In 2023, ocean shippers saw ample capacity and falling rates. This year, however, that trend has reversed due to labor disruption, geopolitical issues, and rising demand.
Gary Frantz is a contributing editor for CSCMP's Supply Chain Quarterly and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
The first two-thirds of 2024 hasn’t been particularly kind to shippers, global containership operators, and U.S ports. They’ve had to deal with rebel attacks on ships transiting the Suez Canal and the Red Sea, congestion at Asia-Pacific ports such as Singapore and Malaysia, a Panama Canal slowly recovering from last year’s drought, and more recently a three-day strike at U.S. East and Gulf Coast ports.
It’s a familiar picture: a maritime market experiencing high demand while dealing with geopolitical factors that have shifted global supply chains, upended normal operations, and sucked up available capacity. As a result, rates for container shipping have been on the rise and stayed stubbornly strong most of the year.
“We are seeing the exact same playout as during the pandemic,” observes Lars Jensen, principal with maritime consultancy Vespucci Maritime. “There is an overall lack of capacity.”
Red Sea reverberations
In this case, the biggest culprit is hostilities in the Middle East, which have forced containership operators to reroute Asia-origin vessels destined for Europe and the U.S. East Coast from the Red Sea to around Africa’s Cape of Good Hope.
Because going around Africa takes longer, capacity has been tied up, and carriers have needed to add more vessels so that they can maintain schedules. To illustrate this trend, Michael Britton, head of North American ocean products for Maersk, cites one example where if the containership operator had not added two vessels to a service, it would have been up to two weeks before another voyage was offered.
“How do we respond to a requirement to add two to three vessels to a string, so we can maintain frequency of sailings?” he asks. “Where does the extra capacity come from?”
Carriers like Maersk have just two options, Britton says. They can either go to the charter market, or they can pull ships from other parts of their network to fill in the gaps. According to Britton, the charter market is limited and comes with higher fixed costs. Furthermore, these additional costs are not just for a couple of weeks or months. In today’s market, with charter rates at a premium, those vessel owners typically demand—and get—multiyear contracts for the capacity. As a result, vessel operators have mostly taken the second option of pulling ships from other routes and redeploying them into the lanes serving Asia to Europe or the U.S. East Coast.
The route changes have caused transit times to increase by anywhere from seven to 10 days to the U.S. East Coast and by 14 to 28 days or more to some locations in Europe and the Eastern Mediterranean.
Compounding the problem is the fact that cargo that once was able to move on larger ships through the Red Sea now needs to be transshipped, which is the transportation of cargo containers from one vessel to another, while in transit to its final port of discharge. Transshipping commonly happens when the cargo can't reach its final destination through a direct route. “It takes more time to handle four smaller vessels than one big [one],” Jensen notes.
Nor have the new routes been easy on the ports. There have been reports that the irregular schedules have led to what is called “ship bunching,” when multiple vessels arrive within a short time of one another.
“Adding insult to injury, nothing runs on time,” says Jensen. “That makes it exceedingly difficult to plan yard layout, which reduces port efficiency [and delays ship loading and departure].”
Maersk, for example, has seen increases in congestion and waiting times at key hub ports and some Asian ports. “It’s a networkwide challenge, not just limited to the U.S. trades,” Britton says.
Rising costs
Additional costs are piling up as well. To make up for longer transits, ship operators are running vessels at faster speeds. That’s incurring higher fuel and other operating costs, which by some estimates are as much as $1 million per string.
Then there is the issue of containers. With longer transit times, containers are taking longer to get back to origin ports. “There is no use having a weekly sailing if I don’t have boxes to release to customers,” Britton says.
With the current trade lanes and transit times, it’s taking up to 24 days or more for boxes to return. “The only way to stay ahead of that and carry the same volumes is to buy and deploy more containers,” Britton notes. “You can either do one of two [things]: invest in capacity and higher operating costs or eliminate the service. If you want transit time and port coverage, that requires investment and higher operating costs—and with that comes higher rates.”
Pulling forward
At the same time that capacity has been tight, demand has also been on the rise. According to Britton, volumes have been higher than expected due to a return to normal inventory stocking cycles and continuing strong demand from U.S. consumers. He also notes that some China-based suppliers, seeing weakness in their own domestic markets, are pushing more into export markets than projected.
