Top 10 Supply Chain Threats: Kathy Fulton of ALAN on the threat of disruptions from weather extremes
Weather is always a risk to the resiliency of a supply chain, and shifts in climate patterns seem to be making it an even more important risk for which supply chain executives need to be prepared. We run down the risks and how they could impact your supply chain operations.
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Transcript
About this week's guest
Kathy Fulton is executive director of the American Logistics Aid Network (ALAN). She leads the organization in facilitating donations of logistics services and equipment to enable delivery of millions of dollars’ worth of humanitarian aid. Fulton served as the organization’s director of operations from 2010 until her promotion in 2014.
Fulton’s passion is the intersection of supply chain and emergency management, focusing on the critical role logistics and supply chain professionals play in disaster relief. She serves on national workgroups focused on efficient coordination of logistics activities during disasters, including those hosted by the National Academies of Science, Engineering, and Medicine, the Department of Homeland Security, the Transportation Research Board, National Voluntary Organizations Active in Disaster, and the National Emergency Management Association.
Preceding her work with ALAN, she was senior manager of information technology services at Saddle Creek Logistics Services, where she led IT infrastructure implementation and support, corporate systems, and business continuity planning. Fulton holds a bachelor’s degree in mathematics from Northwestern State University of Louisiana and master’s degrees in business administration and management information systems from the University of South Florida.
David Maloney, Editorial Director, CSCMP’s Supply Chain Quarterly00:02
The Covid-19 pandemic showed us just how vulnerable supply chains are. Today we face many threats: shipping delays; a lack of workers; failing infrastructure; transportation rates that are out of control; cybersecurity threats; and of course, a worldwide pandemic that is still very much with us. But with each of these threats comes opportunities. Welcome to this limited podcast series from CSCMP’s Supply Chain Quarterly, the Top 10 Supply Chain Threats.
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Today, we focus on weather extremes. Here is your moderator for this segment, Mitch Mac Donald, group editorial director emeritus of Supply Chain Quarterly.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly01:13
Hello, and welcome to the latest installment in our podcast series on supply chain risks. Our topic today is extreme weather and the risks it pose[s] to supply chains worldwide. And with both severe weather and supply chains in the mainstream news like never before, who better to join us for discussion on this topic than Kathy Fulton, the executive director of the American Logistics Aid Network, or ALAN, for short. Kathy, thanks for joining us. I think it's your first podcast seating with us. We're excited to have you. The general consensus, clearly, is that not only is weather becoming more extreme, but it's popping up in nontraditional ways in nontraditional areas. Now, as part of your work with ALAN, you have to be much more plugged in than a lot of us on this. Is that general consensus, right? Is the weather getting worse, and is it hitting areas in ways it historically has not?
Kathy Fulton, Executive Director, American Logistics Aid Network 01:35
Hey, thanks for having me. Yeah, absolutely. I mean, you can see the number of extreme events climbing over the past, you know, decade even, but in different ways. Thinking, you know, I think about the drought we're having out in California right now, right, you know, just historic, low lake levels, and, you know, conversations we've never had to have before, because of these extreme events. You look at 2020 and the hurricanes that we had: record number of hurricanes. So, that number and the, not just the extremity of the events, but the impacts that they're having on populations. So, weather's not a problem if it's happening where nobody lives...
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly02:43
Right.
Kathy Fulton, Executive Director, American Logistics Aid Network 02:44
but now we're building in places, and the weather is occurring in places, that is having an impact not just on humans, but on our supply chains, which means also more humans.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly02:55
Exactly. Yeah. And as you're saying that, I'm thinking about, in terms of places you wouldn't actually see it. I don't think ever in our lives that we've seen a video image of water running down the stairs into a New York City subway.
Kathy Fulton, Executive Director, American Logistics Aid Network 03:08
Right.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly03:08
Yeah.
Kathy Fulton, Executive Director, American Logistics Aid Network 03:08
Right, yeah, I mean, and the loss of life that accompanies that, because we're not accustomed to dealing with that, right? We're just—we have not built our infrastructure to handle these extreme events. So, as we look at, how do we mitigate, how do we prepare for these things, it's going to take really creative thinking, not just for, like our built environment, but also how we live our lives.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly03:34
Right. Right. Now, things are changing, and they'll continue to. On the difference of some different geographic areas being impacted, ALAN is coming up on 15 years?
