2022 was an unpredictable year for the freight industry. 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.
Market influences of 2022 transcend into 2023
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 New tractor sales were high, while used truck prices inflated because carriers preferred to renew their outdated fleets.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 cause used retail prices to drop, and the secondary market will slow, potentially advancing stalled fleet expansion in 2023.
Labor
There was 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.
Fuel
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.
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.
December’s reading of 181.7 is down 72 points from December 2021 and 89.6 points down from the all-time high in March 2022. The recent slowdown in inflation can be attributed to a reduction in logistics costs. Even though experts anticipate a recession in 2023, the economy and freight industry are not completely doomed.
Strategies for Less Than Truckload (LTL) Shipping
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 by 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 it is 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 parcel matters when it comes to saving money. Here are some important factors to keep in mind when shipping 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 that are over a specific height or weight. These standards vary with each carrier.
Overmax/unauthorized package: Larger packages are likely to be hit with an overmax/unauthorized charge, which is $1,000. These packages should not be shipped as parcel.
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 mostly 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 on hiring more, believing that staffing is key 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 a larger carrier. 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 their shipping needs. 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 focusing 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, which is 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 high in 2023.
