It’s no secret that brokers and carriers have struggled under the dark cloud of a brutal freight market. Or that, shippers, just like you, have made hay while the freight-rate-sun shines following a period of unprecedented pandemic prices.
But the data points to a change.
Yes, you’re enjoying low freight rates and unlimited capacity now but you’d be wise to prepare for the market reset—a reset we could see as early as Q2.
What can you expect to see in the new year, exactly? And how can shippers, like you, protect your businesses as conditions change? Let’s dig in.
2024 freight market conditions
Increasing market uncertainty
Geopolitical uncertainty creates instability in markets—and there’s quite a bit of it right now.
Today, freight is being diverted away from the Suez Canal as a result of the Israel-Palestine conflict and attacks on the Red Sea—and I’m not seeing signals that this will resolve anytime soon. The result: Disruptions that may negatively impact Europe, according to FreightWaves CEO Craig Fuller, and benefit the North American supply chain.
Additionally, the 2024 U.S. elections will certainly introduce greater unpredictability into an already uncertain market.
So, if you thought 2023 was a wild ride? Hold onto your hats.
Low freight volumes will continue
The economy simply isn’t going to be what it was, according to FreightWaves Chief Economist, Anthony Smith. In a chat we had last month, he noted that consumer debt is at an all-time high—recently topping $1T. Meanwhile, the cost of housing is through the roof. Today, folks are living on credit and their savings are dwindling.
In short, consumer spending may not be coming to our rescue.
Continued market exits
We witnessed a logistics industry purge in 2023, as low volumes drove brokers and carriers out of business. In 2024, I fully expect that to not only continue but accelerate—and the carnage will probably include some names we all know.
Why? There are a few core drivers here.
First, I think it’s likely that a few major retail companies will go out of business in 2024, and the impact of these closures will reverberate throughout the logistics industry. Unless we’re talking about brokerages on the scale of a CH Robinson, those extending million-dollar lines of credit will be left holding the bag when retailers go under.
Second, those who got in while the market was hot to make a quick buck are continuing their mass exodus; they don’t see easy money to be made in logistics anymore. In fact, of the 25,291 freight brokerage authorities granted early in the pandemic, only 9,794 are still active, according to Bush Pass Research—a decline of more than 61 percent. Those that remain? Most will struggle to stay in business through this challenging time.
In short, anyone who’s over-leveraged and hasn’t managed their cash properly will not make it.
Third, an additional segment of the old guard will be forced out of the market—not because their business has dried up, per se. Rather, because they haven’t invested in the technologies they need to operate efficiently and deliver against’ higher customer expectations. Shippers are realizing that automated reporting, electronic connectivity, and customer portals aren’t a unique value-add, they’re table stakes. I equate it to the analog-to-digital transition in music. If you’re not following the market’s shift, you’re going to lose.
Rising freight rates
By peak season next year—and, yes, there may be a real peak—I expect freight rates to tick up. Sure, volumes will remain stubbornly low but with capacity being drawn out of the market and a volatile geopolitical climate, shippers can expect to pay more by Q4 of 2024.
How can you protect your business amid the capacity correction?
If you’re a smaller shipper operating with just one or two broker and carrier partners, you might consider adding a third. The flexibility you get out of this added relationship should one of your partners go under could really save your bacon.
Meanwhile, if you’re a larger business, the only way to protect yourself right now is to consider shrinking your base to sustainable and resilient partners. This will enable you to do two critical things.
First, you’ll have more time to closely monitor partner health, minimizing the risk that someone goes under while in control of your freight—and unceremoniously leaves it on the side of the road.
Some key indicators of sustainable operations include:
- Consistently high on-time pick-up and delivery rates
- Fair market freight rates versus unsustainable, rock-bottom pricing
- High service levels
- Robust cargo security and fraud prevention tools
Second, focus on building deep, trusted partnerships as opposed to transactional relationships. Really get to know your partners. Invest in them. When you do and things get hairy, they’ll remember you had their back, and they’ll invest in you (and have the resources to do so).
What’s the right mix of broker and carrier partners?
Today, the prevailing thought is that a mix of asset and non-asset-based partners creates greater resilience. Where “freight broker” was once a dirty word, they’ve played a critical role in routing guides—tapping deep pools of trusted, small carriers for maximal flexibility when capacity is tight.
With your pool of partners established, you can then set yourself up for success with a core group of primary partners, as well as some backups—keeping those secondary relationships warm should the need arise. This approach allows you to test service levels and assess business health while there’s still plenty of capacity at play. Of course, this method depends on the size of your business.
The capacity correction will create opportunity…for some
We all know these historic freight rate deals won’t last forever, and data suggests a shift is on the horizon.
If your relationships are largely price-driven today, now is the time to shift to those who offer more sustainable pricing. I often say that chaos breeds opportunity, and we see that play out in every boom-bust cycle. In the end, it’s the brokers, shippers, and carriers who prioritize partnership and long-term sustainability that will be here for the long haul.