Kathy Fulton, Executive Director, American Logistics Aid Network 03:46
Sixteen. Hurricane Katrina in 2005, so 16 years.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly03:49
Yeah, um, in, you know, a lot of experience now, a lot of sense of how to best rally support, how to deploy support, how to get things where they needed to be, but now that they're starting to have to be in different places. Is that complicating, or are you in the routine and say, we just do the same things, but now it has to go to New Jersey rather than Mississippi.
Kathy Fulton, Executive Director, American Logistics Aid Network 04:13
The Gulf Coast, right. Yeah, it is different. But the thing that I would say that helps us is that there are logistics operations everywhere and, with pushing more logistics into urban areas, you know—and we can talk about whether that, whether that has an impact on some of these extreme events—but as those you know, as those logistics hubs get closer to point of consumption, that means that those assets and resources become available to us to support the humanitarian activities.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly04:49
So, the naturally occurring expansion of logistics operations, to quote get closer to the customer is being done for capitalism reasons, for commerce, for business, but it's actually, there's a side benefit that now we have more options deployed in more areas?
Kathy Fulton, Executive Director, American Logistics Aid Network 05:07
That's right. Yeah, I mean, you know, we still have pockets of the country where, you know, it just doesn't make sense to have that density of logistics. Fortunately, at least for now, those are still areas where the extreme events, you know, don't have as much impact, you know. As more people move to Wyoming and Montana, for example, the logistics, you know, infrastructure will follow. So, it's a race.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly05:38
Yeah. Is, are there any specific things that—not speaking in terms of, in support of ALAN, and response, but just, you know, in crisis situations, it affects supply chain resiliency?
Kathy Fulton, Executive Director, American Logistics Aid Network 05:51
Yep.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly05:52
Any thoughts on any changes in approach a process that supply chain folks might have to consider to prepare for the fact that the resiliency of my supply chain is going to be tested more often, and in more ways than I ever thought.
Kathy Fulton, Executive Director, American Logistics Aid Network 06:04
Yeah.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly06:05
What should they be doing?
Kathy Fulton, Executive Director, American Logistics Aid Network 06:06
Well, you know, this is one of the areas where I think technology is keeping pace or advancing beyond how we're using it. So, the visibility that has been, you know, growing over the past few years, you know, this, this push towards being able to see end to end with your supply chain, gives us an advantage to also say, "Okay, well, if we know this information about our supply chain, about our nodes and flows, right, where our physical components are, then we can layer on top of that the particular risks that are occurring." So, we can see how a new extreme event, you know, that may not have occurred in a place previously, is going to impact our supply chains, okay? So, I think from that perspective, having that visibility, applying it in those ways, whether it's digital twins, or whether, you know—I don't know all the technology terms anymore—but I think that that's going to help us better respond to prepare or mitigate against these extreme events.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly07:12
They actually, as you're saying that, they're actually, I mean, the purpose and objective of a supply chain in its normal state, is not all that different than the purpose and objective when it's trying to help respond to a disaster. So, the same approaches, as you're saying this thing, it's the standard answer: It's your job to fully exploit enabling technologies, if you don't, you'll be at a disadvantage. That's really where [we've come].
Kathy Fulton, Executive Director, American Logistics Aid Network 07:35
We talk about not just exploiting the existing technologies, but exploiting their design. So, if you think about, you know, exactly what we talked about, we have these planned bottlenecks, as they were, of logistics hubs.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly07:51
Yeah. Yep.
Kathy Fulton, Executive Director, American Logistics Aid Network 07:51
Right? But that also means that's a concentration that we can draw upon, and because they're closer to the people, that means there's more of them. So, if Hub A within a city is down, maybe Hub B can surge to support it. But it's thinking about, how do we do that on the fly? So, how do we, how do we recognize that we can shift those flows to continue to serve a population?
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly08:18
Has ALAN's ability to respond when needed during this pandemic period, at a time that many supply chains are, if not fully broken, at least seriously impaired, has that trickled down to impact ALAN's ability to respond in the way you want it to, and if so, could you tell us how that...?
Kathy Fulton, Executive Director, American Logistics Aid Network 08:39
Short answer is, absolutely, yes, one hundred percent, and because, you know, I don't want to take resources away from a supply chain that is already stretched thin, right? So, being able to ask our partners, Hey, can you donate your services to support this, you know, other supply chain, this other need that is occurring?, that we have to think about that closely. Like, is it better to keep that pre existing supply chain moving, or is it better to, in that moment, serve the the replacement supply chain? We've had amazing support from the, from the industry. You know, people are finding creative ways to support us, whether that is, you know, working not with just their primary assets, but partner assets, you know, helping us to really dig down through the supply chain, find that available capacity, find the ways to continue serving those who are affected by crisis.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly09:39
To close: Neither of us are scientists, and I would not suggest either of us are experts, but by the nature of your work and the great work you do. you may have some insights that are a little deeper than the rest of us. Is this going to continue to escalate? Is this going to—are we not yet near the end of seeing what climate change could do in terms of impact to supply chains?
