Freight Recession: As Carriers Shut Down, the Supply Chain Seeks Solutions

Wherever you look around the freight industry in the latter half of 2023, the picture isn’t pretty. From Ken Hoexter of Bank of America calling it “a really elongated freight recession” on CNBC, to high-profile shutdowns at Convoy and Yellow Freight (temporarily on government life support), troubling signs abound. 

There are some positive indicators, such as spot rates coming off the floor a bit, and J.B. Hunt signaling some daylight on intermodal volumes in its Q3 report. But overall, the freight recession is lingering on longer than most observers hoped or expected.

With a hot war in Israel threatening to escalate, and a growing push toward and investment in supply chain sustainability, including fleet electrification and other measures, there is no lack of disruptors complicating the freight market outlook.

What’s Behind the Current Freight Recession?

While definitive use of the term “recession” for the broader economy has been a hotly debated topic in recent years, there has been no hesitation to drop the term in the world of freight and logistics. It’s a fairly basic equation: a decline in consumer confidence leads to less spending, which in turn means less freight has to move by ocean, rail, air and road.

A freight recession, like a broader economic downturn, is generally defined as two consecutive quarters of a decline in volume. Even with the rise of freight brokerages keeping smaller carriers afloat longer than expected, an average of 435 fleets per week have exited the market since September 2022, per FreightWaves.

In addition to Yellow – a complicated story involving the Teamsters and their demands – other trucking companies that have ceased operations or filed for bankruptcy recently include California-based Certified Freight Logistics, Meadow Lark Transport in Montana and Sunset Logistics of Michigan.

Given their symbiotic relationship, the freight recession has broad implications for the overall supply chain moving goods from offshore suppliers to end consumers. The huge spike in ecommerce spending in 2020 and 2021, fueled by the pandemic and a massive surge in government subsidies, led to a capacity crunch. 

This was followed by the inevitable “bullwhip effect” of carrier over-capacity and falling rates as demand eased in 2022 and 2023. This created the hitherto unthinkable consequence of mighty Amazon significantly dialing back its far-flung logistics network to match the new reality, and the departure of the network’s main architect.

In addition, with more carriers shutting down operations by the day, creating an uncertain environment, supply chain professionals need an extra level of due diligence to ensure their freight is not at risk.

With all the market instability on a macro as well as an industry level, transportation managers are in the driver’s seat as far as rates go in an oversupply scenario. Still, they face challenges accurately forecasting demand as the economy drags its heels and viability remains a real thing for thousands of carriers.

As Freight Struggles, Supply Chain Professionals Turn to Technology

To address these issues, supply chain professionals are seeking innovative ways to manage the complexity and uncertainty and keep goods flowing. This involves a combination of technology and process changes, including driving greater cooperation and coordination with other key departments to better manage risk.

Companies are taking various measures to help mitigate the impact of supply chain disruptions. One approach gaining momentum is supplier diversification, avoiding an over-reliance on any particular market. Many organizations that historically sourced the majority of goods from China, for instance, have been hedging against volatility-based risks there by diversifying to places like Southeast Asia and even nearshoring locations such as Mexico and Canada.

Supply chain professionals are also leaning heavily on end-to-end, real-time visibility tools. They can provide a granular view of things like shipments in transit – often down to the SKU level – as well as cross-carrier comparisons and improved exception management.

So-called “digital twins” are also a growing technology option for supply chain professionals. They lean on the power of algorithms to build scenarios that help shippers make smarter decisions around investments and asset allocation. According to an August 2022 report from MIT Sloan Management Review, supply chain digital twins encompass “a combination of multiple enabling technologies, such as sensors, cloud computing, AI and advanced analytics, simulation, visualization and augmented and virtual reality.”

Overall, technology and data-driven approaches are coming to the forefront for supply chain professionals wrestling with disruption. As in many other disciplines, artificial intelligence (AI) and machine learning (ML) systems are being used for everything from demand forecasting and cross-platform data analytics to automating repetitive transactional tasks.

