Despite rising demand from swelling truck freight volume, national average spot van and refrigerated truck rates plunged to two-and-half-year lows in March, according to a report from DAT Freight & Analytics.
Those low rates in March capped a challenging first quarter of 2023 for most truckload carriers and freight brokers, with the one exception of the flatbed freight sector, where pricing and demand on the spot market have been steady since the start of the year, Beaverton, Oregon-based DAT said.
“While shippers are taking advantage of the current situation to stabilize their carrier base and bring their contract rates back in line, the spread between spot and contract rates remains historically large—59 cents a mile for van freight, 57 cents for reefers and 66 cents for flatbed freight,” Ken Adamo, DAT chief of analytics, said in a release. “We expect spot rates to remain at ‘touch-bottom’ levels until retailers start replenishing inventory for the end-of-the-year holidays.”
While it’s no surprise that the trucking business is in the bottom trough of a cycle, the results came despite encouraging economic signals: the DAT Truckload Volume Index (TVI) increased for all three equipment types for the first time since July 2022.
The TVI reflects the change in the number of loads with a pickup date during that month; the actual index number is normalized each month to accommodate any new data sources without distortion. A baseline of 100 equals the number of loads moved in January 2015.
A hefty 42% of procurement leaders say the biggest threat to their future success is supply disruptions—such as natural disasters and transportation issues—a Gartner survey shows.
The survey, conducted from June through July 2024 among 258 sourcing and procurement leaders, was designed to help chief procurement officers (CPOs) understand and prioritize the most significant risks that could impede procurement operations, and what actions can be taken to manage them effectively.
"CPOs’ concerns about supply disruptions reflect the often unpredictable nature and potentially existential impacts of these events," Andrea Greenwald, Senior Director Analyst in Gartner’s Supply Chain practice, said in a release. "They are coming to understand that the reactive measures they have employed to manage risks over the past four years will not be sufficient for the next four.”
Following supply disruptions at #1, the survey showed that the second biggest threat to procurement is seen as macroeconomic factors, which include economic downturns, inflation, and other economic factors. While more predictable, those variables can substantially influence long-term procurement strategies.
And the third-most serious perceived risk was geopolitical issues, including tariffs and regulatory changes, and compliance issues, including regulatory and contractual risks.
In addition, the survey also revealed that “leading organizations” are 2.2 times more likely to view energy availability and cost as a top risk; indicating a focus on future emerging risks. As electrification drives demand for power, brittle grid infrastructure raises concern about whether the energy supply can keep pace. Therefore, leading organizations recognize that access to energy will become a significant future risk.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
While the overall commercial real estate industry is under duress with banks and other lenders seizing control of distressed commercial properties at the highest rate in 10 years, there are signs of recovery in the industrial market. Supply is abating, and demand and rental rates are increasing in most U.S. markets. Leading this rebound is the logistics sector which, by and large, has avoided the worst fallout brought about by high interest rates and economic uncertainties.
On the financing front as interest rates stabilize, investors who have been sitting on mountains of cash are starting to spend their money, and the logistics sector continues to be the favored sector of commercial real estate. By contrast, lending volumes across most other real estate assets, especially the ailing office market, have dropped significantly. Rental rate growth in the warehousing sector has also remained relatively strong, adding to its appeal for investors. While more modest than last year’s 20.6% jump in warehouse rental rates, this year’s increase is projected by BizCosts.com to be 7.9%, translating into a national average asking rate of $10.49 per square foot.
New leases, new construction, and improved financials by several key logistics players are clear signs that the warehousing sector is well in the lead of the industrial real estate comeback. Here are some key logistics players and what they are doing to signal that warehousing’s rebound is well underway.
Amazon is back in the market in a major way and is again buying and leasing warehousing properties after undertaking a pause in expansion over the past 18 months. The e-commerce giant has leased, bought, or announced plans for some 20 million square feet of new warehouse space in the U.S. this year, including deals for two distribution warehouses of 1.0 million square feet each in California’s Inland Empire, where vacancy has been on the rise.
Walmart, now the nation’s largest grocer, is constructing a series of new high-tech warehouses around the country as part of a strategy to grow and make its online grocery business more efficient using robotics. Store pickup of groceries and home delivery drove the company’s 22% e-commerce gains in the U.S. during its latest quarter.
Prologis—the San Francisco-based developer—serves as another indicator that warehouse demand is on the upswing. The world’s largest warehouse operator has increased its financial outlook for the year on the heels of a surge in new leasing activity, including major deals with Home Depot and with Amazon.
Warehousing growth sectors
While demand in general is up for warehouses and distribution centers, there are two notable growth areas: the pharmaceutical industry and retail and office conversions.
The pharmaceutical industry is experiencing a major increase in the approval of cell and gene therapies, which require an entirely new level of control and speed in shipment and storage. Many of these therapies have a shorter lifecycle than traditional pharmaceuticals and require a controlled environment to protect them from temperature fluctuations, humidity, light exposure, and contamination.
