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Freight Industry Expectations for 2023

by FreightCenter Team

 

Freight-industry-expectations-2023
 

2022 Recap

2022 was a very challenging and sometimes unpredictable year for the freight industry. Prices had increased markedly overall, and as a result, rates skyrocketed due to inflation. Yet inflation was not the only challenge; employee shortages disrupted the supply chain. Packages were often delayed, and delivery times were increased. The driver shortages and logistics provider capacity issues created the need for new logistics strategies and adaptations.

Keeping up with increased demand on all sides, including the spikes in e-commerce, proved difficult for many companies. Peaks in demand drove inventory depletion levels and reinforced the challenges above. Despite the uncertainty in the industry during 2022, the silver lining is that those circumstances prompted the logistics industry to improve, innovate, and solve long-present challenges. 

 In this article, we will review the market influences of last year and see how they transcend into 2023 to maximize success for carriers and shippers. Here are the freight industry expectations for 2023.

2022 Market influences 

Truckload Capacity

2022 saw an excess in truckload capacity. New tractor sales were high, while used truck prices inflated because carriers preferred to renew their outdated fleets. This will likely cause used retail prices to drop and the secondary market to slow, potentially advancing stalled fleet expansion in 2023. 

Potential Railroad Strike

Unions prepared for a strike in December 2022 to push for paid sick days. President Joe Biden signed legislation to block the strike, which could have caused an economic catastrophe for the U.S. The rail strike would have halted around 30% of U.S. cargo shipments and cost the American economy almost $2 billion daily. 

Poor Service

Freight rail service has been unreliable in recent years because of delays and failure to pick up or drop off freight cars. With the avoidance of the strike, business groups hope that railroads can now focus on bettering their service. Railroads respond to complaints by promising better service and stability in 2023. Companies also plan to hire more, believing staffing is critical to productivity. 

CP and KCS Merger

In March 2021, the Canadian Pacific Railway Limited and Kansas City Railway Company announced their merger agreement. The U.S. Surface Transportation Board held a public hearing for the merger in September 2022, where shippers, communities, and public officials gave comments and feedback.

Additionally, on January 24, 2023, the STB issued an Environmental Impact Statement (EIS) where the public could comment on the merger. The Department of Justice’s Antitrust Division expressed concern that the merger would lessen competition among Class 1 railroads. The STB considers all comments and circumstances, and the CP and KCS merger is still under review.

Full Truckload Shipping Report

Because owner-operators drive more empty miles between loads, they tend to struggle financially, especially now that the spot market pricing nears the price of operating a truck. Carriers nowadays resort to becoming independent contractors or working for larger carriers. Others are selling their trucks and trailers, which reduces market capacity. Trucking labor expanded towards the end of 2022, shifting from small carriers to fleet carriers. Truck pricing is expected to decline along with trucking labor. These factors suggest the market’s response to oversupply. 

Shipping Rates

Linehaul and fuel costs are the main factors determining freight pricing in 2023. In regards to linehaul, contract shipping prices will increase. Spot rates are expected to drop throughout the beginning of the year but should normalize by the summer. Smaller carriers are lowering their rates as larger companies use larger carriers for shipping.

Some experts may suggest that carriers focus on playing the spot rate game to save money. Still, others argue that spot rates are too unpredictable and concentrating on a spot rate strategy could be risky. It is projected that diesel prices will go down some this year. At the end of 2022, the U.S. Energy Information Administration had the average price per gallon at $5.33, up 43% from 2021. The EIA sees the average price at $4.29 for 2023. However, freight shippers predict that the average will be higher, around $4.50-$4.60.

Semi-Truck Shortage

The U.S. transportation industry requires up to 250,000 new vehicles to replace older vehicles. Truck manufacturers should have noticed this standard in 2020 and 2021, so trucking companies are relying on using old vehicles. In 2023, truck manufacturers are set to meet the industry’s demands. Carriers expand their fleets when spot rates are high but have been unable to do so due to the backlog of semi-truck orders. Shortages in labor and part supplies are expected to keep truck prices increasing in 2023.

2023 Freight Shipping Outlook: Advanced Technologies

Economic factors

The Logistics Managers’ Index (LMI) gathers logistics metrics (transportation, warehousing, and inventory) to predict trends in the overall economy. The LMI is calculated using a diffusion index – anything above 150 indicates an expanding logistics industry, and anything below 150 suggests that logistics is shrinking. The three logistics metrics are aggregated in the graph below. 

Source: Logistics Managers Index

December’s reading of 181.7 is down 72 points from December 2021 and 89.6 points from the all-time high in March 2022. The recent slowdown in inflation can be attributed to reduced logistics costs. Even though experts anticipate a recession in 2023, the economy and freight industry are not entirely doomed. 

