What Trucking Company Owners Need to Know about the ‘Great Reset’ in Freight
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Fact-checked by: Bruce Sayer
A new report shows freight companies who find themselves reassessing how they do business in 2023 aren’t alone. The global supply chain costs consumers and logistics companies of all sizes far more as supply costs and inflation boost prices.
The freight market isn’t immune to these broader economic forces. After two years in which carriers made excessive profits during the pandemic, market demand has shifted sharply again. Loose capacity and low freight rates are forcing carriers to run at or near the break-even point – carriers are struggling to remain profitable.
That’s why industry insiders, such as the Council of Supply Chain Management Professionals (CSCMP), say a ‘great reset,’ of the logistics industry means carriers and shippers must focus on relationship building and sustainability to tackle rising costs and changing consumer demand.
CSCMP’s 2023 State of Logistics Report dives into the changing freight market landscape and describes shifting business conditions resetting the industry.
We’ve distilled the report’s insights into bite-sized notes to help trucking companies navigate the reset and plan for the future of the freight industry.
What is the “great reset” in freight?
CSCMP suggests the freight industry needs to reset priorities and operational tactics to focus on sustainable operations and relationship building rather than chasing short-term profits.
After the COVID-19 pandemic prompted shippers and carriers to boost capacity to meet surging demand, a different norm is emerging in the freight transportation industry as a new focus on building strategic capability between shippers and carriers develops.
Shippers are, in many cases, rethinking their former trust in long-term carrier agreements and more aggressively seeking options for capacity assurance. The annual freight contract bid, which has traditionally given both shippers and carriers a base of certainty for capacity and rates, has often been recast as just another component of how shippers engage with carriers rather than the definitive last word. Mini-bids and more frequent touchpoints are becoming the norm as shippers seek closer market engagement.
According to CSCMP, the “great reset” will involve improved relationships between shippers and carriers to become even more important as both re-evaluate how they do business and focus on operational resilience instead of short-term profits. That means trucking companies must focus on capacity and asset utilization, ensuring they get the most value from equipment, drivers, and loads.
As smaller carriers leave the market or are absorbed into larger trucking companies, those able to handle increased demand as the market rebalances might be in a better position to succeed.
The key to freight’s future seems to be a focus on relationship-building between shippers and carriers. With the entire freight business costing companies more, all partners in a shipping agreement must work together to ensure the continued health of the supply chain.
The great reset’s impact on freight operations
We know the need for resilience and relationship-building between carriers and shippers is prompted by rocky conditions in the wider economy. But how are changing economic patterns impacting everyday freight market operations?
Let’s dive into some of the trends impacting the freight industry that are prompting carriers and shippers to re-evaluate existing norms and change how they do business.
- Truckers are on the move. 40 percent of truck drivers are actively searching for new job opportunities—a significant 6 percent increase compared to the previous year. Even sign-on packages once considered enticing incentives to attract skilled drivers, have proven ineffective, as some drivers have been enticed to switch carriers solely to take advantage of these one-time payments. CSCMP suggests carriers must now shift their focus beyond compensation and explore alternative strategies that align more closely with drivers’ priorities, such as consistent pay and manageable workloads.
- Capacity rose faster than freight volume. Little change in freight volume within the motor carrier sector was recorded during the last year. But capacity increased dramatically as new carrier authorities spiked during the boom years, resulting in a significant decline in spot market and contract rates. This decline in rates, coupled with high resource costs, posed a threat to carrier margins, particularly impacting small fleets.
- Parcels reach new heights. The US parcel market grew 4.7 percent YoY to $217 billion in 2022 with a five-year compound annual growth rate (CAGR) of 13.7 percent. However, while the overall e-commerce and parcel markets profits continued to grow due to rising inflation driving increased prices and rates, overall US parcel volumes declined by 2 percent.
- Freight forwarding booms. The freight forwarding market continues to expand due to sustained growth in international trade and increasing pressure on shippers to enhance cost efficiency. The digital freight forwarding market is projected to achieve a compound annual growth rate of 23.1% by 2030.
- The cost of doing business is rising. In the United States is rising, reaching a new record of $2.3 trillion ($1.85 trillion last year). These costs now account for 9.1% of the national GDP, representing the highest percentage on record.
- e-commerce sales remain high. Despite consumers returning to physical stores in 2022, the U.S. e-commerce market experienced an 8% growth, amounting to $1.03 trillion ($871 billion last year). E-commerce now constitutes 14.5% of the entire U.S. retail market.
- Technology investments are rising. Third-party logistics providers are allocating more capital towards technology than shippers (companies providing goods and services). Survey respondents revealed that 96% of 3PLs have migrated to the cloud (86% for shippers), while 80% of 3PLs have invested in IoT (77% for shippers).
- Warehouses are filling up. The decline in warehouse vacancy rates has been remarkable, plummeting to a mere 2.9 percent—a staggering 41 percent decrease from the peak of 4.9 percent in 2021. These rates are significantly lower than the pre-pandemic levels, typically at around 6.5 percent. Consequently, rents have surged.
- Reshoring gathers steam. The reshoring movement persists as more businesses transition from a strategic possibility to a market reality. According to the Kearney Reshoring Index, imports of Mexican manufactured goods to the United States have surged by 26% since spring 2020.
Conclusion
As the trucking industry continues to evolve, trucking company owners must embrace the changing landscape, adapt to new realities, and seize growth opportunities.
Established ways of doing business are shifting as new technology, supply chain complications, and consumer demand shift the freight conversation unexpectedly. As market fluctuations and supply chain issues continue, it’s becoming increasingly clear that shippers and carriers must build strategic alliances to respond effectively to changing market demand and build resilience to future disruptions.
Trucking companies with the financial resources to support investments in efficiencies and supply chain networking will be best positioned for long-term growth and success.
Ensure your trucking company has the financial resources, stability, and flexibility to support resilience and long-term growth. Leading alternative finance companies specializing in transportation financing provide easy-to-acquire business financing options for truck companies and fleets of all sizes.
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Oscar Rombola
Oscar brings over 22 years of experience and enthusiasm for alternative finance to his role as Managing Director. His deep understanding of the industry positions him as a leading consultant and a respected authority figure. Oscar's fluency in English, French, and Spanish allows him to connect with a diverse clientele and forge strong partnerships.
Oscar's dedication to the field is further evidenced by his extensive industry involvement. He served three consecutive terms on the International Factoring Association (IFA) USA advisory board and currently holds the prestigious position of President and Founder of the IFA Canadian Chapter. Oscar was asked to be part of the Advisory Factoring Committee at SFNet where he mentors and participates at Factoring Webinars as a moderator and participant.
Prior to his current role leading strategic relationship development for eCapital's Freight Factoring Division, Oscar held various executive positions at factoring and financial companies. He also co-founded ITC Invoice to Cash, Inc., where he served as Vice President of Business Development & Partner for over eight years. The company was acquired in 2013 by Accutrac Capital , now eCapital.
Oscar's academic background includes degrees from York University and Laval University, along with Financial Advisor designations from Canada and the US specializing in alternative finance and M&A.