After several years of extreme volatility, the freight market in 2023 is expected to be anything but stable. The macro environment is uncertain as the Federal Reserve continues to increase interest rates hoping to contain inflationary cost pressures and avoid a recession. Even though unemployment rates are still very low, higher priced consumable goods are impacting consumers’ spending habits.
In a freight environment where capacity looks to be more available in the first half of the year compared to the second half, shippers must determine their market approach. After several years of disrupted supply chains and higher transportation and logistics costs, shippers are working to reduce costs while maintaining high service levels and adequate access to capacity. Carriers are also faced with significantly higher costs including driver pay, maintenance, insurance and fuel.
Inflation and fear of a weakening economy have started to negatively impact consumer spending, ultimately leading to lower freight volumes. However, spot rates plummeted 35 to 40 percent last year, much higher fuel costs, a higher cost of capital and general inflationary cost pressures have created a very difficult operating environment for carriers. While spot rates are likely near a floor and contract rates are under pressure, we recommend shippers consider the following.
Over the last few years, freight conditions have changed dramatically and at a faster and more dramatic pace. The peaks and valleys have been higher and lower, and the durations have been shorter.
As a result, it’s important for shippers to choose their transportation partners very carefully. We recommend selecting a few core providers who offer a wide array of services. Collaborate with those transportation partners in a way that offers mutual support regardless of the freight environment. If each party supports the other, then the highs and lows won’t be as extreme and service will be better.
With shippers under extreme cost pressure, it’s reasonable and prudent to look for cost savings opportunities. While it’s tempting to choose options that suit your immediate needs and cut costs, impulsive decisions could be detrimental for your business during the second half of the year. Benefiting from low spot-market rates now could result in long-term implications.
We recommend shippers ‘play the long game’ regarding supplier relationships. Treat your suppliers how they deserve to be treated and be intentional when negotiating a contract. At Werner, we deeply value relationships and are keenly deliberate about choosing customers who are in it for the long-haul. Loyalty between shippers and carriers goes hand-in-hand, and we always keep the promises we make to those customers who do the same. Valuing loyalty in customer relationships also leads to higher service levels because your carrier knows you better and your business needs.
The story of 2023 will well likely be a ‘tale of two halves.’ While lower import activity and moderating industrial production will create a challenging first half of the year, as capacity exits the market given the very difficult operating environment, rates will stabilize, and capacity will tighten.
Werner has continued making strategic moves ensuring a well-positioned portfolio of solutions. Last October, we closed on the acquisition of Baylor Trucking, a 75-year-old company with outstanding leadership, elite drivers and impeccable customer service. We also welcomed ReedTMS Logistics to our team in November, who has a 26-year history of developing and expanding long-term customer relationships. Reed is supported by a large and growing carrier network, with two thirds of their revenue coming from the stable food and beverage verticals, including a heavy focus on temperature-controlled freight. Both of these acquisitions aligned perfectly with our Werner DRIVESM strategy and positioned us for future growth.
Innovation continues to be at the forefront of our operations at Werner. We took another step toward becoming the first North American carrier to move our entire tech stack and operations to the Cloud through deploying MasterMind TMS, a cloud-based transportation management system from Mastery Logistics Systems, Inc. Gaining access to better automation, visibility and performance through technology should be another priority for shippers in 2023. Working with carriers that prioritize technology, shipment tracking, data insights and freight management will positively impact your bottom line.
At Werner, we were built to navigate the dynamic truckload freight market. Stability through diversification is key, and we feel strongly about the portfolio we’ve built. In the end, our goal is continued durability to provide exceptional service to our customers.