Logistics and Supply Chain Trends in 2024

With 2023 now firmly behind us, it's time to look ahead. So let's delve into what logistics and supply chain trends are on the horizon in 2024.

From our viewpoint, the freight market in 2024 is poised to closely resemble that of 2023. This implies that another challenging year awaits us, as identifying a clear catalyst to drive increased freight demand at the year's outset is no easy task. For freight providers, this means navigating through what is likely to be the longest freight downturn in recent history. It's crucial to remember that the freight market witnessed one of the most significant bull markets during the pandemic, so the current downturn, although prolonged, shouldn't come as a surprise.

2024 Freight Outlook - Cliffs Notes

Despite the anticipation of another year with subdued demand in 2024, there are some positive signs and evolving business models in the outlook for the year that suggest freight pricing has reached its nadir. Prices are expected to fluctuate as we near the end of the downturn and transition into more typical freight demand cycles.

In such circumstances, we anticipate a market characterized by volatility throughout the year. It will continue to seek equilibrium and gradually move away from the recessionary trends that have persisted since July 2022. The following is the CliffsNotes version of how we seeing 2024 playing out for shippers and freight providers:

Domestic freight rates are expected to continue bouncing along the bottom in the 1st quarter 2024, with a rise coming in conjunction with the produce season.
Volumes will remain muted in the first half of the year giving way to more normalized seasonal volume patterns in the second half.
- Without a meaningful freight demand catalyst, we should not expect tremendous volume improvement in 2024.
Imports will begin to lean more to the West Coast than Eastern and Southern ports, as shippers put contingency measures in place to protect against supply chain disruptions caused by an impending port labor union contract expiring.
- The transition may happen sooner with the unrest in the Red Sea.
More carriers and brokers will be forced to exit the market in the first half of 2024 because of the financial challenges brought on by an extended freight recession.
For those logistics providers that remain in the market, we expect to see more headcount reductions to better match sales and operations requirements.
Shippers and freight providers will continue to watch expenses and invest wisely, so as to avoid getting over their skis in a bumpy market.
Cross border freight traffic will increase and outpace the overall market along the southern border of the USA and Mexico.
Diesel prices for 2024 are expected to hold fairly steady around $3 a gallon in the first half of the year, then gradually climb to end 2024 in the $3.25 price per gallon range.
Sustainability will begin to move from a tagline in a mission statement to a full-on focus, thus more work on electrification of trucking fleets and truckload to intermodal conversions.

With all the broad strokes behind us, let's jump into the details.

Navigating the 2024 Freight Market

To understand the 2024 freight market, it's useful to talk through some of 2023 and pose some questions.

Since July 2022, the freight market has been trying to find balance in the supply of freight capacity and demand from shippers.
Shippers worked to right-size their inventories to better align their inventory-to-sales relationship to historical trends.
- The process of inventory rationalization also included having the “right” inventory for the season, not stale and outdated merchandise.
Consumers balanced spending between tightening their belts on physical products or opening up their wallets for experiential purchases.
The Federal Reserve made history on the speed and level of interest rate increases to bring inflation down to its 2% goal.
- Out of this rate hike process, the question for 2024 is whether the Federal Reserve will be able to bring the economy in for a soft, hard or no landing, with the answer having big consequences for the general economy.
Global tensions continued through 2023, with additional tensions coming out of the Middle East.
The West Coast port labor agreement finally was inked and in favor of the workers.
- East coast Port labor union is expected to force a strike of all East Coast ports in October 2024, as well as ports as far west as Houston and the Great Lakes.
Corporate supply chain strategies began to push a reshuffling of manufacturing out of China to either other countries in the Pacific Rim Region or to the U.S. - Mexico.
There was not a peak shipping season in 2023.
Diesel prices were pushed down because of OPEC production setting; demand being muted by a slower global economy; and the US pumping to levels that helped hold down cuts made by OPEC.

Realizing the wide-reaching results that can come from the above dynamics, it's evident that tactical changes are essential and depending on the timing may force a two-pronged approach to successfully manage from a trough into slowly increasing demand.

Understanding the Global Shipping Downturn

In today’s interconnected environment, international economies drive many outcomes in the U.S. freight market. As we head into 2024, major contributors to global economic growth are in a worse position than that of the U.S. The synchronous global expansion that once buoyed international trade has given way to regional disparities in growth rates. This uneven economic terrain will affect demand patterns and is expected to disrupt traditional freight flows even more in 2024.