Today, about one-third of all pharmaceuticals are transported by air, and that amount is on the upswing. This trend is not going unnoticed by warehouse developers, who are planning new and expanded logistics parks serving the aviation and pharmaceutical sectors. In Southern New Jersey, the Los Angeles-based Industrial Realty Group is breaking ground on a 3.5-million-square-foot logistics park next to the Atlantic City International Airport with great demand expected to come from the hundreds of major pharmaceutical companies operating in New Jersey and Eastern Pennsylvania. Similarly, in North Carolina, the state recently allotted $350 million of taxpayer funds to the NC TransPark in Kinston. This facility is planned to complement the state’s huge $41.8 billion pharmaceutical industry, which relies heavily on climate-controlled warehousing and air transport.
Other high-growth warehousing sectors include retail and corporate campus conversions. In particular, former regional mall sites and outdated suburban office parks are being redeveloped into warehouse facilities, leveraging their good highway access and shovel-readiness in terms of utilities and site preparation.
Corporate campus conversions are being seen in states with transitioning economies. For example, many of the pharmaceutical companies located in Connecticut have migrated to New Jersey or the Carolinas. Their former signature corporate sites—like Bristol Myers Squibb’s campus in Wallingford and Sanofi’s research and development center in Meriden—are now slated for major warehouse conversions.
Geographic shifts
Source: BizCosts.com, 2024
Another key trend affecting the warehousing market is a geographic shift in terms of where companies are looking to locate new facilities.
For example, companies, job creators, and wealth are continuing to exit California at record levels due to the state’s high taxes and difficult regulatory climate—all of which have an especially big impact the warehousing sector. The state’s new $20 minimum wage for fast-food workers is only the latest bill to create challenges for warehousing operators, who are being forced to increase wages and benefits to remain competitive. Regulators fined Amazon nearly $6 million under California’s Warehouse Quotas Law for failing to give written notices to its warehouse workers of any productivity quotas that apply to them, as well as explanations of any discipline they may face in failing to meet them.
California’s difficult business climate along with a significant shift of cargo back to West Coast ports due to disruptions from the Suez Canal and Panama Canal is generating a high level of interest in alternative warehouse locations in the Western United States.
A 2024 Boyd Co. site selection report identified a series of top warehouse sites in 11 Western states. Selected locations are smaller market cities on or proximate to major interstate highways, which have attractive industrial sites and a precedent for successful warehouse operations. Annual operating costs for these 20 Western cities are ranked in the Figure 1 and range from a high of $15.6 million in Otay Mesa, California, near San Diego, to a low of $12.3 million in Minden, Nevada. Minden is a popular landing spot near Lake Tahoe for companies leaving California’s costly Bay Area that has prime, shovel-ready warehouse sites.
Another geographic shift involves responding to the rise in nearshoring, as companies from around the globe move their operations closer to the U.S. to minimize extended supply chain risks. Mexico has become the top destination for nearshoring, and, for the first time in more than 20 years, has passed China as the leading importer of goods into the United States. Nuevo León, bordering Central Texas, has become the leading destination in Mexico for nearshoring. The state has attracted some $50 billion during the past year in new manufacturing investment, most near its capital of Monterrey.
The SH 130 Corridor in Central Texas—which links the high-growth Austin and San Antonio markets with Monterrey via superior highway and rail access—houses one of the hottest logistics markets in the country. Texas’ State Highway 130 was built as a high-speed alternative to I-35—one of the most congested interstates in the U.S. and notorious within the logistics community for heavy traffic, frequent accidents, and costly delays. Central Texas counties served by SH 130 are attracting significant new warehouse investment spurred by nearshoring as well as by demand generated by massive new investments by Tesla’s Gigafactory and numerous other new plant startups in the region.
These geographic shifts and developing growth markets are indicative of the dynamic and constantly evolving nature of the warehousing market. The sector’s strategic responses to nearshoring, regulatory pressures, and economic uncertainties are setting the stage for continued growth and transformation. Investors and industry stakeholders alike would be wise to keep a close eye on the market.
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Peter Weill of MIT tells the audience at the IFS Unleashed user conference about the benefits of being a "real-time business."
These "real-time businesses," according to Weill, use trusted, real-time data to enable people and systems to make real-time decisions. By adopting that strategy, these companies gain three major capabilities:
Increased business agility without needing a change management program to implement it;
Seamless digital customer journeys via self-service, automated, or assisted multiproduct, multichannel experiences; and
Thoughtful employee experiences enabled by technology empowered teams.
The benefits of this real-time focus are significant, according to Weill. In a study with Insight Partners, he found that those companies that were best-in-class at implementing automated processes and real-time decision-making had more than 50% higher revenue growth and net margins than their peers.
Nor is adopting a real-time data stance restricted to just digital or tech-native businesses. Rather, Weill said that it can produce successful results for any companies that can apply the approach better than their immediate competitors.
Weill's remarks came today during a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI" at at the “IFS Unleashed” show in Orlando, Florida.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modeling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”