Navigating the Current Freight Recession: Three Strategies

Based on current conditions, supply chain professionals need technology solutions that help them track and manage shipments and keep carrier partners accountable through AI and ML-powered freight management tools. Here are three ways supply chain professionals across 3PL and shipper categories can drive operational improvements while staying lean on budget.  

Optimized Freight Audit and Recovery

With the world of shipping and logistics in flux, the last thing you need is to have freight dollars bleed out the door due to missed billing issues. One painful data point: up to 80% of carrier invoices have discrepancies, most often dinging the shipper, not the other way around.

To combat this common issue, you need powerful freight audit tools that can scan across scores of data points in real time, across all transportation modes. They can catch billing discrepancies such as accessorial fee overages, late fees and duplicate invoices. These intelligent, cloud-based systems can even automatically initiate fee recovery without human intervention.

Leveraging Visibility for Unparalleled Insights

Real-time updates into shipping and delivery status have become table stakes for supply chain operations. These days, there is little margin for error and less tolerance for late deliveries among both B2B and B2C customers.

Powerful analytics built into next-generation visibility solutions provides 24/7/365 access to in-transit status. They can also provide data feeds to both logistics and customer teams, enabling preemptive shipment of replacement for damaged items, and upfront customer notification. 

Building Freight-Specific Financial Strategies

How are you managing and executing carrier payments? Are you relying on manual processes that are prone to significant and costly human error? Again, technology comes to the rescue with AI- and ML capabilities that automate key functions such as term-based payments, and helps validate KPI goals.

Data feeds to your finance team help them optimize the budgeting process, forecast costs against margin projections, scorecard carriers and inform your diversification strategy decisions. Modern platforms also feature customizable dashboards, giving you everything from an executive overview to granular spend and SKU-level, enterprise views to cover every department’s needs.

When Will the Freight Recession End?

While J.B. Hunt president Shelley Simpson said in a recent earnings call that he’s “seeing signs of things moving in a positive direction” concerning the freight recession, there aren’t a million points of light backing that up just yet.

One guardedly optimistic viewpoint came from American Trucking Association chief economist Bob Costello, who is looking for a modest recovery in the first half of 2024. Costello said he’s “bullish” on North American manufacturing, sees nearshoring in Mexico and Canada as a bright spot, and is encouraged that contract trucking hasn’t fallen as far as the spot market.

Hoexter of Bank of America said “stored profit” from the $5 trillion the federal government spent on COVID-19 stimulus relief, including PPP funds, artificially propped up many smaller carriers past their normal expiration date. Spot rates, representing about 15% of transportation spend, have been through the floor, at $1.25 per mile vs. a normal $1.65 per mile, underscoring the market weakness. While major carrier Knight-Swift exceeded expectations for Q3, Hoexter said much of that was due to its acquisition of U.S. Express and its 6,000 tractors.

Regardless of when the freight recession ends, it’s always the right time to invest in effective strategies, such as those listed above, that leverage new technologies that can help soften the blow of a down market. Taking a future-proofing approach will yield significant benefits and ROI with the right best-of-breed capabilities in place.

Summary

A variety of factors have created the current challenged situation in freight and logistics, with some indicators starting to tick slowly northward. Still, the market is painfully resetting, with rates dropping like a stone and players exiting the field at an alarming rate.

But instead of standing pat, supply chain professionals should use this opportunity to utilize technology solutions that benefit both the top and bottom line of their transportation budget, ahead of the inevitable upswing.

Intelligent Audit has a range of powerful data-driven solutions that help both shippers and 3PLs gain competitive advantage by eliminating excess costs and enabling strategy shifts. From freight audit and recovery to logistics network optimization and business intelligence and analytics, it offers powerful tools to streamline and optimize across your supply chain operations. Find out today how they can go to work for you.

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