Kathy Fulton, Executive Director, American Logistics Aid Network 10:06
In my unscientific, but studied, opinion...
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly10:12
You asked the question better than I did!
Kathy Fulton, Executive Director, American Logistics Aid Network 10:14
No, I truly do believe that we are reaching that tipping point where it's going to be very hard to come back from, right? So, we have to think about, how do we restructure our supply chains so that there is less impact on the environment, so that we're not doing more harm by our activities, than good, you know? And whether that means, you know, nearshoring, reshoring, or just, you know, completely changing our model, we do have to change something.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly10:50
Both the business case and the human case for having a more sustainable supply chain is being made right in front of us
Kathy Fulton, Executive Director, American Logistics Aid Network 10:57
One hundred percent, because, I mean, what's the point of having fabulous supply chains if there's no one, you know, if the earth can't support the people to... ?
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly11:08
Absolutely. Kathy, thank you, as always, you've given us some great insight for our audience, and thanks for joining us for a conversation. And thank you for tuning in. If you haven't done so already, please subscribe to this podcast so you can listen to our entire upcoming series on supply chain risks. I'm Mitch Mac Donald, and thanks again for listening to the Supply Chain Quarterly podcast.
David Maloney, Editorial Director, CSCMP’s Supply Chain Quarterly11:32
Thank you for joining us for this podcast from CSCMP’s Supply Chain Quarterly, the Top 10 Supply Chain Threats. We encourage you to subscribe wherever you get your podcasts.
Census data showed that overall retail sales in October were up 0.4% seasonally adjusted month over month and up 2.8% unadjusted year over year. That compared with increases of 0.8% month over month and 2% year over year in September.
October’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were unchanged seasonally adjusted month over month but up 5.4% unadjusted year over year.
Core sales were up 3.5% year over year for the first 10 months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023. NRF is forecasting that 2024 holiday sales during November and December will also increase between 2.5% and 3.5% over the same time last year.
“October’s pickup in retail sales shows a healthy pace of spending as many consumers got an early start on holiday shopping,” NRF Chief Economist Jack Kleinhenz said in a release. “October sales were a good early step forward into the holiday shopping season, which is now fully underway. Falling energy prices have likely provided extra dollars for household spending on retail merchandise.”
Despite that positive trend, market watchers cautioned that retailers still need to offer competitive value propositions and customer experience in order to succeed in the holiday season. “The American consumer has been more resilient than anyone could have expected. But that isn’t a free pass for retailers to under invest in their stores,” Nikki Baird, VP of strategy & product at Aptos, a solutions provider of unified retail technology based out of Alpharetta, Georgia, said in a statement. “They need to make investments in labor, customer experience tech, and digital transformation. It has been too easy to kick the can down the road until you suddenly realize there’s no road left.”
A similar message came from Chip West, a retail and consumer behavior expert at the marketing, packaging, print and supply chain solutions provider RRD. “October’s increase proved to be slightly better than projections and was likely boosted by lower fuel prices. As inflation slowed for a number of months, prices in several categories have stabilized, with some even showing declines, offering further relief to consumers,” West said. “The data also looks to be a positive sign as we kick off the holiday shopping season. Promotions and discounts will play a prominent role in holiday shopping behavior as they are key influencers in consumer’s purchasing decisions.”
Even as the e-commerce sector overall continues expanding toward a forecasted 41% of all retail sales by 2027, many small to medium e-commerce companies are struggling to find the investment funding they need to increase sales, according to a sector survey from online capital platform Stenn.
Global geopolitical instability and increasing inflation are causing e-commerce firms to face a liquidity crisis, which means companies may not be able to access the funds they need to grow, Stenn’s survey of 500 senior e-commerce leaders found. The research was conducted by Opinion Matters between August 29 and September 5.
Survey findings include:
61.8% of leaders who sought growth capital did so to invest in advanced technologies, such as AI and machine learning, to improve their businesses.
When asked which resources they wished they had more access to, 63.8% of respondents pointed to growth capital.
Women indicated a stronger need for business operations training (51.2%) and financial planning resources (48.8%) compared to men (30.8% and 15.4%).
