Despite the economic headwinds facing many industries, there are strategic opportunities for transportation professionals in the new year. Taking advantage of them will require collaboration with your trusted partners, and those relationships will prove critical in 2023.
Of course, there are the usual suspects when it comes to freight disruptions – hurricanes, snowstorms, etc. – but we can add recession, labor shortages, inflation and international conflict to the list. So, while we expect traditional seasonal patterns to reestablish themselves in the coming year, these key variables could quickly change the market. In other words, the need for flexibility never goes away.
While the US economy appears to be heading into a recession, there is no clear consensus on either the degree or duration. Inflation remained stubbornly high at 8.2% year-over-year in September, dropping slightly in October.
Diesel prices dropped in late summer but stayed above $5 per gallon throughout fall. Though diesel is cheaper than it was a year ago, it remains close to its pre-2022 record price set in 2008. Nearly all American goods travel via truck, and inflated diesel prices drive inflation upward.
The Federal Reserve raised interest rates in November. This was the sixth increase of the year and the fourth consecutive time the hike was 0.75% – a dramatic increase. This suggests that there will be a recession of some degree in 2023.
All three of the above trends lead to lower consumer demand for goods, which in turn reduces transportation volumes across essentially all modes. Some of this is welcome news. For example, the number of ships waiting to unload off the coast of Los Angeles is now in single digits, down from over 100 in January. This is due not only to lower overall shipment levels, but also because shippers shifted to East Coast ports. The dampening of demand for truckload services has been evident for months. The market has been inverted (where average national spot rates are below contract rates) since April. Dry van spot rates have dropped over 30% since peaking in January while contract rates have only dropped about 5% since they peaked in April.
Speed limiters for commercial trucks
A new bill would require all new commercial trucks with a gross weight of 26,001 pounds or more to be equipped with speed-limiting devices, which must be set to a maximum speed of 65 miles per hour and be used at all times while in operation. Existing trucks of that size would be grandfathered into this law. The United States is one of the only developed nations without this regulation.
Financial security for freight brokers
The current inverted market has presented plenty of opportunities for brokers. The historic gap between contract and spot rates has allowed for larger profit margins than were possible during the height of the pandemic.
That gap will not continue indefinitely, and the shifting markets put a greater emphasis on the need to balance rates, volume and margin. When rates are high, brokers can afford to move fewer shipments since they’re making more on a per-load basis. As rates fall, volume becomes more important – but that’s compounded by the fact that rates typically fall due to lower spot volume.
New safety fitness ratings for carriers
On January 30, the Federal Motor Carrier Safety Administration agency is expected to publish an advance notice of a newly proposed rule that would remove unfit trucks from the road. Though the rule would take effect over a long period of time, some trucks currently in operation will be forced to be retired.
For more expert insight and analysis as you prepare for 2023, read DAT’s newly released annual report, Freight Focus.
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