Tight capacity and service disruptions have some shippers rethinking their mix of air and surface modes. Analytics is helping them make the right decisions.
Several key themes that have characterized the airfreight industry in recent years reappeared in 2014 as the cargo sector confronted the challenges posed by the combination of growing capacity and shrinking demand.
Air carriers and freight forwarders did get a temporary respite from those difficulties at the end of the year, when they were able to pass along rate increases during the peak season. These increases were supported not only by traditional seasonal demand, but also, at least in the United States, by unexpected demand from importers and exporters that had been negatively impacted when U.S. West Coast ports experienced congestion and work slowdowns.
Since the recession began nearly a decade ago, many shippers have taken great pains to reduce or even eliminate their spending on air transportation—undoubtedly one reason air cargo's share of trade has dropped. (See Figure 1.) Does this mean we are about to see a new chapter in the use of air freight, in which volumes decline significantly and permanently? Probably not. In fact, now that the West Coast port situation is returning to normal, shippers are taking a fresh look at the role air freight plays in their global supply chains, and many have rediscovered the strategic value of air shipments.
Here are three factors that are leading some shippers to reconsider their use of air transportation:
Inventory reduction. The opportunity to reduce inventory and related holding costs is an obvious benefit of the shorter lead times and increased service reliability that air freight offers. For example, when inventory costs are taken into consideration, air freight can actually be the low-cost decision for perishable or high-value products.
More shippers are recognizing this opportunity and are factoring it into their mode-selection decisions. Unfortunately, many still optimize their transportation costs within the silo of a transportation budget, without having visibility of the total cost of ownership of their products. As a result, they often base their decision on freight costs alone and overlook the true total cost of using air rather than surface modes.
Flexibility. Shippers want more flexibility because it allows them to position their products in the right location from the beginning, a capability that is key to promoting inventory reduction. Moreover, as demand data become more granular and real-time, having the ability to defer decisions about inventory quantity and physical placement until closer to the time of consumption creates a business advantage. Air freight's flexibility, speed, and shorter lead times help to make all this possible. This has many shippers rethinking mode-selection strategies that predate the arrival of social media.
Networks in place, just in case. A third aspect of air transportation that shippers are rediscovering is the value of having an air network in place for contingencies. Many shippers that had a "zero-tolerance" policy that forbade air shipments on the grounds that they were too expensive had to scramble to get air capacity in the fourth quarter of last year, when capacity was unusually tight and their usual modes of transportation were unavailable or insufficient. Some of those shippers are now rebuilding their relationships with air carriers and freight forwarders—something they'll need if they're to be prepared with alternative transportation options when faced with another disruption to their global supply chains.
Analytics support more informed choices
Advanced modeling tools have been used for decades to identify the best location for supply chain nodes. Now similar tools are available to help shippers develop an optimized logistics strategy. This includes factoring the total cost of ownership into selection strategies for air and surface modes.
Shippers are becoming more sophisticated about using such analytics to influence their mode-selection strategies and execute them in real time. Indeed, analytics has changed the way many shippers view the way they manage their relationships with transportation service providers. Rather than relying on simple lane-rate negotiations every few years, for instance, they are now leveraging their freight forwarders' abilities to find synergies across modes. For example, some that are using global air forwarders also use the same providers for ocean forwarding and warehousing services within the same geographical theaters. In doing so, they are able to work with their freight forwarders to optimize their supply chains through complex strategies like merge-in-transit, deferring ownership of components later in the value chain, and so forth. Shippers are also using optimization technology to collaboratively identify mode-shift opportunities with their carrier and forwarder base. Negotiating multiple modes simultaneously increases the complexity of negotiations, but it also creates opportunities for step-change reductions in total cost.
Leaders in transportation execution are applying analytics in their day-to-day management of global freight flows. Many have designed more advanced metrics dashboards that enable real-time decision making across their supply chains. These metrics are more and more often cross-functional, and they allow decision makers to see the total impact of those metrics on cost and capital. In addition, transportation management systems (TMS) increasingly are being used across modes and geographies. When set up properly, this automates decision making and ensures greater adoption of proper mode-selection strategies.