Moreover, geopolitical tensions have introduced new layers of complexity to logistics planning and risk management. The latest example relates to the tensions in the Middle East that have shippers on edge avoiding the Red Sea and Suez Canal. This is adding transit and cost to shippers, with no clear end in sight.

Also, 2024 has the potential of trade wars heating up, which will test companies on their agility to adapt swiftly to changing tariffs and regulations. These challenges are exacerbated by persistent overcapacity within the ocean shipping fleets worldwide, causing the number of blank sailings to increase. The interplay between these elements not only diminishes profit margins, but also reshapes competitive dynamics across markets.

Impact of Consumer Spending on Freight Demand

A direct correlation exists between consumer spending habits and freight volumes - when one declines so does the other. Calendar year 2024 is starting off well according to the University of Michigan Consumer Sentiment Index, with confidence moving up. However, other analysis indicates consumers are rethinking their discretionary purchases as economic anxieties persist. So, while there have been recent upticks in retail sales figures, there are many starting to question their strength, causing inevitable ripples through supply chains.

Softening demand translates into lower shipment frequencies for carriers who must now grapple with both diminished top-line revenue opportunities as well as pressure on rates due to excess capacity seeking employment amidst shrinking order books. Herein lies a delicate balance: adjusting service offerings without compromising long-term customer relationships or market position becomes paramount during such periods of adjustment.

With inventories better positioned in 2024, but with the hint of less spending from a quasi-recession, the shipping industry could face somewhat of a repeat of 2023 in the year ahead. Even if the U.S. economy does achieve a soft landing, we should still expect to see strategic shifts by freight providers to stay afloat as the freight recession is expected, at a minimum, to continue through to the end of the second quarter.

Uneven growth and geopolitical strife are shaking up global trade, testing companies' agility amidst fluctuating tariffs and regulations. As consumer spending goes down, so does freight demand. Carriers need to find a balance between adjusting services and maintaining customer ties. And economic pressures push trucking firms to rethink operations from fleet sizes to changing service offerings to shutting down altogether.

Insights from Logistics Executives

Gleaning insights from those at the top provides foresight into what might lie ahead for freight markets. And according to predictions based on data gathered from logistics executives participating in CNBC surveys, transportation sector indices suggest caution. These forward-looking statements indicate potential stagnation throughout 2024 if current conditions persist unmitigated — making proactive measures all but essential moving forward.

Projected Freight Market Growth for 2024

Predictions for growth—or a lack thereof—in the coming year cast long shadows over boardroom tables. It seems consensus skews towards a belief that we won't see robust expansion anytime soon within freight markets due to economic pressures worldwide; instead expecting them to tread water - at best - throughout 2024. The historic interest rate hikes of 2023 will have a continued cooling effect on spending habits and thus shipping needs, but when exactly will this reverse in 2024 makes it difficult to support projections on freight demand.

State of Trucking Companies Amidst Economic Pressures

Trucking companies are currently navigating a complex economic landscape marked by a sharp downturn in demand. A key challenge lies in the significant drop in orders, which has led to revenue challenges for freight trucking firms. In response, many have had to rethink their strategies and operations.

In every recession’s wake lies challenges—but also opportunities—for those willing to navigate its complexities intelligently. The trucking sector feels this dual-edged sword keenly today as it grapples with revenue hurdles borne out of decreased shipment volumes while simultaneously searching out novel survival strategies amidst trying economic conditions.

In a CNBC survey taken from some of the largest freight companies, 66% of respondents believe freight volumes will be somewhere between flat to up five percent in 2024. This will drive trucking companies to rethink their fleet size, hiring, and focus - and drive others to drop out of the industry altogether.

On the latter point, net operating authority revocations hit an all-time high in the first quarter of 2023 and continued to decline through the end of the year. Expect the trend to finally drop to historical levels by the beginning of the second quarter this year. The decline in net operating authority revocations occurs in every bottoming freight market and brings stability to pricing, as the balance between supply of trucks and demand for capacity begins to find equilibrium.

Another data point to the bottoming can be traced to new class 8 truck orders, which experienced a big decline that began in the 4th quarter of 2022 and then continued at all time lows until September 2023. The change in direction of class 8 purchases also indicates the pricing bottom is near or already in place.

