Transportation Industry Market Update: Key Insights for 2024

As we pass the halfway mark of 2024, the trucking and transportation industry continues to navigate through a landscape marked by increasing costs, fluctuating supply and freight demand, and several other crucial developments affecting all types of shipping companies and carriers worldwide. The ongoing global trade tensions and economic uncertainties remain causes for concern with many supply chain experts and those involved in operational dynamics. With economists and industry analysts keeping a close eye on things, many are revising their initial predictions as discussed in our trucking trends of 2024 article.

So what can the trucking and transportation industry expect for the remainder of the year and beyond? Read on through our mid-year market update, which provides insights into key trends and factors shaping the industry. 

1. Economic Conditions Plague Freight Demand

The trucking and transportation industry has persistently endured a historic freight recession following the COVID boom. When freight volumes and rates trended downward during the second half of 2022, no one anticipated we would still be waiting for that demand to rise. Now, two years later, the industry remains afflicted by conditions such as high inflation and operational costs, wavering fuel prices, excess capacity, and supply chain turbulence due to global and trade conflicts.

These effects put freight demand in a precarious position. While higher costs on shipped goods generally drives freight demand down, the National Retail Federation shows monthly inbound cargo for 2024 outperforming last year's volumes, with levels over 2 million TEUs anticipated for a months-long stretch as shown below:

Reasons for higher volumes of imported containerized goods include:

• a flattening of the traditional "peak season," spanning over more months instead of a short, consolidated surge;
• retailers preparing for upcoming sales during the holiday season;
• restocking inventory after retailers experience strong sales, particularly after peak-COVID sale volumes;
• anticipated tariff increases causing companies to ensure sufficient stock levels (more below); and,
• retailers getting ahead due to disruptive supply chain conditions, particularly with imports coming from Asia.

So is Freight Demand Up or Down?

It sounds confusing. Consumer demand seems like it's up due to retailers increasing their supply of goods in anticipation of peak spending season. The McKinsey & Company State of the Consumer report shows the opposite, as consumer confidence dips overall due to inflation concerns.

Courtesy of McKinsey & Company.

Freight demand, however, continues to struggle. Rising costs of goods and inflation prompted production and manufacturing plants to reduce inventory levels. Additionally, expanded lead times caused by conflict in the Red Sea as well as lack of stock investment in industrial and manufacturing sectors make for very lethargic freight activity and industry expansion.

Relief in Sight?

With the bleakness of the state of the trucking and transportation industry, is there anything good happening? The short answer: yes.

First off, inflation is slowly but surely cooling off. According to the US Bureau of Labor Statistics, the current inflation rate as of June 2024 sits at 2.97%, similar to June 2023 and much less than the June 2022 peak of 9.06%. 

Secondly, average spot rates are on the rise. For the second consecutive month, the national average spot rate (ex. fuel surcharges) increased, with a 2.8% MoM in June to $1.75. This is still lower than June 2023, and did not live up to seasonal expectations. However, when comparing the national average contract rate, which remains stable, to the spot rate, as shown below, the narrowing of this spread indicates contract rates are bottoming out, and longer-term contracts are gaining favor.

Courtesy of Ryan Transportation.

 
Lastly, retail orders continue to rise, showing year-over-year growth. Specifically, department stores, electronics, grocery stores and supermarkets, apparel retailers and discount retailers are all placing orders. And with a tighter truck capacity following massive bankruptcies and exits of many U.S. Companies, fewer trucks on the road will help instigate freight prices.

While these are just a few glimmers of hope, everyone involved in the trucking and transportation industry will be hopeful that the expected turnaround for the end of 2024 happens.

But there are other influences that affect shipping costs and deadlines.

2. Container Rates Continue to Soar

Container shipping costs have seen significant fluctuations in the first half of 2024. After a period of soaring rates in 2022 and early 2023, costs began to stabilize towards the end of last year. Several factors have contributed to new volatility, including tensions in the Red Sea, port congestion, and changes in consumer demand. The Global Container Freight Index from Freightos Baltic Index (FBX) show the start of the year with lower rates, rising slightly and decreasing in April, before steadily increasing over $5,000 in July.

Red Sea Conflict Adds Chaos to Rates & Port Activity

One of the biggest causes involves issues with container ships passing through the Suez Canal. The Red Sea Conflict involving the Houthi militant group started as a direct response to the Israel and Hamas War on the Gaza Strip, where the group continues to attack and terrorize targeted ships seen as "Israeli" ships. Because the Suez operates as an important component that connects the Red Sea to the Mediterranean Sea, many companies ship containers through the canal to eliminate transit time and costs of transportation.

With the region under attack, ocean carriers are forced to reroute around the Cape of Good Hope in South Africa. This tacks on an additional 9 days of transit, as well as higher rates for shipping. In mid-January alone, container shipping rates increased by 23%, which happened only two months into the conflict. Additionally, time spent by ships waiting before berthing increased by 43% from Q3 2023 to Q2 2024. 

Because of the attacks in the Suez Canal, the approaching peak season, and reduced effective container capacity for ships, experts warn that port congestions could reach pandemic-like levels once again. Shipping companies are grappling with the challenge of balancing supply and demand from retailers placing orders before the peak season begins.

3. Mounting Pressure from Increasing Tariffs

Back in May, the Biden Administration issued a statement on increasing tariffs for Chinese imported goods in an ongoing effort to combat unfair trade practices with the country. Tariffs will rise anywhere from 25%-100% for strategic sectors like steel and aluminum, semiconductors, electric vehicles (EVs), batteries, critical minerals, solar cells, ship-to-shore cranes, and medical products.

With these rate hikes taking effect in August, many shipping companies are pushing to get their supplies transported before the new rates take effect. This puts a strain on an already pressurized supply chain dealing with capacity and cost issues. The stress from these factors will likely influence future rate hikes, as well.

Already, businesses are adapting by exploring alternative trade routes and sourcing strategies to mitigate the impact of tariffs. The shifting trade landscape has also encouraged many companies to diversify their supply chains, reducing reliance on a single country or region.

Looking Forward for the Transportation Industry

The trucking and transportation industry is navigating a complex landscape marred by many global and economic factors. As we move into the second half of 2024, and looking ahead to 2025, experts will continue to watch conditions unfold to see if the freight recession will let up.

For fleets and other carriers, make sure to stay ahead of these complexities by completing the following:

• Have flexible timelines. Try to avoid rigid timelines to receive and delivery your cargo.
• Be open to alternative port locations. Changes in the supply chain happen fast. Work with your provider to identify the best route for your transportation.

Get in Touch With Your Dedicated Account Manager

TIM SANDERS
Email: tsanders@uscargocontrol.com
Call: 1-800-969-6543

Tim Sanders brings over 13 years of expertise in the trucking and transportation industry with USCC. Before joining, Tim gained hands-on experience and practical knowledge driving flatbeds and boom trucks - he still maintains his CDL to this day! Currently, Tim is the Co-chair of the WSTDA Load Securement Technical Committee.