The year 2023 was a challenging one for those involved in the freight transportation industry. Here are some of the major forces shaping 2024.

Supply and Demand are Moving Toward Equilibrium

Many industry experts used the term Freight Recession to describe the state of the industry in 2023. There is no doubt that there was excess truck capacity in 2023, a carryover from the freight boom during the early stages of the pandemic. As consumers shifted their financial resources in 2023 from buying goods to purchasing travel and services, trucking companies expanded their fleets, creating the disconnect.

It is also clear that an uptick in inflation, caused by higher interest rates and a rise in the prices of food, gasoline and other products put a damper on demand. However, many citizens experienced an increase in compensation. Consumer spending remained solid and consumer confidence is high at the beginning of the New Year. The Freight Recession was really a Carrier Capacity Surplus, too many trucks chasing too little freight.

 For many years, Transportation executives have had to consider a range of variables in crafting their supply chain strategies. These variables have included the economy, carrier capacity, customer demand, interest rates, inflation, climate change, technology, energy costs, Ecommerce strategy, and availability of raw materials.

While geopolitical issues such as trade policies with NAFTA countries, the European Union and China have been having impacts on supply chains in the United States and Canada for the past several decades, transportation executives have been able to largely focus on domestic matters.

This has changed dramatically over the past year. A number of geopolitical forces are shaping strategies in board rooms throughout North America and internationally. They include:

1. The War in Ukraine

Shippers across North America are in the process of conducting their annual or mini freight bid exercises. What is in store for shippers and carriers this year?

This is a unique year. The supply/demand curve shifted during the early stages of Covid. Consumers transitioned to working from home, cut back on travel and dining out, spent their disposable dollars on durable goods and some moved away from their city residences. To meet the demand for increased freight transportation services, to move the increase in durable goods purchases, carriers boosted their purchases of fleet equipment. As this process was unfolding, governments sent out cheques to support citizens who lost their jobs during this period and kept interest rates low to stimulate the economy.

As Covid dissipated, consumers cut back on durable goods purchases and shifted some of their discretionary dollars back to travel, dining out, and entertainment. The net result of these market forces was surging inflation. Prices for food, gasoline, travel, dining out, mortgages and many other goods and services escalated. While the economy is not technically in a recession, rising prices created limitations on spending, as discretionary dollars were reduced. The bottom line for the Transportation Industry: There is now too much fleet capacity chasing too few shipments.

The so-called “freight recession” is manifesting itself in the financial results of publicly traded carriers and in the number of carrier failures. The demise of Yellow Freight, a major LTL carrier that has been in business for many decades and Convoy, a much talked about, digital freight broker, are among the thousands of companies that have left the industry this year.

These are crazy times. Wildfires in Canada produced dark skies over eastern Canada and the northeastern United States and some of the worst pollution on record. We are only in mid-July and the peak fire season hasn’t begun. Record high temperatures are being experienced in the southern United States on a daily basis. Severe rain, flooding and flight cancellations are being experienced in the northeast.

Former President Trump was indicted for a second time this year, the first time a previous President has ever faced charges after leaving office. There are possibly two more indictments to come.

The Vegas Golden Knights, in their sixth year of existence, won the Stanley Cup while the six Canadian teams in the National Hockey League, where hockey in the national sport, haven’t won the cup in 30 years. The screen actors and writers have gone on strike together for the first time in 63 years.

Looking at the broader economy, manufacturing has been contracting on a year/year basis. Retail inventories are bloated. As fears of the pandemic faded, consumers switched back to buying services. High mortgage rates are resulting is less building and less freight. According to Bob Costello, Chief Economist and Senior VP of the American Trucking Association, all freight indicators are contracting on a year/year basis. Supply is contracting; demand is contracting. There is still too much supply. The Spot Market is much worse than the Contract Market. Despite the US Federal Reserve’s aggressive monetary policy, the economy has not yet entered a recession.

Friday’s surprising U.S. January jobs number raised multiple questions about the status of the American and Canadian economies and the prospects for a recession in 2023. The figure of 517,000 non-farm jobs created in January was significantly higher than the market estimate of 187,000, and the job creation figures for the previous five months. Despite the ongoing series of Fed rate increases, unemployment fell to 3.4%, the lowest figure in 50 years. “Today’s jobs report is almost too good to be true,” wrote Julia Pollak, chief economist at ZipRecruiter. “Like $20 bills on the sidewalk and free lunches, falling inflation paired with falling unemployment is the stuff of economics fiction.”

Growth across a multitude of sectors helped propel the massive beat against the estimate. Leisure and hospitality added 128,000 jobs to lead all sectors. Other significant gainers were professional and business services (82,000), government (74,000) and health care (58,000). Retail was up 30,000 and construction added 25,000.

Reorganization of the New Economy

In a Sunday interview with Margaret Brennan, host of Face the Nation, Gary Cohen, Vice Chair of IBM, and former chief economic advisor to President Donald Trump, stated that these statistics point to a “reorganization of the new economy.” He expressed the view that the “service economy is regaining strength.” He noted that “the occupancy rate in offices in major cities is over fifty percent.” Service sector employees (parking attendants, restaurant workers) are needed to support workers in offices. Even though many employees are not returning to the office, 5 days a week, there is still a need for service industry employees to support them as they, and their colleagues, move from their dens to their offices, several days a week. It appears that as many people try to normalize their lives, as the pandemic crisis subsides, more hotel and airline personnel are also being hired.