40% of business owners are seeking external financial advice and mentorship at least once a week to help with business decisions.
Almost half (49.6%) of respondents are proactively forecasting their business activity 6-18 months ahead.
“As e-commerce continues to grow rapidly, driven by increasing online consumer demand and technological innovation, it’s important to remember that capital constraints and access to growth financing remain persistent hurdles for many e-commerce business leaders especially at small and medium-sized businesses,” Noel Hillman, Chief Commercial Officer at Stenn, said in a release. “In this competitive landscape, ensuring liquidity and optimizing supply chain processes are critical to sustaining growth and scaling operations.”
With six keynote and more than 100 educational sessions, CSCMP EDGE 2024 offered a wealth of content. Here are highlights from just some of the presentations.
A great American story
Author and entrepreneur Fawn Weaver closed out the first day of the conference by telling the little-known story of Nathan “Nearest” Green, who was born into slavery, freed after the Civil War, and went on to become the first master distiller for the Jack Daniel’s Whiskey brand. Through extensive research and interviews with descendants of the Daniel and Green families, Weaver discovered what she describes as a positive American story.
She told the story in her best-selling book, Love & Whiskey: The Remarkable True Story of Jack Daniel, His Master Distiller Nearest Green, and the Improbable Rise of Uncle Nearest. That story also inspired her to create Uncle Nearest Premium Whiskey.
Weaver discussed the barriers she encountered in bringing the brand to life, her vision for where it’s headed, and her take on the supply chain—which she views as both a necessary cost of doing business and an opportunity.
“[It’s] an opportunity if you can move quickly,” she said, pointing to a recent project in which the company was able to fast-track a new Uncle Nearest product thanks to close collaboration with its supply chain partners.
A two-pronged business transformation
We may be living in a world full of technology, but strategy and focus remain the top priorities when it comes to managing a business and its supply chains. So says Roberto Isaias, executive vice president and chief supply chain officer for toy manufacturing and entertainment company Mattel.
Isaias emphasized the point during his keynote on day two of EDGE 2024. He described how Mattel transformed itself amid surging demand for Barbie-branded items following the success of the Barbie movie.
That transformation, according to Isaias, came on two fronts: commercially and logistically. Today, Mattel is steadily moving beyond the toy aisle with two films and 13 TV series in production as well as 14 films and 35 shows in development. And as for those supply chain gains? The company has saved millions, increased productivity, and improved profit margins—even amid cost increases and inflation.
A framework for chasing excellence
Most of the time when CEOs present at an industry conference, they like to talk about their companies’ success stories. Not J.B. Hunt’s Shelley Simpson. Speaking at EDGE, the trucking company’s president and CEO led with a story about a time that the company lost a major customer.
According to Simpson, the company had a customer of their dedicated contract business in 2001 that was consistently making late shipments with no lead time. “We were working like crazy to try to satisfy them, and lost their business,” Simpson said.
When the team at J.B. Hunt later met with the customer’s chief supply chain officer and related all they had been doing, the customer responded, “You never shared everything you were doing for us.”
Out of that experience, came J.B. Hunt’s Customer Value Delivery framework. The framework consists of five steps: 1) understand customer needs, 2) deliver expectations, 3) measure results, 4) communicate performance, and 5) anticipate new value.
Next year’s CSCMP EDGE conference on October 5–8 in National Harbor, Md., promises to have a similarly deep lineup of keynote presentations. Register early at www.cscmpedge.org.
2024 was expected to be a bounce-back year for the logistics industry. We had the pandemic in the rearview mirror, and the economy was proving to be more resilient than expected, defying those prognosticators who believed a recession was imminent.
While most of the economy managed to stabilize in 2024, the logistics industry continued to see disruption and changes in international trade. World events conspired to drive much of the narrative surrounding the flow of goods worldwide. Additionally, a diminished reliance on China as a source for goods reduced some of the international trade flow from that manufacturing hub. Some of this trade diverted to other Asian nations, while nearshoring efforts brought some production back to North America, particularly Mexico.
Meanwhile trucking in the United States continued its 2-year recession, highlighted by weaker demand and excess capacity. Both contributed to a slow year, especially for truckload carriers that comprise about 90% of over-the-road shipments.
Labor issues were also front and center in 2024, as ports and rail companies dealt with threats of strikes, which resulted in new contracts and increased costs. Labor—and often a lack of it—continues to be an ongoing concern in the logistics industry.
