The past year has certainly been a challenging one for the transportation sector. Many companies have been hit hard by the freight recession as evidenced by the high-profile bankruptcies of trucking company Yellow and digital freight brokerage Convoy. In this exclusive discussion, four logistics and transportation executives address the current slowdowns in shipping, how inflation is affecting investments, and what they see is needed in infrastructure and legislation for improving our transportation systems.
Participants include: Rob Haddock, advisor consultant with the consulting company Albedo Logistics Solutions; Mitch Luciano, chief executive officer of freight service company Trailer Bridge; Allan Miner, chief executive officer of third-party logistics provider CT Logistics; and Chad Provencher, vice president of sales and strategic development for TranzAct Technologies Inc.
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Q: What is the current state of the logistics market in which you serve?
Rob Haddock: The U.S. domestic truckload ground transportation market remains the softest I have seen since pre-ELD [electronic logging devices], as American consumers almost overnight transitioned their spending from goods to services, which require fewer trucks. The strong demand for goods due to the pandemic, partially funded by government stimulus, drove up the demand for transportation. Each shipper experienced their own levels of payload density degradation, with some seeing as little as a 5% decline, while others were shipping half truckloads just to get the product onto a customer’s shelf. As supply eventually caught up in late 2022 and early 2023, shipment payload levels improved at the same time consumers were ready to hit the road and travel. The result has been a significant swing in supply exceeding demand.
Mitch Luciano: We are currently in a tough logistics market with an imbalance of capacity and freight significantly impacting rates. The market is being driven by service—everyone’s rates are pretty much the same, so the differentiator is your commitment to service. It really comes down to how you have showed up for your customers throughout the COVID years. Did you provide excellent service? Do you have a strong relationship with your customer? How you have served your customers in the past few years is definitely influencing your success today.
Allan Miner: Shippers need to expand their carrier base, due to reduced LTL [less-than-truckload] and TL [truckload] capacity in North America because of mergers and acquisitions, whereby redundancy is being looked at for elimination of unprofitable lanes and segments for those regional LTL and TL carriers.
Chad Provencher: The logistics market has been lingering in a state where supply exceeds demand in most areas. We saw demand spike during the pandemic and then recede to normal levels while the expanded capacity continued to be available and put downward pressure on rates. The LTL market has been an exception due to the loss of capacity, which has impacted some areas more than others and resulted in a variety of outcomes. Predictions that rates would rise around the summer of 2023 came and went, and we’re now seeing estimates that a rebound will take place around the summer of 2024.
Q: Has recent spending on infrastructure improved supply chains?
Chad Provencher: So far, we haven’t seen any major impact from infrastructure investment. We see this largely as a preventative measure that will make major disruptions less likely in the future. In the short term, it could lead to increased competition for drivers as hiring for construction increases. The biggest possible change could come from the $7.5 billion allocation for building out a national electric vehicle infrastructure. While this probably wouldn’t impact freight patterns much, it could spur adoption of electric trucks and convert fuel surcharges to a more stable energy surcharge.
Allan Miner: Improvement in the technology and capacity of U.S. ports on all coasts has enabled the operations to absorb the increasing seasonal volumes of imports and exports.
Rob Haddock: Honestly, I am still waiting to see any results from infrastructure spending as the ATRI [American Transportation Research Institute] Top 100 bottlenecks are unchanged and the cost to the economy continues to rise. I was fortunate enough to be part of different state advisory shipper groups, and they are struggling with how to get ahead of the growing populations, especially in the southeastern states. I have been asked repeatedly about whether the ATRI report is reviewed by those allocating the infrastructure funds to ensure money is channeled to the pinch points most in need, and I am still waiting for a response.
Mitch Luciano: Infrastructure spending related to roadway improvement is essential. Another area that we’ve seen a direct positive impact from is deep-water ports. Here in Jacksonville, Florida, we’ve experienced this first hand where funding has supported the deepening of our waterway, allowing for more cargo to flow through the ports and creating opportunity for our business.
Q: What is the biggest single factor stifling potential growth in transportation markets?
