As we approach the peak shipping season of 2023, the trucking industry is facing a new set of challenges and expectations. Experts are forecasting a modest peak season this year, citing a variety of factors, including shifting consumer preferences, inventory trends, and the ongoing effects of the COVID-19 pandemic. In this article, we will delve into the insights provided by industry leaders and explore the key reasons behind the anticipated lackluster peak season.
The Shift from Goods to Services:
One of the most significant factors contributing to the trucking industry’s current landscape is the shift from goods to services. During the height of the pandemic, consumer spending heavily favored goods as people stayed home and limited their activities. However, as the world reopens, we are witnessing a resurgence in services such as concerts, vacations, and dining out.
American Trucking Association’s Chief Economist Bob Costello points out that this shift has impacted freight markets, causing what he describes as a “freight recession.” While the broader macroeconomy remains robust, the freight market, including truck freight, has struggled to regain its footing. The increased consumer spending on services has redirected funds away from the purchase of goods, impacting the demand for trucking services.
Inventory Trends and Backlogs:
The Uber Freight Q3 Market Update and Outlook Report highlights a year-over-year increase in durable goods spending, which temporarily boosted goods spending in Q2. However, the report also forecasts weakness in the coming months due to backlogs and new orders from manufacturers. Retail and wholesale inventories, excluding the automotive sector, have decreased year-over-year, but wholesale durable goods inventories remain high relative to sales.
Avery Vise of FTR Transportation Intelligence adds that wholesale inventories are currently at their highest level relative to sales since the Great Recession. The excess inventory, coupled with potential headwinds like the restarting of student loan repayments, poses challenges for the industry.
Growth in Retail Inventory Replenishments:
Despite these challenges, there is hope that an increase in retail inventory replenishments could boost freight demand. Retail inventory levels have improved this year due to destocking efforts, particularly in the general merchandise sector. Retail inventory levels have essentially normalized, but the same cannot be said for wholesale inventories.
Paul Bingham of S&P Global Market Intelligence notes that demand for shipping services depends on various factors and consumer spending has remained resilient. However, inflation has caused nominal growth to outpace real shipments, creating a complex landscape for shippers and carriers alike.
Shifting Perspectives on Revenue Growth:
The BlueGrace Logistics Confidence Index reveals a shift in shippers’ perspectives on revenue growth. While 64% of shippers were optimistic about revenue growth during the fourth quarter compared to 83% in the previous year, there has been a slight increase from the previous quarter. Jason Lockard of BlueGrace Logistics suggests that this shift indicates a move towards a more neutral outlook on revenue.
As we prepare for the peak shipping season of 2023, it’s evident that the trucking industry is navigating through a period of change and adjustment. The shift from goods to services, coupled with inventory challenges and inflation, has created a complex operating environment. While experts anticipate a modest peak season, the resilience of the industry and shifting perspectives on revenue growth suggest that opportunities for growth and adaptation remain.
In this dynamic landscape, trucking companies will need to stay agile, monitor consumer trends closely, and collaborate effectively with their partners to successfully navigate the challenges and capitalize on the opportunities presented by the 2023 peak season and beyond.