At the start of this year, Momentum Transportation, an award-winning Landstar agent, made a number of predictions about what 2023 would bring. In today’s blog post, we are reflecting on what actually happened versus what we predicted! We’re always looking for ways to help our customers succeed in even the most challenging business environments. Read on to find out how our predictions panned out.
We predicted that nearshoring to Mexico would continue to accelerate.
Here’s what happened. Proximity to the US market and its ability to insulate exports from the kind of seaborne trade disruption that we saw during COVID, have become Mexico’s most attractive features for nearshoring. According to a white paper by Thompson Reuters, other key factors in this ongoing trend include, the trade war between the US and China, retaliatory tariffs, sanctions, inflation, political instability, the Russian invasion of Ukraine, even Brexit. They all have implications on global trade and are driving nearshoring to Mexico.
Since the pandemic, Mexico has increasingly been targeted as an ideal location for opening more production facilities to ensure shorter delivery routes and competitive production costs. What’s more, the USMCA free trade agreement (U.S. Canada and Mexico Agreement) facilitates trade across the region. While labor costs in Mexico are not as low as in Asia — and are rising somewhat — the cost savings from preventing supply chain disruptions and the significant shortening of supply routes are continuing to drive the nearshoring trend. “We’re certainly seeing more companies coming to us looking for a logistics partner with the expertise to help them take advantage of a nearshoring strategy when shipping from Mexico to the US, by moving their Asia-based and other global manufacturing to Mexico. As an independent Landstar agent, we have access to Landstar’s U.S.-Mexico Logistics Service Center, a state-of-the-art cross border logistics facility strategically located in Laredo, TX. Key industries that are leading this trend include mission critical production for data center components, electronics, and automotive manufacturing,” says Momentum’s Director of Key Account Sales, Becky Scott.
It’s perhaps surprising, but Mexico already has surpassed mainland China as the largest supplier to the US, with this trend likely to consolidate in the five-year outlook. Mexico’s government expects nearshoring — by locating manufacturing capacity in Mexico, closer to the U.S. market, rather than in Asia — will add up to 1.2 percentage points to Mexico’s economic growth, which is expected to reach 3.5% this year.
As a Landstar agent, we predicted that consumer spending would drop and inflation would decrease.
Here’s what happened. According to a November report by Deloitte Insights, consumer spending has increased by 2.5% so far this year, but signs remain that consumers are feeling the pinch. Total monthly spending intentions and the amount consumers expect to spend in the month ahead reached a new two-year low with strong implications for peak season. The report went on to say that the financial well-being index dropped to 90.1 in October — and that the percentage of U.S. respondents feeling anxious about their personal finances reached 45%, up 13 percentage points since July 2023. One worrisome sign noted by Freightwaves’ December 2023 “State of the Industry Report” is that most retailers are largely cutting forecasts for holiday sales, as the consumers remain pressured leading into 2024,
Retail giant Walmart was quoted as saying retail customer behavior was “puzzling”, because continued wage growth, a strong labor market and resilient consumer spending have bolstered the US against 2022 predictions of recession. In fact, for 21 consecutive months, the unemployment rate has come in below 4% and employers have added some 230,000 jobs per month so far this year. “Consumer spending has gotten less predictable, and retailers and manufacturers are erring on the side of caution,” says Momentum Key Account Manager, Eric Morton, “It’s more important than ever to manage inventories closely and ensure that any changes in demand can be easily and quickly addressed.”
Inflation fell to 3% in November, according to a government report on personal spending that is the Fed’s preferred measure, after peaking at 7.1% in 2022. According to an AP News article, a steep drop in gasoline prices helped slow inflation and broader energy prices have been falling throughout the year — US crude oil prices are down about 10% in 2023.
One of the primary effects of higher interest rates is in real estate. As of December 29, 2023, the average 30-year fixed-rate mortgage in the US is 7.01% — and while many experts think mortgage interest rates will start to trend downward in 2024, it might not be as quickly as homebuyers hope for.
The outlook for 2024 is good as well. According to the investment firm Morningstar, inflation should be back to the Fed’s 2% target in 2024 and following years. They cite that in addition to consumer spending not dropping radically, that one factor that has kept growth strong in 2023 is the manufacturing building boom with investment in manufacturing structures reaching its highest level since the early 1980s. Easing inflation and a solid economy heading into 2024 have increased the chance that the central bank could achieve a “soft landing” for the economy. That means inflation easing back to the central bank’s target rate of 2% under high interest rates without the economy slipping into a recession
We predicted that falling spot rates would drive greater industry consolidation.
Here’s what happened. In late August, an article in FleetOwner’s online magazine, had this to say, “At barely $2 per mile for dry van and not much more for reefer and flatbed, it’s still tough for some carriers to live off the spot market—and other signs show their industry might dodge a recession but faces equipment, capacity, and fuel-cost battles.”
The most recent analysis by DAT Freight & analytics showed flatbed spot rates in December 2022 at $2.77 — and by December 2023, these already low rates fell to $2.42 by December 2023, a reduction of 12.6%. Amit Prasad, Chief Data Science Officer at TI & NTG had this to say, “Robust consumer spending and depleting inventory levels will likely trigger restock manufacturing activity and growth in freight demand in the coming months.” T Prasad goes on to say in the article that, “Shippers should take the opportunity to build resilience in their capacity networks by honoring, or adding, stable and reliable providers that hold strong on rates and service once tested with inflationary market conditions.” The tough post-pandemic environment has resulted in continued consolidation of the industry, in the asset and non-asset space. Nowhere was this more astounding than when Industry giant Yellow Truck filed for bankruptcy and Jeff Bezos-backed digital freight brokerage Convoy, formerly an industry darling, also went under.
“This kind of volatility makes it more vital than ever to have financially-stable and experienced partners who have built relationships with carriers,” says Momentum VP of Sales and Marketing, David Hoppens, “Momentum is an award-winning Landstar Agent, with access to Landstar’s extensive truck and driver network that consistently delivers safe, secure, reliable and skilled handling of shipments from start to finish.”
As a Landstar agent, we predicted that driver pay and insurance costs would continue to be a major issue.
Here’s what happened. Data from ATRI’s 2023 Operational Costs of Trucking research showed that driver wages increased 15.5 percent over the previous year, with the combined driver wage and benefit figures achieving a record-high since the Operational Costs research first launched in 2008. However the organization was quick to point out that their data lags behind a year. In addition, as some freight companies fail (like the above-mentioned Yellow Freight) there may be additional drivers in the market — which could result in some stabilization of pay.
Earlier this month, Bulk Transporter reported that a recent survey still showed rising costs, including that of insurance, to be the top concern for operators. According to Fleet Owner, “nuclear” verdicts continue to drive costs up — and carriers pay out millions over crashes that they may not have even caused, which result in insurance premiums rising dramatically. The American Transportation Research Institute, reports that per-mile premiums for carriers have increased by almost 50% over the last decade.
Another issue driving up costs is the increasing number of cargo thefts. Fleet Owner says that theft incidents continued to rise in 2023 and show no signs of slowing. The article cites theft prevention network CargoNet’s latest data: truck cargo theft for the Q3 2023 increased 59% year-over-year continuing the trend after comparable increases in the first two quarters of this year.
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As an award-winning Landstar Agent and long-time experts in logistics, we’ve got our finger on the pulse of the industry — and we’re looking ahead at the trends to help our customers meet the challenges of doing business in uncertain, constantly changing times.
Compared to an ordinary logistics company, Landstar is among the safest trucking companies you can work with, and offers reliable transportation capacity with greater visibility and flexibility to meet our customers’ evolving needs.
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