These trends are unlikely to shake up the fundamental misalignment between supply and demand in the air transportation industry, as air freight will always be multiple times as expensive as the alternative modes. However, as more shippers evaluate total cost impacts across the supply chain, they are seeing value in air freight that they may have overlooked in the past. This trend will drive incremental demand for air cargo services while increasing the efficiency of supply chains.
That result came from the company’s “GEP Global Supply Chain Volatility Index,” an indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses. The October index number was -0.39, which was up only slightly from its level of -0.43 in September.
Researchers found a steep rise in slack across North American supply chains due to declining factory activity in the U.S. In fact, purchasing managers at U.S. manufacturers made their strongest cutbacks to buying volumes in nearly a year and a half, indicating that factories in the world's largest economy are preparing for lower production volumes, GEP said.
Elsewhere, suppliers feeding Asia also reported spare capacity in October, albeit to a lesser degree than seen in Western markets. Europe's industrial plight remained a key feature of the data in October, as vendor capacity was significantly underutilized, reflecting a continuation of subdued demand in key manufacturing hubs across the continent.
"We're in a buyers' market. October is the fourth straight month that suppliers worldwide reported spare capacity, with notable contractions in factory demand across North America and Europe, underscoring the challenging outlook for Western manufacturers," Todd Bremer, vice president, GEP, said in a release. "President-elect Trump inherits U.S. manufacturers with plenty of spare capacity while in contrast, China's modest rebound and strong expansion in India demonstrate greater resilience in Asia."
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.
Amid unprecedented challenges, the 2024 State of Logistics Report arrives at a crucial time for the global logistics industry. Now in its 35th edition, it remains a cornerstone for professionals, offering invaluable insights into a landscape marked by economic uncertainty, geopolitical instability, and the escalating impacts of climate change. For decades, this report has guided shippers, carriers, and industry leaders with clarity and strategic foresight in navigating an ever-evolving global economy.
According to the report, the balance between shippers and carriers may shift again in the coming months. Potential rate increases loom, driven by external factors like geopolitical developments and environmental concerns. In such uncertain times, comprehensive, data-driven insights are invaluable.
The report provides a detailed understanding of current market dynamics, grounded in data, expert analyses from CSCMP and Penske Logistics, and insights from leading global companies. This rich compilation helps logistics professionals plan strategies to not only weather the storm but also achieve long-term success.
A key takeaway is the contrast between carriers' challenges and shippers' opportunities. Carriers face high operating costs, weak demand, and excess capacity, increasing financial pressure. Conversely, shippers are capitalizing on lower rates and diversifying carrier relationships to enhance resilience. Some are even monetizing their logistical capabilities, turning challenges into advantages.
The report's importance is underscored by over 60 press outlets globally, garnering significant media attention from the likes of Supply Chain Xchange, DC Velocity, and The Wall Street Journal. Many noted that professionals are adapting to “permanent volatility” by leveraging technology to manage disruptions. Meanwhile, Paul Page of The Wall Street Journal notes that U.S. business logistics costs accounted for 8.7% of GDP in 2023, highlighting the industry's integral role in the economy.
At CSCMP, we take pride in releasing the State of Logistics Report, providing professionals with essential information to make informed decisions in a complex world. Our partnership with Penske Logistics and others ensures the report is comprehensive and forward-looking, offering actionable insights to drive the industry forward.
Looking ahead, challenges persist, but with the right tools, data, and strategies, the logistics industry is well-positioned to navigate this turbulent economy. The 2024 State of Logistics Report serves as both a guide and a call to action, encouraging professionals to think creatively, plan strategically, and act decisively amid uncertainty.
CSCMP remains committed to supporting our members and the broader logistics community. Through collaboration, innovation, and knowledge-sharing, we believe the industry can overcome today's challenges and seize opportunities. The future of logistics is complex, but with the right insights and leadership, it is also filled with promise.
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.