A recent report published in the Wall Street Journal indicated that 2018 marked a banner year for spending in the logistics industry. In fact, spending within the logistics world increased by 11.4% from 2017. Many experts attribute this rise in spending to a stimulated consumer economy, tariff fluctuation, and the threat of potential trade wars. Others stand firm that the industry has simply come out of some sort of recession.
However, this is not a new trend. And we haven't really been in a recession.
As a matter of fact, the transportation industry, as a whole, has been on the rise for the past three years. Instead, the question that we should be asking, is if we are heading to a quick downward trend sometime soon, or if we can continue to build momentum.
In this blog post, we’ll dive into some of the reasons why the US logistics industry experienced its largest growth period since 2014, and how shippers can prepare for the market to even out in the coming months, should that happen.
The Role Tariff Negotiations Had on Spending
One of the hot topics of 2018 was the threat of a significant cross border trade war. Fueled by political motive, this debate raged on wildly throughout the beginning of the year. A trade war between the United States, Canada, and Mexico is no minor scoff.
Some Canadian tariffs were expected to rise to a flat 25% fee. Meanwhile, Mexican imports and exports faced similarly huge tariffs.
In the end, the speculated and much-anticipated tariff spikes lead to aggressive spending from retailers and manufacturers. Businesses were in a scurry to build up their inventory while the savings were just too tempting. In fact, inventory and storage of raw materials and supplies of US manufacturers and retailers jumped 14.8% over the course of 2017. This was mainly due to the volatile tariff situation with China as well as our cousins to the North.
This aggressive spending in 2018 has led to a less than stellar opening to the 2019 logistics season. This is especially true for the full truckload and less than truckload industries. In fact, several larger truck and transportation carriers saw a significant reduction in FTL services. Those services that were rendered during the spring months of March through May saw losses due to retailers having enough inventory in storage with no need to increase fulfillment.
The Increase in Cross Border Shipping
Since 2018, cross border shipping between the United States, Canada, and Mexico has steadily been on the rise. It attributed to nearly a whopping $1.5 trillion worth of freight exchanged between the three countries.
One specific freight movement mode that saw incredible increases in spending was intermodal truck-rail transport which increased by 28.7%. The major contributing factors to the increase in continental international shipping through this mode of transportation was due to a lack of qualified drivers. While the logistics industry has had a truck driver shortage for the past few years, drivers for LTL and FTL specifically has seen the biggest decrease.
So, with the rise in demand for drivers came a rise in the costs to acquire those drivers! However, if this gap ever gets smaller and competition becomes less fierce, this price point will drop significantly.
Logistics Planning for 2020
The transportation industry is dependent upon an economy that stimulates buying from the consumer. Of course, in order to so that, shippers must have the appropriate resources to fulfill the need, and the network to efficiently move freight through the supply chain.
With the upcoming 2020 presidential election approaching, the next year un logistics will be interesting, to say the least. Anytime the political debates start heating up, the logistics industry always seems to get caught right in the middle of it all. At that point, a strong network just isn't enough. You need to know how to utilize it, plan, and strategize.
In order to stay far ahead of the curve, you need to hope for the best but prepare for the absolute worst. And the best way to do that is by partnering with a reputable 3PL...