ARTICLE
22 October 2024

Distribution & Logistics Industry - Domestic Trucking Spotlight October 2024

AC
Ankura Consulting Group LLC

Contributor

Ankura Consulting Group, LLC is an independent global expert services and advisory firm that delivers end-to-end solutions to help clients at critical inflection points related to conflict, crisis, performance, risk, strategy, and transformation. Ankura consists of more than 1,800 professionals and has served 3,000+ clients across 55 countries. Collaborative lateral thinking, hard-earned experience, and multidisciplinary capabilities drive results and Ankura is unrivalled in its ability to assist clients to Protect, Create, and Recover Value. For more information, please visit, ankura.com.
After weathering sharp increases in freight rates during COVID, rates that declined significantly in 2024 are starting to moderate or trend upwards...
United States Strategy

Shippers win in trucking...but for how long?

After weathering sharp increases in freight rates during COVID, rates that declined significantly in 2024 are starting to moderate or trend upwards

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A rebound in trucking volume is yet to materialize in 2024 as supply continues to exceed demand

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Key industry dynamics

The current freight cycle shifts power back to shippers, but this is temporary, and is closely tied to improvements in the U.S. Economy

Demand for freight services is likely to remain flat for the next 4-6 months.

  • Businesses have cleared their COVID inventory buildup and are managing inventory cautiously in anticipation of
    sustained softness in consumer spending.
  • Interest rate relief may not come as quickly as hoped and impacts on capacity will lag. Housing, construction and
    manufacturing output will likely remain muted in the short to medium term.
  •  Disruptions in the Suez and Panama Canals are not expected to end soon, prolonging the slowdown in international
    shipping and its impact on domestic trucking.
  • While the threat of East and Gulf Coast port strikes is gone, international events may disrupt shipping and the already challenged trucking industry with over 88,000 carriers and 8,000 brokers shuttering operations in 2024.

The current overcapacity will diminish as more carriers right-size operations amid the sustained slowdown.

  • Given the challenges noted in the industry, the remaining players have absorbed demand without a spike in rates.
  • But prolonged low demand and already thin margins are ushering in a more significant supply correction
    • Trucking stocks are significantly down YTD, with carriers such as Werner seeing Q2 operating margins drop by as
      much as 58% YOY.
    • Carriers are reorganizing to improve profitability, as seen with CH Robinson's decision to exit Europe.

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Industry disruptions create opportunities and challenges for shippers and truckers alike

  • Brokers. Digital brokers play an increasingly prominent role, bringing new capabilities relative to traditional brokerage
    models. Benefits include improved transportation efficiencies, pricing visibility and access to data.
  • Regulatory and Environmental Pressures. More stringent emissions regulations force carriers to adopt operational
    changes and spending on fuel saving technologies to support fuel efficiency.
  • Industry Consolidations. Continued consolidations, though at a slower pace, increase competitive dynamics and help
    rebalance supply and demand as smaller, more vulnerable carriers face exit risk.
  • Ecommerce. Ecommerce growth decreases demand for larger store shipments and increases the need for smaller
    shipments, shifting volume from FTL trucking to TL consolidation and LTL.

Shippers should hit the gas to seize on market opportunities

Ankura estimates there to be a limited, 6–8-month window for shippers to capitalize on current market favorability.
Shippers should act quickly to establish a plan for a mix of contract and spot rates. Key actions:

  • Strategic Planning. Develop a freight allocations approach guiding the use of contract vs. spot rates.
  • Rates. Stay on top of market fluctuations. Establish processes for regular rate benchmarking.
  • Carriers. Build strong relationships with core carriers, while also diversifying the carrier base and mix to avoid
    overreliance on specific carriers.
  • Technology. Leverage technology and consider the role of the broker to bridge technology gaps.
  • Contracts. Review contracts regularly as market and business needs evolve. Negotiate volume flexibility and
    previously-negotiated spot rates based on evolving market conditions.
  • Risk Management. Build hedging strategies and contingencies for periods of low capacity and rate volatility.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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