Revenue Challenges for Freight Trucking and Logistics Firms

Fiscal health checks reveal many truckers running leaner than ever before according to recent FMCSA data. Orders dwindle while competition heats up amongst carriers. With shrinking margins, it's crucial for these companies to adopt more efficient operational strategies and explore new revenue streams to stay afloat in this challenging market. Similar to 2023, freight market analysts are forecasting additional large carriers and freight brokerages will be added to the list of bankruptcies that began in 2023.

Rate Stabilization in All Domestic US Freight Modes

The freight pricing reflects the complex interplay of supply and demand. In 2024, we're expecting truckload, intermodal and LTL to see their rates stabilize at the onset of the produce season. Analysts attribute the change to a variety of market conditions that include economic pressures on trucking firms driven by increased driver wages and benefits, along with insurance and maintenance costs, coupled with further reduction in operating authorities that pull supply of trucking capacity out of the market. At the same time, consumers are expected to hold to their spending patterns in the first half of the year to hedge themselves against inflation.

On the flip side of stabilization, regulatory policies associated with the classification of contract and full-time employment and labor challenges along the Eastern and Southern Ports are expected to bring a disruption to typical freight flows that will potentially impact capacity and price in a meaningful way in the latter half of 2024.

Understanding Rate Dynamics for LTL Shipments

LTL shipping rates have traditionally been more stable than full truckload due to their networked nature, however 2023 brought a different story because of lower yields and the closing of Yellow. There is expected to be more fallout from Yellow, as the remaining LTL providers continue to try to bring former Yellow customers to their network, although it will be a struggle for shippers because Yellow’s low cost model will not be matched by any current LTL companies.

Trends Impacting Full Truckload Rates

In contrast to LTL shipments, full truckloads bear witness to an entirely different set of variables driving rate changes. As bulk shipments typically involve direct point-to-point deliveries without intermediate handling or transfers, their rates are sensitive to factors such as route density and driver availability.

In 2023, inventories all but normalized after significant bloating in 2022 owing much to reduced consumer spending versus companies over-ordering to protect against previous pandemic-driven shortages. With inventories more in line with historical levels, second half replenishment will begin to drive trucking demand up against diminished capacity driving home the final piece required to see a more meaningful increase in rates late in 2024 and into 2025.

Influence of Inventory Levels on Transport Demand

Evidence suggests that increased inventory holding correlates inversely with transport demand. In other words, too much stock results from either overestimation or sudden dips in purchasing behavior. Both scenarios lead carriers scrambling for loads amidst decreased order frequencies.

Intermodal Expected to Follow Truckload Market Dynamics

Intermodal is expected to follow a similar trend to truckload rates and for the same reasons. Capacity direction typically lags truckload three to six months, depending on the speed of freight capacity tightening. The one area of divergence in intermodal and truckload that will most likely begin to show itself is U.S. - Mexico cross border freight. Nearshoring is at the early stages, but as soon as the capacity begins to tighten in truckload, one can expect intermodal to be close behind then see rapid increase, as truckload capacity in Mexico is a big issue getting bigger.

Navigating Cost-Efficiency Amidst Uncertainty

Faced with these dynamics, companies need robust strategies for optimizing logistics operations while maintaining budgetary discipline. It begins by harnessing logistics technology through a transportation management system, TMS. A TMS yields real-time insights into routing efficiency and carrier performance metrics, which are key levers for controlling spend under volatile circumstances.

Predictions for a Second-Half Turnaround in Freight Volume

With the expected first-half challenges of 2024, industry analysts have begun to forecast a shift in the second half of the year, although we’re leaning closer to the fourth quarter before seeing a change in demand. The factors driving the thought of climbing out of the longest freight downturn in recent history in the latter half of the year are:

The Federal Reserve cutting interest rates, so as to spur consumers and businesses to open up their pocketbooks.
Inventory gluts appear to be on a trend to normalize that will help release pent-up demand.
Impending East Coast port strike driving an imbalance in the capacity options.
Consumer spending habits falling back to a historical level of tangible products versus experiential.
Housing market jump starting with lower mortgage rates in the back half of 2024 (housing is traditionally a sector that punches above its weight in the broader economy).

As mentioned earlier, we’re predicting a turnaround won’t happen until sometime in and around the fourth quarter 2024, because the catalyst list for higher demand is not long and they will all be gradual changes that will take time to gain traction.

