Looking Forward to 2023 for the transportation Industry
In every industry, there are some uncertainties, which nobody prefers. While, performing business operations in a marketplace is preferable which is stable, predictable, and calm. Therefore, with stability comes peace of mind and security.
In the logistics industry, turbulence is a part of everyday business operations and as a professional, you must be acquainted with it. In achieving the daily tasks and upholding the company's transportation and supply chain sailing takes many things. A vigorous understanding of market forces, a reliable group of carriers, well-composed strategic plans, and perhaps the most importantly agility.
Over the past years, the logistics team has been tested in a variety of unique ways. Therefore, these trials show up in the form of unpredictable freight rates and scarcities in capacity, which is not always feasible, but your experience has surpassed your business operations through turbulence.
As we are heading for a new year, now is the perfect time for starting planning for the upcoming business challenges and ventures. The spot rates have been declining recently, therefore, if you need further fortification in the months ahead? Or will things start to turn around?
Major Issues the Transportation Industry is Currently Facing
The transportation industry is immensely affected by the changing trends in the world. The present economic climate and ferocious shortages of trucks are embarking on an inordinate impression on the transportation world.
- The Turbulent U.S. Economic Situation:
The extensive inflation is a concern for the citizens of the United States and the Economic leaders. For the whole year of 2022, all the factors have been focused in this direction as the economy of the United States fights to overcome disruptions caused by COVID-19, global conflict, and prolonged congestion in the supply chains.
The Bureau of Labor Statistics at the end of September 2022, stated the Consumer Price Index for all Urban Consumers (CPI-U) is estimated at an unadjusted 8.2 percent increase over a 12- month period. This increase is introspecting the rise in cost for "all products" and hence represents a meaningful change in the health of the U.S. economy. The CPI-U is based on the price paid by 93 percent of U.S. consumers. For such a reason, an 8.2 percent year-over-year increase affects everyone's personal balance sheet. Therefore, the accelerating inflation in many categories like food, medical care, shelter, etc is only a part of the story.
The rate hikes on the interest are personating to reduced consumer spending and the extended inflation is leaving an impression on the economy of the United States. In November 2022, the Federal Reserve increased the federal fund's rates by 75 basis points for the fourth straight quarter to 3.75-4 percent.
The trend of sultry inflation and retracing it to 2 percent. The Federal Reserve stated in a press release that the growing increases in the target range will be applicable, as the latest quarterly rate hike will not be the last.
The interest rates and inflation were at a similar level as in the early 1980s when unemployment escalated and severe bankruptcy was the result. Therefore, the current situation is like the 1980s in a lot of ways as the levels of employment are like the past trends. The transportation companies, unlike any other business operating in struggling economic times, are supposed to navigate through the turbulence over the past 12 months. With the onset of 2023, the struggles are likely to elevate in the U.S. with the upcoming recession.
- Shortages in Semi-Trucks:
There were 3 million fewer workers in the U.S. labor market when the nation crawled out of the 2020-21 COVID-19 pandemic and the participation rate of workers was down significantly.
The downfall in the composition of the national labor market was felt in many countries. Such pressure is coupled with congestion in issues of the global supply chain and has pushed the manufacturers of semi-truck 3 years behind.
Every year, the transportation industry vitalizes an estimated 200,000-250,000 newer vehicles for maintaining enough fleets by retiring older vehicles in exchange for newer ones.
In 2020 and 2021, the manufacturers of the trucks overlooked the replacement levels, thereby compelling trucking companies for utilizing older vehicles. Every year the average semi-truck envelopes 80,000-100,000 miles which is why it is a pressing issue.
The manufacturers are on the path to embracing the transportation industry's demands for replacement. As this is a good sign, the present-day backlog of orders of semi-trucks is the highest in the record after the peak period, as the carriers typically expand their fleet when spot rates are high, but are unable to do so this year. The shortages in labor and issues in the supply chain are in expectation of keeping the semi-trucks purchase prices higher through 2023 and forcing carriers to operate with an older average age of the fleet.
Important Points to note before proceeding into 2023.
