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27 Dec, 2022

What’s to Come for Logistics in 2023?

The past few years have been a crazy ride in the freight industry, from the great Covid pandemic freeze as countries locked down to soaring consumer demand (and freight volumes) when things opened back. As we go into 2023, the slower market will give companies, both those that utilize logistics services and those that provide them, some time to reflect.

2023 Logistics Market Predictions

It’ll be a year to keep on truckin’, pun totally intended.

The Freight Market is Likely to Continue Its Downward Trajectory

Trucking freight volumes in November were down 53.8% year over year according to DAT’s Trendline Report. While we saw a small surge in spot load posts from the first to second full week of December, that jump can likely be explained by the huge gap between spot rates and contract rates. It’s cheaper on average to ship spot freight than contract freight right now.

 

While the gap between spot and contract rates will likely course correct as we enter contract season, the freight market will likely be pretty staid through most of 2023. Consumer demand is likely to remain low until inflation returns to more normal levels. That means freight volume across all transport modes will remain comparatively low.

 

According to market analysts, ocean, air, intermodal, and trucking rates will likely continue to drop, potentially turning around late in 2023.

Capacity Is Officially Oversupplied

The massive and consistent drop in spot rates in the North American trucking market has shown us that capacity is well and truly in an oversupply phase. There are simply more trucks than freight right now. Demand is down and fleets are growing as manufacturers are finally catching up on all those truck orders that were delayed due to the Pandemic.

It Will Probably Stay Down for a While

After a couple of years of pretty consistently high freight volumes and nearly a decade of an upward-trending global economy, economists and supply chain forecasters alike are expecting this dip to stick around for a while.

 

The good news is that, even if we’re reaching the beginning phases of a true global recession, it likely won’t be too drastic. Many experts are expecting a lengthy recession, but not a really bad one.

 

It’s important to remember, that, while things look bleak in comparison to the past few years (in the economy in general and the freight market specifically), these things tend to be cyclical. What goes up must come down and vice versa. The freight market, for the most part, follows the economy. Both the economy and the freight market spent a lot of time ‘up’ over the past couple of years, so this downward turn is natural.

Profitability Will Take a Hit, Coming Down from Record Highs

As freight prices and demand slide and costs remain high while inflation lags behind the turn in the market, it’s likely that profits across the supply chain will slide, as well.

 

We must keep in mind that this slide is coming down from record-high profits in the industry that were thanks to massive freight volumes and a major capacity shortage. This recession is likely to be more of a return to business as usual after all the Pandemic crazy in the supply chain.

The Good News? Fuel Prices Will Drop, too.

After a year of record-high fuel prices in 2022, the logistics industry will be happy to have some relief in 2023. Diesel prices dropped 4.3% from the first week of December to the second week of December after several weeks of mostly falling prices. Prices averaged about $4.59 a gallon in the US the week of December 19, 2023.

 

While we can expect to see small jumps in price over the colder months to account for the depletion of inventory, most experts see fuel prices continuing to drop in 2023, giving the logistics industry some much-needed relief.

 

The drop in fuel prices will encourage further freight rate drops across air, land, and sea.

Technology Will Continue to Play a Huge Role in the Freight Industry

We saw plenty of solutions pop up over the past couple of years to address the issues companies were facing during the Pandemic. Though it might follow that investments in technology will slow as the freight market does, the acceptance of tech as a way to cope with inefficiency may counter a pullback.

 

In a slow market, it’s more important than ever to make the most of the resources available. Companies will need to become leaner and more efficient to thrive under market pressure, and technology that provides a solid ROI is one way they can do that.

Tips for Navigating the Freight Market in 2023

  1. Consider flexible contracts that can move with the market to a degree, or shorter-term contracts rather than more traditional year-long or 2-year contracts.
  2. Look at tech solutions that can help improve efficiency, focusing on a fast time-to-ROI to help mitigate risk.
  3. Lean on the industry partnerships you’ve built over the years.
  4. Remember everything we’ve learned about the importance of resilient supply chains over the past few years and remember everything we learned about the cheapest solution not always being the right solution.
  5. Utilize 3PL services to avoid risky infrastructure investments while the economy is down.

 

Need a little extra help navigating the logistics landscape in 2023? Reach out to the team at NEWL. We offer a wide variety of tailored transportation and logistics services.

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