When disruptions hit, transportation often takes the blame. But now, it’s also where opportunity hides. No matter your mode of transportation (trucking, package, LTL, etc.), the transportation market has been in a slump since mid 2022. Yet this provides opportunities for the forward-thinking executives.
The transportation market is in a period of transition. Since the pandemic, volatility has been high with swings up and down. These peaks and valleys have been lasting longer than they traditionally have. On the other hand, it is back to some level of normality with seasonal cycles. For example, there is produce season from March to November, and hurricane season from June through November. For the last few years, freight has been in a recession. Spot rates are getting closer to contract rates, which implies that we are getting close to the bottom. The general consensus is that freight rates will start to climb; however, experts believe there is a window of opportunity while they will remain flat.
LTL (less than truckload) is also in a recession. Volumes have tanked (as they are close to 2010 levels) largely due to inflation, product recession post-pandemic (as it swung in the opposite direction during the pandemic and consumers have switched to services), and the Amazon Effect. In this case, as Amazon ships more direct, they are taking volume from LTL, UPS and FedEx. Although volumes are down, rates have remained high because costs are high (increasing 30%). In addition, with the rollout of NMFC changes (how LTL freight is charged by product type vs space), LTL rates will go up.
Thus, there is what could be considered a once-in-a-lifetime opportunity emerging. As manufacturing surges with trillions of dollars of investments, expansion of capacity, and reshoring trends, transportation needs will pick up substantially. As artificial intelligence surges, data centers and critical minerals will require building and mining. There is an executive order for shipbuilding which will further stimulate building, manufacturing and mining. In addition, as nearshoring to Mexico and Latin America ramps up, transportation lanes and rail to/from Mexico will become critical and Mexico ports are likely to pick up as well. Thus, before these impacts become obvious and before rates increase, forward-thinking executives will take a strategic look at tariff and geopolitical-induced supply chain initiatives and review SIOP (Sales Inventory Operations Planning) implications as companies review supply chain reconfigurations and capacity allocations including transportation requirements. They will use this window of opportunity to develop strategic partnerships with transportation partners, lock in future contracts, and develop win-win strategies to resiliently and profitable navigate continual evolutions to the supply chain.
In this Supply Chain Byte, Lisa Anderson highlights how transportation strategy can become a competitive differentiator. From understanding the current state of transportation to smarter planning, this is your quick-hit insight on how to turn logistics into leverage.
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