Mitch Luciano: Right now, the biggest single factor impacting growth within our industry—and really in our world in general—are the current interest rates. Our customers aren’t able to get the funding needed to invest in their business because the cost is too high.
Chad Provencher: The downward pressure on rates is a major factor preventing growth. This climate contributed to the collapse of companies such as Yellow and Convoy. Given these conditions, fewer investments are being made from outside.
Rob Haddock: Fragmentation and the immense scale of the $800 billion U.S. transportation market are monumental factors slowing the efficiency and growth of the transportation ecosystem. The market is basic supply versus demand and currently there is an abundance of supply even with the inefficiencies of dwell time and empty miles. Over the next decade, as more drivers age out of the industry and fewer drivers enroll to offset their departure, the ecosystem will have no choice but to either achieve greater efficiencies or face the greater demand than supply cost and service implications.
Allan Miner: U.S. consumers and firms are weary of investing in new tractor, trailers, and warehouses because sentiment and demand are at a 5-year low. Thus, no positive return on investment for the cost to deploy new transportation assets.
Q: Is artificial intelligence impacting your supply chain processes, and if so, how is it being applied?
Rob Haddock: It’s the next hype, or buzz for the industry. … Currently AI is all talk, and I’ve yet to see a use case benefiting the management of transportation. What if there was a supply chain “Jarvis”? Some leaders of the transportation team could interact with it to gain knowledge versus today’s data mining expeditions. We as a culture ask “Alexa” or “Siri” questions all day long enriching our minds on senseless fun facts. What if we had a logistics assistant whose task was to perpetually make us smarter? Can’t wait for the future to get here.
Allan Miner: Yes, we are using AI to help provide direction to our IT software platform so we can meet the needs of the specific vertical marketplaces as required and requested from our clients.
Mitch Luciano: AI is here to stay—how it impacts our industry is still to be seen. We are in the beginning stages of knowing how AI supports our logistics operations. One example we have seen is the ability of the technology to assess where a driver is and then suggest the next load based on their location, driver requirements, hours of availability, etc.
Q: What pending or needed legislation would you like to see passed to benefit your area of transportation?
Chad Provencher: In general, legislation that enhances the safety of supply chains can have a positive impact in multiple ways, such as preventing disruptions and keeping insurance costs in check. Since logistics is a highly competitive industry where customers can easily change providers to find better rates, it’s important that legislation be used to impose safety standards across the board. At the same time, excessive legislation could be damaging, especially in the current market.
Allan Miner: HOS (hours of service) rules and regulations are negatively impacting the productivity of the tractor, trailer, and over-the-road driver capacity. Expand the HOS to allow for more pickups and deliveries in a given week with one driver.
Rob Haddock: My asking would be that the U.S. and state departments of transportation (DOTs) begin to collaborate to face the growing issues with congestion. Based on 2021’s data, congestion’s cost to the U.S. economy was at almost $100 billion. That is about 12% of the overall $800 billion in U.S. transportation spend. Can we start with the top 10 worst bottlenecks, figure out what they are currently costing the U.S. consumer, and take some of the infrastructure funding and clean up the mess?
Q: What will it take to return to a more balanced transportation market in 2024?
Rob Haddock: A correction is imminent. Consumers will eventually return to goods consumption, although the level of consumer debt is concerning. In the short term, carrier bankruptcies will continue to rise as many who entered the market in pursuit of riches will exit, returning the number of operating authorities to pre-pandemic levels. Both shippers and carriers know a correction is on the horizon, and I would advocate that now is the time for all parties to review their current technologies and figure out how to close any people and process gaps with enabling technology. “Balance” may be a Utopian vision, although I would agree that less dramatic peaks and valleys should be the ultimate goal of the industry.
Mitch Luciano: Lower interest rates and domestic oil production.
Chad Provencher: Economic growth could help capacity catch up with demand and the market to become balanced again. Alternatively, companies exiting the market could achieve that balance. In the truckload market, the large number of players add a high level of variability, and many of these are staying around longer than expected, likely due to high earnings during the pandemic. Other areas, such as the LTL market, operate with more stability and predictability. We’ll be watching closely as the industry continues to issue surprises.