Intermodal Shipping 2022 Summary

Potential Railroad Strike

Unions prepared for a strike in December 2022 to push for paid sick days. President Joe Biden signed legislation to block the strike, which could have caused an economic catastrophe for the U.S. The rail strike would have halted around 30% of U.S. cargo shipments and cost the American economy almost $2 billion daily. 

Poor Service

Freight rail service has been unreliable in recent years because of delays and failure to pick up or drop off freight cars. With the avoidance of the strike, business groups hope that railroads can now focus on bettering their service. Railroads respond to complaints by promising better service and stability in 2023. Companies also plan to hire more, believing staffing is critical to productivity. 

CP and KCS Merger

In March 2021, the Canadian Pacific Railway Limited and Kansas City Railway Company announced their merger agreement. The U.S. Surface Transportation Board held a public hearing for the merger in September 2022, where shippers, communities, and public officials gave comments and feedback.

Additionally, on January 24, 2023, the STB issued an Environmental Impact Statement (EIS) where the public could comment on the merger. The Department of Justice’s Antitrust Division expressed concern that the merger would lessen competition among Class 1 railroads. The STB considers all comments and circumstances, and the CP and KCS merger is still under review.

Full Truckload Shipping Report

Because owner-operators drive more empty miles between loads, they tend to struggle financially, especially now that the spot market pricing nears the price of operating a truck. Carriers nowadays resort to becoming independent contractors or working for larger carriers. Others are selling their trucks and trailers, which reduces market capacity. Trucking labor expanded towards the end of 2022, shifting from small carriers to fleet carriers. Truck pricing is expected to decline along with trucking labor. These factors suggest the market’s response to oversupply. 

Shipping Rates

Linehaul and fuel costs are the main factors determining freight pricing in 2023. In regards to linehaul, contract shipping prices will increase. Spot rates are expected to drop throughout the beginning of the year but should normalize by the summer. Smaller carriers are lowering their rates as larger companies use larger carriers for shipping.

Some experts may suggest that carriers focus on playing the spot rate game to save money. Still, others argue that spot rates are too unpredictable and concentrating on a spot rate strategy could be risky. It is projected that diesel prices will go down some this year. At the end of 2022, the U.S. Energy Information Administration had the average price per gallon at $5.33, up 43% from 2021. The EIA sees the average price at $4.29 for 2023. However, freight shippers predict that the average will be higher, around $4.50-$4.60.

Semi-Truck Shortage

The U.S. transportation industry requires up to 250,000 new vehicles to replace older vehicles. Truck manufacturers missed this standard in 2020 and 2021, so trucking companies are relying on using old vehicles. In 2023, truck manufacturers are set to meet the industry’s demands. Carriers expand their fleets when spot rates are high but have been unable to do so due to the backlog of semi-truck orders. Shortages in labor and part supplies are expected to keep truck prices increasing in 2023.

2023 Freight Shipping Outlook: Advanced Technologies

2023 Supply Chain Forecast/Trends

Supply Chain Agility

In 2023, an agile supply chain is critical to compete in the marketplace. Supply chains that lack agility will be left behind in 2023 if they cannot adapt to changing customer demands and incorporate new technology and global trends. This year, making decisions quickly based on the latest trends and customer preferences is essential. These skills will ensure you can respond effectively to unforeseen supply chain disruptions.

Ensure you deeply understand your customer base, needs, market, and current tech trends. This will allow your company to respond to changes in demand as quickly as possible and may even lower the number of disruptions in your logistics processes. However, remember the importance of having a backup plan for your supply chain efficiency and agility. It is crucial to have a logistics backup plan and strategies for last-minute supplier/carrier changes, among other techniques that help counteract supply chain disruption.  

Prioritizing your supply chain agility will make managing your stock easier, decreasing overall costs and increasing company profits and productivity, in addition to necessary investments in new technology and innovations. 

Labor (Automation)/Labor Shortages & Solutions

There has been a shift in trucking labor from owner-operator carriers to employee-based carriers. As the Baby Boomer generation retires from the industry, carriers expand their search for drivers in other demographics, seeking out women and young adults. 

The labor shortages in the industry can be attributed to a large variety of factors, including increased demand and the skills gap. The growth in e-commerce has contributed to a surge in overall demand for labor, with the industry needing additional staff to support increased shipment volumes. The increased order for shipping and delivery has created a shortage of workers, increasing delays and costs while decreasing efficiency. To attract workers, companies have to compete against each other to offer the best pay and benefits, making the cost of enough skilled labor very expensive. 