In this annual issue, we bring a year-end perspective to these topics and more. Our issue is designed to complement CSCMP’s 35th Annual State of Logistics Report, which was released in June, and includes updates that were presented at the CSCMP EDGE conference held in October. In addition to this overview of the market, we have engaged top industry experts to dig into the status of key logistics sectors.
Hopefully as we move into 2025, logistics markets will build on an improving economy and strong consumer demand, while stabilizing those parts of the industry that could use some adrenaline, such as trucking. By this time next year, we hope to see a full recovery as the market fulfills its promise to deliver the needs of our very connected world.
If you feel like your supply chain has been continuously buffeted by external forces over the last few years and that you are constantly having to adjust your operations to tact through the winds of change, you are not alone.
The Council of Supply Chain Management Professionals’ (CSCMP’s) “35th Annual State of Logistics Report” and the subsequent follow-up presentation at the CSCMP EDGE Annual Conference depict a logistics industry facing intense external stresses, such as geopolitical conflict, severe weather events and climate change, labor action, and inflation. The past 18 months have seen all these factors have an impact on demand for transportation and logistics services as well as capacity, freight rates, and overall costs.
The “State of Logistics Report” is an annual study compiled and authored by a team of analysts from Kearney for CSCMP and supported and sponsored by logistics service provider Penske Logistics. The purpose of the report is to provide a snapshot of the logistics industry by assessing macroeconomic conditions and providing a detailed look at its major subsectors.
One of the key metrics the report has tracked every year since its inception in 1988 is U.S. business logistics costs (USBLC). This year’s report found that U.S. business logistics costs went down in 2023 for the first time since the start of the pandemic. As Figure 1 shows, U.S. business logistics costs for 2023 dropped 11.2% year-over-year to $2.4 trillion, or 8.7% of last year’s $27.4 trillion gross domestic product (GDP).
“This was not unexpected,” said Josh Brogan, Kearney partner and lead author of the report, during a press conference in June announcing the results. “After the initial impacts of COVID were felt in 2020, we saw a steady rise of logistics costs, even in terms of total GDP. What we are seeing now is a reversion more toward the mean.”
This breakdown of U.S. Business Logistics Costs for 2023 shows an across-the-board decline in all transportation costs.
CSCMP's 35th Annual "State of Logistics Report"
As a result, Figure 1 shows an across-the-board decline in transportation costs (except for some administrative costs) for the 2023 calendar year. “What such a chart cannot fully capture about this period is the intensification of certain external stressors on the global economy and its logistical networks,” says the report. “These include a growing geopolitical instability that further complicates investment and policy decisions for business leaders and government officials.”Both the report and the follow-up session at the CSCMP EDGE Conference in October provided a vivid picture of the global instability that logistics providers and shippers are facing. These conditions include (but are not limited to):
An intensification of military conflict, with the Red Sea Crisis being particularly top of mind for companies shipping from Asia to Europe or to the eastern part of North America;
Continued fragmentation of global trade, as evidenced by the deepening rift between China and the United States;
Climate change and severe weather events, such as the drought in Panama, which lowered water levels in the Panama Canal, and the two massive hurricanes that ripped through the Southeastern United States;
Labor disputes, such as the three-day port strike which stopped operations at ports along the East and Gulf Coasts of the United States in October; and
Persistent inflation (despite some recent improvement in the United States) and muted global economic growth.
At the same time that the logistics market was dealing with these external factors, it was also facing sluggish freight demand and an ongoing excess of capacity. These twin dynamics have contributed to continued low cargo rates through 2024.
“For 2024, I foresee a generally flat USBLC as a percentage of GDP,” says Brogan. “We did see increases in air and ocean costs in preparation for the East Coast port strike but overall, road freight is down. I think this will balance out with the relatively low level of inflation seen in the general economy.”
Breakdown by mode
The following is a quick review of how the forces outlined above are affecting the primary logistics sectors, as described by the “State of Logistics Report” and the updated presentation given at the CSCMP EDGE Conference in early October.
Trucking: A downturn in consumer demand plus a lingering surplus in capacity led to a plunge in rates in 2023 compared to 2022. Throughout 2024, however, rates have remained relatively stable. Speaking in October, report author Brogan said he expects that trend to continue for the near future. On the capacity side, despite thousands of companies having departed the market since 2022, the number of departures has not been as high as would normally be expected during a down market. Brogan accounts this to investors expecting to see some turbulence in the marketplace and being willing to stick around longer than has traditionally been the case.
