The latter part of July typically represents the lead-up to peak season in freight, yet even though the country is dealing with elevated temperatures, shipping activity has yet to heat up. And the bottom line is, peak shipping season is unlikely to be a thing in 2023 due to a variety of factors. Freight activity normally peaks from August to November, with back to school and then holiday related retail driving elevated shipments to keep shelves full. But this year looks different. Let's go over some of the factors contributing to a peak-less (or valley-full) year in transportation and logistics, and what could change things.
Volume and Consumer Demand Is Down
If only freight pros could simply ask a DJ to "turn it up" when it comes to shipping volume. Unfortunately, it's not that simple, as volume is down virtually across the board. This is largely due to a market correction in which consumers - after buying an abundance of products during the pandemic - have shifted their spending behavior away from material things and toward experiential things like restaurants, concerts and travel.
There are a few reasons why: Lockdowns and precautions kept people from experiences - leading to a focus on "stuff;" relatedly, consumers eventually bought their fill; and consumer prices have risen due to inflation. During the heavy purchasing period, shippers (and retailers) were struggling to keep up with demand, so they kept the orders flowing. However, when the spending slowed down, there was a glut of merchandise, and these companies have spent the last several months "right-sizing" their inventory to properly position products and have enough - but not too much - available.
That right-sizing has meant far less new product moving across supply chains throughout the past year. With spending patterns staying fairly steadily tilted away from goods and inflation still very much present (even though it's been heading down), there's no indication that more will need to ship anytime soon.
Capacity Is Up, and Rates Are Down
Directly related to the volume piece of the equation are rates and capacity. When not as much is being shipped, capacity tends to be plentiful. That's especially the case now, as capacity exploded to keep up with the pandemic-era demand, which (as mentioned above) has fallen off considerably. Thus, there are plenty of containers and trucks available, but there is not enough product to fill them.
When capacity is high and volume is low, the result is low freight rates. Both truckload and intermodal rates are well off where they were last year at this time - to a tune of nearly 23% and 27% respectively. Those rates have stayed low for the duration of the year, though they do appear to be leveling off. But going up again? That's another story. In essence, the freight industry is in need of a catalyst. Otherwise, it will be a long, slow climb back up on volume and rates that start making use of all that capacity.
What Could the Catalyst Be?
A catalyst could emerge to accelerate the freight market recovery, and maybe even lead to an abbreviated peak season. But before pining for a catalyst to emerge, remember that these events can be good for all, good for some, or even bad for the majority of folks. For instance, freight was in a similar state four years ago in 2019 before a catalyst emerged. That catalyst? The pandemic. The resulting extended peak was certainly good for business within the industry, but most would agree COVID-19's negatives far outweigh that one positive.
Other catalysts can be hurricanes, polar vortices, earthquakes and wars. But catalysts aren't all bad. Perhaps reshoring and/or nearshoring moves at a faster pace, or the Federal Reserve cuts interest rates (first they'd have to stop raising them), or inflation goes away, or some other factor gets consumers buying goods at a high rate again. In any case, the right catalyst could spark a quicker recovery and snap the industry out of its doldrums fast enough to create a peak season - even if it's not the traditional length or time of year. Stay tuned...
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