 In addition, the industry is ever-evolving to keep pace with demand, with new technology emerging around every corner. Advanced software requires workers with specialized skills to operate and maintain them, and these skills in the current workforce can be challenging, leading to a skills gap in the workforce. 

Technological advancements have eliminated some manual processes that would otherwise require workers. This reduces the associated errors and fatigue, helping to achieve a high level of accuracy and efficiency. Even manual lifting and moving heavy loads can be automated with the existing technology in 2023. Companies on the cutting edge will likely invest in semi-automated technology and processes for lifting, allowing objects to be moved quickly and precisely while reducing the risk of injury and damage. Semi-automated processes can reveal real-time visibility and tracking, increase safety, improve working conditions, and reduce costs. Investing in semi-automated processes is an excellent way to help save companies money without investing in fully-automated strategies. 

Keeping up with advancements in automated technology this year will keep your operations ahead of the curve. Companies in 2023 will likely focus on automating processes, fixing labor shortages, and enhancing their supply chain visibility for better supply chain management and outcomes. Adopting new technologies such as autonomous vehicles and vacuum lifting solutions will help ensure your competitive edge.

Fuel (Green logistics)

Fuel prices give rise to bankruptcy potential when spot market rates are near the cost of operations. The Energy Information Administration reports that diesel prices are down to $4.48 a gallon; the average price for fuel in 2022 was $5.09 a gallon. This price can impact truckload capacity as small carriers have more non-revenue generating miles in their expenses than larger fleets. Fuel costs are expected to continue upward, only exacerbated by the global recession. As well as continued inflationary pressures on the supply chain. LTL carriers will likely instate fuel charges to remain profitable.

A great way to keep on trucking in 2023 will be to adopt sustainable shipping practices. Luckily, there are many ways to improve the “greenness” of your supply chain. These include reducing the supply chain length and choosing to use more energy-efficient modes of transportation. Take notes from Amazon, which uses smaller, lighter packaging materials when possible. Not only does this practice help the environment, but it also benefits shippers, allowing them to pack more shipments per vehicle.

Supply Chain Visibility

Supply chain visibility should always be a priority for businesses. Thankfully, in 2023, plenty of available software applications will allow you to see your inventory and processes in real-time. If your company cares about providing top-notch customer service, you must trace the movement of your goods from suppliers to customers and everywhere in between. Doing so keeps track of supplier performance, helping guarantee quality and streamline operations. 

Greater supply chain visibility lowers the chance of product recalls, reduces production costs, and often results in higher customer satisfaction. With this strategy, businesses can determine where to improve operations, reduce expenses, and track their products more efficiently. More informed decisions can be made that reflect customer demand and enhance business growth. 

Due to the increased consumer demand, particularly in sectors such as e-commerce, it is a requirement in 2023 to have excellent supply chain visibility. Your competition will be strategizing how to improve their supply chain and making moves, so consider this 2023-era requirement. Partnering with a 3PL-like Freight Center will give you access to the best supply chain visibility strategies, practices, and software applications. 

Critical Shipping Details 

Bill of Lading 

It is common for LTL carriers to discover extra charges for customers whose freight is over-dimensional. LTL carriers compare the Bill of Lading (BOL) information to the measurements shown on the on-site dimensionalizer. Fees are added concerning weight, dimensions, and class.

Incorrect “Bill To” information on the BOL is another leading cause for extra charges; customers can mistakenly provide incorrect billing information. This can be avoided using an e-Bol or an electronic Bill of Lading

Shipping Parcel

Rates are expected to increase to 6.9% for FedEx and UPS in the new year. Knowing the restrictions to parcel shipping can help you avoid additional fees:

 

Weight and size restrictions: Carriers usually have weight and size limitations and can refuse or return packages if they don’t meet their standards. If the package is delivered, it could cost extra.

 

Large and oversized packages: Packages can also be subject to an oversized surcharge if they are over specific measurements.

 

Irregularly shaped packages: Shipments that require special handling, such as those with an unusual shape, size, or weight, can incur an Additional Handling Fee. These fees are also applied to packages that are wrapped in non-standard materials.

Shipment Size:

Shipment size for parcels matters when it comes to saving money. Here are some essential factors to keep in mind when shipping a parcel:

 

Dimensional rating: Consider the actual and dimensional weight before shipping. Carriers will add fees based on the higher weight.

 

Oversize: Oversize fees will be added to shipments over a specific height or weight. These standards vary with each carrier.

 

Overmax/unauthorized package: Larger packages will likely be hit with an overmax/unauthorized charge of $1,000. These packages should not be shipped as parcels.

 

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