After three years of disruption, we can finally ring in the New Year with some positive freight capacity news: Most freight markets are in the midst of normalization and capacity is more easily accessible than it has been in years. One sign that freight markets are normalizing is that predictable seasonal trends will likely have a larger influence in 2023 than at any point since the start of the pandemic as volatility tapers and a new market balance emerges.
Consumer demand is expected to decline as the traditionally slower post-holiday period intersects with a decrease in real (inflation-adjusted) wages. With fewer shipments to move and near-term supply-side stability, expect more freight capacity to become available, alleviating pressure on the market. But some challenges and uncertainties persist: Shippers will need to keep an eye on capacity shifts, macroeconomic forces, policy changes, fluctuating fuel prices, and labor negotiations with ports.
To maintain an agile freight strategy in 2023, shippers must continue to evaluate existing partnerships and explore new best-fit carrier partnerships that align with their network priorities. Strategic transportation management partners can provide the resources and expertise necessary to adapt to the new market balance.
1. Transportation costs will stabilize — but won’t return to pre-pandemic levels
Shippers across industries including manufacturing, retail, and consumer packaged goods saw their transportation budgets severely strained by capacity shortages and high diesel fuel prices in 2021 and 2022.
As a result, creating an agile freight strategy that enables shippers to capitalize on savings opportunities will be a top priority in 2023. Fortunately, this will be easier as linehaul rates are expected to soften across truckload, refrigerated, and intermodal in conjunction with softening (though unstable) diesel fuel costs.
But while they have come down from pandemic peaks, linehaul rates are unlikely to return to 2019 levels for a few reasons:
The tight labor market for key supply chain roles is ongoing. Not only are wages unlikely to fall in 2023, they may rise further — increasing carriers’ and shippers’ operating costs.
Freight capacity will remain unpredictable in a few specific areas. For example, new truck orders are up despite the softening market — an unusual development that signals some gaps in capacity will persist.
2. Shippers will experience cost savings in the spot market
Breakthrough’s data of over 21 million shipments shows that shippers have historically sourced 80% of their capacity in the contract market, versus 20% in the spot market. The spot market enables them to move extra shipments at variable rates — sometimes more economically than through their contracted carriers.
But the pandemic changed the game. Until as recently as mid-2022, shippers were moving an average of 40% of freight in the spot market as they struggled to fill backlogged orders. The increased demand sent spot market prices skyrocketing, eroding any opportunity for cost savings.
Luckily, shippers are experiencing a reprieve that should continue throughout 2023 as the ratio stabilizes closer to pre-pandemic norms: The November 2022 contract market average was 72%, while the spot market average was 28%. As more freight returns to the contract market and the spot market continues to soften, shippers can once again look to the spot market for additional capacity at cost-effective rates.
3. Shippers and carriers will invest in building relationships
We can expect to see more stability in carrier relationships in 2023 as well. Shippers will prioritize strengthening partnerships with best-fit carriers to counterbalance the instability that characterized the past three years. On the carrier side, those with large fleets of 1,000-plus trucks are growing their dedicated networks — a continuation of 2022 trends.
By evaluating lane-level carrier performance data, shippers can identify their most valuable relationships — then grow them by honoring contracts and increasing freight volume. Based on Breakthrough data, shippers that prioritize relationship-building with carriers have contracted rates that are 2.75% or $0.08 lower on average.
4. Shippers will search for efficiencies, putting a premium on comprehensive, accurate data
As shippers seek to recover from the exorbitant transportation costs of the past three years, they’ll look to actionable data, technology, and market expertise that enables them to rapidly respond to freight market dynamics and maintain a competitive advantage.
Tactics to improve capacity efficiency in the new market balance include:
Reexamining RFP strategy. Determine which approach will have the most impact — a mini-bid, a carrier search tool, a full RFP, or a combination?
Evaluating lane-level carrier performance. Track how carriers are performing against benchmarks to uncover efficiencies at a granular level.
Tracking compliance. Ensure carriers are delivering on their service commitments.
Strategic transportation management partners can help shippers access actionable data that enables them to set rate benchmarks and renegotiate contracts with more expensive carriers — and reward more cost-effective partners.
For example, many shippers are considering relocating distribution centers to accommodate more imports on the East Coast compared to the West Coast. This will create a need for shippers to identify new regional carriers and ultimately restructure their transportation networks. Strategic partners can provide guidance and transparent data to help shippers identify cost-competitive partners that offer the best fit.
A data-driven 2023
Though we have visibility into long-term freight market trends, the new year will no doubt bring surprises as well. But one thing is easy to predict: the need for accurate, transparent data to improve visibility into operations, optimize performance, and support agile strategies as shippers adjust to a new market balance.
Shippers and carriers that equip themselves with the right technology and transportation management partners will be best positioned to take advantage of freight capacity opportunities in 2023. Get started by exploring how you can create an agile freight strategy with Network Intelligence.