What will shippers and transportation providers need to prioritize and address in 2023? This is a popular question and lots of answers are circulating.
Without further ado here are six things you might want to pay special attention to…
- Ocean rates.
We’ve talked ocean a lot lately, but this rings true as the number one thing to watch out for in 2023. Why? Shippers that utilize ocean as their first mile have seen rates come back down to pre-pandemic levels. The ocean liner operators have reduced the number of sailings by 50% since November of last year. This has increased rates slightly, however, not to levels that are believed to be sustainable. This will not help alleviate the overflow of empty containers across North America, and it is anticipated this will take until the end of the first quarter to see relief. Bottom line – those relying on ocean rates are in for more ups and downs, and this volatility is a large market factor for North America.
- What does it mean for interest rates to continue increasing?
We’ve linked an article that goes into greater detail, but despite consumer spending hitting a strong 9 billion on Black Friday and Cyber Monday, cross-border freight between Mexico and Canada is up 22.6% over November 2021, and many other indicators that do point to an improving economy, the Feds will not be lowering interest rates in the USA or Canada. It appears they want to see inflation between 2-4% and will continue with more rate hikes in early 2023. All industries should be and will be keeping a close eye on interest rates this year.
- Intermodal and Drayage freight volumes.
Intermodal started slowing in the last quarter of 2022, possibly because the potential of a rail strike had shippers using the road to ensure their movements. At the start of 2023, intermodal again appears weaker than normal for January. This lull may benefit shippers, as inland terminals clear some congestion and see rates and surcharges decreasing. Drayage fluidity may also improve as congestion decreases at terminals. We will have to wait and see if this fluidity remains, or if is short-lived.
- Shippers seeking good service at good rates.
Over-the-road trucking capacity has increased in most markets across North America. This has led to reduced rates, and shippers are feeling free to be aggressive with RFPs. Some shippers are looking for linehaul rates to be held for one year and expect increases in on-time service. Meanwhile, other shippers might even be looking to offset additional costs incurred during COVID with some savings in a softer market. It will be interesting to see how shippers fair long-term in their prioritization of lower rates, and if their pressure for higher quality service garners results.
- Carriers who over-invested in equipment.
While shippers are seeking those better rates, the challenge for asset carriers is the cost increases they incurred for equipment purchased during COVID. It is anticipated we will see more bankruptcies this year as carriers who entered the market during COVID and paid steep prices for equipment (ex. the cost of a trailer nearly doubled to $70-$88,000 per trailer if you could get one – and a similar tale can be told for trucks) struggle to keep profits moving. We expect that larger shippers will be looking at the financial stability of carriers and logistics providers to ensure the partners they select can meet the contractual commitments they make this year.
- Demand for warehousing space.
The Just-In-Time’ (JIT) model many shippers relied on pre-pandemic has shown its vulnerabilities in 2022. It will be interesting to see how shippers respond, and if shippers decide they will store more product again to ensure they do not have the same challenges and empty shelves that 2022 brought them. In our opinion, shippers will move from ‘Just-in-Time’ models to ‘Just-in-Case’, and warehousing will see more demand in 2023. Rates will likely remain elevated and space will be limited in certain markets.
All things considered; shippers will see improved services from all transportation suppliers. Technology will continue to improve visibility, KPI reporting, communications, and companies will continue to focus on this tech as competitors bring more to the table. Additionally, fuel rates have lowered and this has supported lower transportation rates across all modes. Hopefully, these reduced transportation costs assist with lowering inflation.
We’re set up to have an interesting year in transportation and logistics, and as always, encourage supply chain professionals to arm themselves with as much information and the highest quality partnerships they can.
Thank you for reading and from all of us at Wellington Group of Companies and Commtrex, we wish you a successful 2023 in business!
See you next time!
Bill Robinson