Economic Indicators Fueling Optimism

Several key indicators offer insight into this potential turnaround. Manufacturing output has seen modest improvements following months of contraction, hinting at renewed production activity that could lead to increased transportation needs.
Port congestion, once symptomatic of supply chain disruptions, eased in 2023 as carriers adapted to more agile routing strategies, technology implementations and far less volume.

The link between these economic factors and freight movement is direct: healthier manufacturing sectors typically signal stronger demand for raw materials transport while less congested ports translate into smoother transits and faster turnaround times for goods reaching their destinations.

Fleeting Capacity Constraints Give Way

Critical too is capacity availability within trucking fleets, which faced stringent constraints during previous quarters and is expected to continue a drawdown in the first half of 2024. While the drawdown has been in motion for more than a year, the final flush of capacity will give way to expansion for those that made the cut. But that flush will not be immediate, so expect price and capacity to become an issue in 2025.

A Proactive Approach To Supply Chain Management

In response to supply chain fluctuations, forward-thinking businesses already employ proactive measures such as network redesigns, just-in-time inventory tactics, technology enhancements, freight carrier diversification, and freight mode diversification to mitigate risks.

The reason logistics professionals have taken these steps and are expected to continue through 2024 is it is no longer simply about reducing costs; rather creating robust systems capable of adjusting real-time variables in today’s volatile environment.

Leveraging Technology Amid Uncertainty

Tapping into cutting-edge tech solutions plays a pivotal role in achieving operational efficiencies, which are crucial for sustaining profitability against shrinking margins felt throughout the supply chain sector.

Pricing Trends Across Different Modes of Freight Transportation

The freight industry will continue to face rates bouncing along the bottom through the first quarter, but expect the tide to change once produce season hits the U.S. market. This troughing has been in place for much of 2023, with a final push downward in July 2023. Since early summer, freight pricing has been firming up, but without higher demand it hasn't yet found a reason to climb (although there is no more reason for it to drop further either).

Adjustments in Ocean Freight Pricing

Ocean carriers have been particularly sensitive to changes in global demand. The economic downturn has caused an oversupply of ocean freight, prompting many companies to adjust their pricing strategies. Some routes have seen significant price drops as carriers have desperately been trying to fill ships, while also preserving market share.

Air Cargo Rates Responding To Demand Shifts

Air cargo carriers faced an interesting conundrum when lockdowns eased and passenger flights resumed after months grounded during peak pandemic times. The passenger jet belly capacity, which is one of the biggest areas of capacity for air cargo returned too quickly relative to tepid demand growth. The result put tremendous downward pressure on rates and has yet to recover in 2023. Expect more of the same throughout 2024.

Trends in Over the Road Trucking, Intermodal & LTL

Less than truckload, LTL, continues experiencing rate fluctuations although it's trending higher because of the lowest cost LTL provider, Yellow, going bankrupt in 2023. That major player's exit leaves a very limited group of LTL carriers to drive more competitive pricing.

Full truckload counterparts fare somewhat better - relatively stable albeit slight increases noted here - mainly attributable to capacity constraints felt industry-wide.

We are expecting the appeal of intermodal to increase over 2024 and into 2025 for the following reasons:

Companies putting an emphasis on supply chain sustainability - or as we call it moving sustainability from a mission statement tagline to a definitive strategic direction.
U.S. - Mexico crossborder traffic is increasing to a point where it cannot be handled by truck alone.
Diesel prices trend upwards on higher economic activity that is expected to begin in the fourth quarter of 2024.

Conclusion

Weathering the global freight recession of 2024 means staying sharp.
It's about knowing high inventories and lower spending still may hit us hard, so stay close to how consumer shifts shape demand.
Dive into logistics execs' insights; they're early warnings or areas to glean green shoots for what’s ahead.
Stay hopeful for a second-half volume boost; it could be just over the horizon. Compare price trends across transport modes - they tell tales of adjustment and survival.
Tough times often lead to layoffs. Yet remember, smart moves in cost control and service diversification can turn tides.
Lastly, keep your eyes peeled for post-recession growth opportunities because every storm eventually clears.

If you're looking for help navigating the logistics and supply chain trends of 2024, let us know by filling out our brief Request a Quote form. We'll be happy to put our expertise to work for your business. If you need more information about this or other freight topics, browse our Freight Guides for free eBooks and comprehensive articles, or check out more from our blog.