Parcel and last mile: Parcel volumes in 2023 were down by 0.5% compared to 2022. Simultaneously, there has been a move away from UPS and FedEx, both of which saw their year-over-year parcel volumes decline in 2023. Nontraditional competitors have taken larger portions of the parcel volume, including Amazon, which passed UPS for the largest parcel carrier in the U.S. in 2023. Additionally, there has been an increasing use of regional providers, as large shippers continue to shift away from “single sourcing” their carrier base. Parcel volumes have increased in 2024, mostly driven by e-commerce. Brogan expects regional providers to claim “the lion’s share” of this volume.
Rail: In 2023, Class I railroads experienced a challenging financial environment, characterized by a 4% increase in operating ratios, a 2% decline in revenue, and an 11% decrease in operating income compared to 2022. These financial troubles were primarily driven by intermodal volume decreases, service challenges, inflationary pressures, escalated fuel and labor expenses, and a surge in employee headcount. The outlook for 2024 is slightly more promising, according to Kearney. Intermodal, often regarded a primary growth driver, has seen increased volumes and market share. Class I railroads are also seeing some positive operational developments with train speeds increasing by 2.3% and terminal dwell times decreasing by 1.8%. Finally, opportunities are opening up for an expansion in cross-border rail traffic within North America.
Air: The air freight market saw a steep decline in costs year over year from 2022 to 2023. Rates in 2024 began flat before starting to pick up in the summer, and report authors expect to see demand increase by 4.5%. Part of the demand pickup is due to disruptions in key sea lanes, such as the Suez Canal, causing shippers to convert from ocean to air. Meanwhile, the capacity picture has been mixed with some lanes having a lot of capacity while others have none. Much of this dynamic is due to Chinese e-commerce retailers Temu and Shein, which depend heavily on airfreight to execute their business models. In order to serve this booming business, some airfreight providers have pulled capacity out of more niche markets, such as flights into Latin America or Africa, and are now using those planes to serve the Asia-to-U.S. or Asia-to-Europe lanes.
Water/ports: The recent “State of Logistics Report” indicated that waterborne freight experienced a very steep decline of 64.2% in expenditures in 2023 relative to 2022. This was mostly due to muted demand, overcapacity, and a normalization from the inflated ocean rates seen during the pandemic years. After the trough of 2023, the market has been seeing significant “micro-spikes” in rates on some lanes due to constraints caused by geopolitical issues, such as the Red Sea conflict and the U.S. East and Gulf Coast ports strike. Kearney foresees a continuation of these rate hikes for the next few months. However, over the long term, the market will have to deal with the overcapacity that was built up during the height of the pandemic, which will cause rates to soften. Ultimately, however, Brogan said he did not expect to see a return to 2023 rate levels.
Third-party logistics (3PLs): The third-party logistics (3PL) sector is facing some significant challenges in 2024. Low freight rates and excess capacity could force some 3PLs to consolidate, especially if they are smaller players and rely on venture capital funding. Meanwhile, Kearney reports that there is some redefining of traditional roles going on within the 3PL-shipper ecosystem. For example, some historically asset-light 3PLs are expanding into asset-heavy services, and some shippers are trying to monetize their own logistics capabilities by marketing them externally.
Freight forwarding: Major forwarders had a shaky final quarter of 2023, seeing a decline in financial performance. To regain form, Kearney asserts that forwarders will need to increase their focus on technology, value-added services, and tiered servicing. Overall, the forwarding sector is expected to grow at slow rate in coming years, with a projected annual growth rate of 5.5% for the period of 2023–2032.
Warehousing: According to Brogan an interesting phenomenon is occurring in the warehousing market with the average asking rents continuing to rise even though vacancy rates have also increased. There are several reasons for this mixed message, according to the “State of Logistics” report, including: longer contract durations, enhanced facility features, and steady demand growth. A record-breaking level of new construction and new facilities, however, have helped to stabilize rent prices and increase vacancy rates, according to the report authors.
Path forward
What is the way forward given these uncertain times? For many shippers and carriers, a fresh look at their networks and overall supply chains may be in order. Many companies are currently reassessing their distribution networks and operations to make sure that they are optimized. In these cost-sensitive times, that may involve consolidating facilities, eliminating redundant capacity, or rebalancing inventory.
It’s important to realize, however, that network optimization should not just focus on eliminating unnecessary costs. It should also ensure that the network has the right amount of capacity to response with agility and flexibility to any future disruptions. Companies must look at their supply chain networks as a whole and think about how they can be utilized to unlock strategic advantage.