to the U.S. have increased by 29% over the past 5-years, while exports to Mexico have increased by nearly 177% over the same period. ??

Fighting Freight Fraud ??:

AI continues to enhance nefarious actors. Increases in criminal organizations targeting freight are bringing fraud to the top of mind for many shippers, carriers, and brokers across the marketplace. Q1 of 2024 saw another increase in fraud cases compared to prior quarters. ?

Companies like Highway have developed a new process for vetting carrier partners; the company compares vetting a new carrier to applying for a home loan. The argument is whether you are approving a $200,000 mortgage, or handing a new carrier partner $200,000 worth of goods; the process should be stringent.? The significant difference falls in the authenticity portion of the information required. In banking, there is a multi-step authentication process, financials are evaluated, as is personal information. In freight, the carrier vetting process is not as cumbersome today. Highway is changing the process, adding multi-step verification requirements tied to specific users at the carrier level.

Highway offers an improved solution to an ongoing problem in freight. Shippers and 3PLs collectively will be better prepared to vet carriers depending on shipping requirements and product values.

Sustainability & EVs ?:

Decarbonization remains a core focus globally and a hot topic in transportation. Expectations and the buzz around EVs will continue. Major auto manufacturers were awarded significant tax credits under the Inflation Reduction Act and the CHIPs Act to produce future EVs. Transportation market sentiment shows today’s EVs are unreliable compared to diesel, costly, some 4x the cost of a diesel power unit, and truck weights in EVs pose safety concerns.

Short-term EV opportunity presents itself with local fleets completing same-day runs within a 200-250 mile radius. Companies operating traditional equipment can track their carbon footprint by registering as a SmartWay carrier.

Interestingly market sentiment shows decarbonization efforts tend to decrease the speed at which customers receive goods. Moving forward, carriers will have strategic decisions regarding their ability to meet EPA standards and regulatory requirements while maintaining high levels of customer service.

Automation for your Business:

Technological investments should replace a minimum of 20% of the processing workload. Our industry is experiencing the impact of automation in warehousing, trucking, and 3PL services. Warehousing has deployed robots or cobots, driving efficiency gains, driving down costs per unit, increasing safety scores, and increasing employee production. ?3PLs and carriers benefit from workflow automation to enhance email communication, carrier sourcing and load board matching, carrier marketplace applications, OCR technology, and most recently automated appointment scheduling. Finding the balance between people and technology continues to be front of mind.

#knowyourcustomers #bebettertoday #knowyourcarrier #futureoffreight