With the upcoming 2023, some of the key trends that will impact the freight movement around the U.S are:
Changing Patterns of Consumer Spending:
The transportation industry is entirely dependent on the spending trends of the consumer. According to the retail season market update, consumer spending patterns will shift in the coming year. After the pandemic, there were vigorous changes in purchasing of durable goods significantly, with eCommerce transactions setting all-time highs. The changing trends in consumer spending increased the demand through the transportation industry which in turn required massive support for trucking companies and their drivers.
As a result of increasing inflation and the withdrawal of pandemic restrictions, the buying habits of consumers shifted again. Therefore, people are spending less money on durable products and products transported by semi-trucks and more on services and experiences.
The spot rates (especially in the dry van market) declined as the freight demand is outspread by the supply of the trucks. Hence, it is difficult to predict whether this trend will continue into 2023 when the consumers who are paying with credit at accelerated rates, feel the effect of inflation.
It is expected that consumer spending will reduce in 2023, thereby decreasing the workload of the transportation industry and keeping the spot prices reduced.
- Shortages in Labor: The finite opportunity for parts, equipment, and labor lingers and plagues the supply chain industry. Therefore, as a result, transportation companies are continuing to pay more to their employees and a premium for maintaining their equipment.
- Such elevated expenses have swept the shippers and forced the spot rates to rise dramatically over the past years. The spot rates have been declining recently and the cost of maintenance of equipment and drivers payment will continue to dictate their floor. As we progress towards 2023, the problems are expected to linger more.
3 Tips for managing your Logistics in 2023
2023 will be a challenging year for the logistics and supply chain business. As in previous years, there will be enough learning experiences and challenges which must be predetermined and conquered.
As now you are aware of the pressing concerns of the transportation industry, let us discuss overcoming them.
The coming year sounds like an exciting opportunity for embarking upon the improvements and calibrating the supply chain for the future.
Following are the three tips for keeping the shipments functioning smoothly in 2023:
- The Transportation providers must be Updated:
Communication in a logistics enterprise is very important, especially in 2023. It will be observed that the demands of the customer bases change rapidly and the buying patterns also shift with the passing of time. Therefore, the supply chain will carry a contrasting pattern for the upcoming year.
The management of changing patterns will be difficult in the initial stages and it will take some time for getting in touch with the demands of the 2023 consumer base. Therefore, as you navigate through this and apply the changes in the inbound and outbound volume of freight requirements and looping in the preferred carriers.
It is necessary for establishing a solid line of communication with these companies at the onset of 2023 and will pay the dividends on an annual basis. Therefore, with established communication, you will be able to flex and shrink the capacity of receiving the dynamic needs of the business. It is important to be sure of keeping these carriers informed on the supply chain forecasts so they can be planned accordingly.
- Flexible Arrangements when Planning out the Shipments:
Flexible arrangements serve as one of the beneficial factors in the transportation world. The carriers can easily meet and embrace the demands in 2023 with the lenience in pickup/delivery appointment times and the type of equipment that can be utilized. Flexibility means coordinating with the capabilities of the carriers to the peak of their abilities. It is important in touching base with the preferred carriers and getting honest feedback on where the company can improve its relationships. If there are common answers, it might be an area of the address of going forward.
- Business with a diverse group of freight carriers:
2023 will impart an opportunity on improving the cost structure of the supply chain when the demand for transportation services shrinks and rates fall apart. It is not usual for the trucking businesses to feel a rise during this time as some may exit the market entirely.
Therefore, you will want to coordinate business with a host of transportation providers in 2023, some performing locally while others performing on a large scale. This will help in gauging the transportation market with changes that occur and ensuring an efficient supply chain.
Planning yourself for success in 2023:
It is certain that 2023 will be an interesting year for the transportation and logistics industries.
As a shipper, it is important to plan and have your supply chain tested in several unique ways as the rates might be unpredictable and capacities are bound to be shrinking.
Now you have a greater level of understanding of what to expect for the transportation to appear and finish the year and how things will change in 2023. By the end of the day, the difference between a successful supply chain and one that is struggling with preparation.
Therefore, if you are interested in learning more about the steps that NATIONAL FREIGHT LOGISTICS is taking for remaining competitive in the market and supporting its customer in exceeding in this year and in the future, check our services page for better insights and information.