It’s 2023! At Momentum Transportation, an award-winning Landstar Agent, we are seeing the transportation and logistics industry settle into a new normal. COVID has made a lasting impact on the way we work. Inflation has become a prime concern and economists are still trying to predict where it will go from here. Finally, supply chain disruptions are better, but still a top-of-mind concern for businesses of all types, due to the serious impact on operations and revenue when delays and interruptions happen. We polled our leadership at Momentum Transportation to get their predictions on the trends and challenges that 2023 will bring – and how companies can develop winning strategies. This is the first blog post in a two part series:
- In this post, we will cover Momentum Transportation’s predictions for 2023.
- In our second blog post, we’ll talk about key recommendations shippers can take to manage their transportation and logistics networks smarter in the coming year.
Prediction #1: Nearshoring to Mexico will accelerate
Driven by large multinational brands, we are predicting that companies will continue to move sourcing for contract manufacturing to Mexico, Canada, and the US – as well as more US friendly countries in Asia. Whether you’re shipping from the US to Mexico or from Mexico to the US, the reason for nearshoring – or safeshoring – is two-fold. First, the supply chain complications and delays during COVID highlighted the risks inherent with having vital manufacturing processes, product components and raw materials so far away. The second reason is simply political – increased tensions between the US and China are continuing and it is unclear what the consequences will be for companies that rely on Chinese manufacturing.
As we mentioned in a previous post, the United States-Mexico-Canada Agreement (USMCA) which was signed into law in early 2020, has made the switch to cross-border operations with Mexico extremely attractive. According to FreightWaves, “Many predict nearshoring will be an economic bonanza for Mexico in 2023. Mexico is increasingly attractive as a trading partner and foreign investment destination for manufacturers looking to create a more secure supply chain to replace many commodities made in China and other Asian nations.” FreightWaves cites a recent report by Credit Suisse indicating the automotive manufacturing sector has been the largest attractor of foreign direct investment in Mexico, followed by industrial machinery, furniture, consumer goods, plastics, home electronics and textiles.
Importing from China and other overseas countries requires shipping via ocean or air–the former takes weeks and the latter is cost-prohibitive. In contrast, goods can be quickly imported from Mexico using ground transport in a matter of days–or even hours. This means Mexico-based manufacturing is a highly effective way to speed up your supply chain. Finally, with the job market in the US extremely tight, Mexico offers a talent pool and infrastructure to ease communications — not only based on proximity but also based on similar time zones.
Want more? This blog post discusses the benefits of cross border operations with Mexico from the perspective of Landstar
Prediction #2: Falling rates will drive greater industry consolidation
We believe that spot and contract rates will continue to fall early in 2023. Lower rates may result in some of the small and midsize carriers going out of business, or being purchased by larger companies that have the size, volume, and stability to withstand rate fluctuations.
According to FTR Transportation Intelligence, record high spot rates drove many new-entrant motor carriers over the past couple of years. But, since October of 2022, the transportation industry has seen a loss of carriers. For example, preliminary numbers show the number of carriers lost in December 2022 was the second highest of any month on record. According to the Commercial Carrier Journal, “Spot rates have been in freefall since January 2022, and while contract rates are still elevated, they are beginning to follow a similar trendline.” Smaller carriers will continue to face margin pressures due to lower year-over-year rates and materially higher labor and insurance costs.
Prediction #3: Consumer spending will drop
The experts at Landstar also predict that there will be a drop in consumer spending on everyday goods, which will contract the dry van market. Consumer spending and consumption is the largest factor driving the need for transportation. FTR’s “State of Freight” webinar on Jan. 12, 2023 said that while inflation continues to be on everyone’s minds, the Consumer Price Index, which alarmed analysts when it jumped to 9.1% in June of 2022, has been falling since. The federal government’s consistent raising of interest rates has successfully brought inflation down significantly. In December 2022, the CPI rose 6.5% compared to a year earlier, and was also down 7.1% in November. Real consumer spending is holding up, although spending on the types of goods that drive trucking (such as new home construction) is fairly flat. While we may avoid a recession, it’s a good idea to forecast conservatively in 2023.
Prediction #4: Driver pay and insurance costs will continue to go up
Major drivers of costs in transportation – driver wages and insurance being just a few examples, are always a concern. This will be no different in 2023. At Momentum Transportation, we don’t see an end to the driver shortage – and that means upward pressure on labor costs. The workforce approaching retirement continues to rise, while the prime age driver population is forecast to shrink through 2029. According to the American Trucking Association’s Chief Economist Bob Costello, the latest estimates show the trucking industry is still short 78,000 drivers.
Labor is not the only cost that is rising. A 2022 report by The American Transportation Research Institute (ATRI) notes that volatile and increasing insurance premiums continue to be a major issue. The report, “Analysis of the Operational Costs of Trucking” found that insurance premium costs per mile increased overall by 47% over the last 10 years, from 5.9 cents to 8.7 cents.
So, how do you succeed amidst these market conditions? Find out in our next blog post, where we’ll share the advice and recommendations we have for shippers to navigate the market in 2023.
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