Finally, the longer transit times themselves have also been contributing to the increase in demand. “It’s making [businesses] order earlier to factor in those longer leadtimes or maybe pull forward some of the traditional peak season volumes we’ve seen,” Britton says. “There is some front-loading going on.”
That aligns with what shippers have been telling Port of Los Angeles Executive Director Gene Seroka. While the conflict in the Mideast hasn’t significantly impacted his port, Seroka says shippers are telling him that they are altering their ordering and supply chain timelines to accommodate the longer transit times.
A reversal
In all, 2024 has been a reverse image of where the market was nearly a year ago. In 2023, capacity was relatively available, rates were falling, and new ships were coming online at a rapid pace, foreshadowing a capacity glut. Shippers were haggling for the lowest rates they could find.
“October to November last year, rates were lower than prepandemic,” Jensen says. “At that point in time, the industry talk was how dumb the carriers were to overorder vessels.”
But now the shoe is on the other foot, according to Seroka. “New build capacity coming out of shipyards was thought to be a concern,” he says. “It has worked out to be just the opposite because so many of the new-build ships were put into service on these longer strings.”
Without that excess capacity, the ocean carriers might not have been able to manage the Red Sea crisis. “Imagine where we would be right now [if vessel lines had not ordered ships at the rates they did],” Jensen says. “We would not be able to service the global supply chain.”
Specifically, the new global average robot density has reached a record 162 units per 10,000 employees in 2023, which is more than double the mark of 74 units measured seven years ago.
Broken into geographical regions, the European Union has a robot density of 219 units per 10,000 employees, an increase of 5.2%, with Germany, Sweden, Denmark and Slovenia in the global top ten. Next, North America’s robot density is 197 units per 10,000 employees – up 4.2%. And Asia has a robot density of 182 units per 10,000 persons employed in manufacturing - an increase of 7.6%. The economies of Korea, Singapore, mainland China and Japan are among the top ten most automated countries.
Broken into individual countries, the U.S. ranked in 10th place in 2023, with a robot density of 295 units. Higher up on the list, the top five are:
The Republic of Korea, with 1,012 robot units, showing a 5% increase on average each year since 2018 thanks to its strong electronics and automotive industries.
Singapore had 770 robot units, in part because it is a small country with a very low number of employees in the manufacturing industry, so it can reach a high robot density with a relatively small operational stock.
China took third place in 2023, surpassing Germany and Japan with a mark of 470 robot units as the nation has managed to double its robot density within four years.
Germany ranks fourth with 429 robot units for a 5% CAGR since 2018.
Japan is in fifth place with 419 robot units, showing growth of 7% on average each year from 2018 to 2023.
Third-party logistics (3PL) providers’ share of large real estate leases across the U.S. rose significantly through the third quarter of 2024 compared to the same time last year, as more retailers and wholesalers have been outsourcing their warehouse and distribution operations to 3PLs, according to a report from real estate firm CBRE.
Specifically, 3PLs’ share of bulk industrial leasing activity—covering leases of 100,000 square feet or more—rose to 34.1% through Q3 of this year from 30.6% through Q3 last year. By raw numbers, 3PLs have accounted for 498 bulk leases so far this year, up by 9% from the 457 at this time last year.
By category, 3PLs’ share of 34.1% ranked above other occupier types such as: general retail and wholesale (26.6), food and beverage (9.0), automobiles, tires, and parts (7.9), manufacturing (6.2), building materials and construction (5.6), e-commerce only (5.6), medical (2.7), and undisclosed (2.3).
On a quarterly basis, bulk leasing by 3PLs has steadily increased this year, reversing the steadily decreasing trend of 2023. CBRE pointed to three main reasons for that resurgence:
Import Flexibility. Labor disruptions, extreme weather patterns, and geopolitical uncertainty have led many companies to diversify their import locations. Using 3PLs allows for more inventory flexibility, a key component to retailer success in times of uncertainty.
Capital Allocation/Preservation. Warehousing and distribution of goods is expensive, draining capital resources for transportation costs, rent, or labor. But outsourcing to 3PLs provides companies with more flexibility to increase or decrease their inventories without any risk of signing their own lease commitments. And using a 3PL also allows companies to switch supply chain costs from capital to operational expenses.
Focus on Core Competency. Outsourcing their logistics operations to 3PLs allows companies to focus on core business competencies that drive revenue, such as product development, sales, and customer service.
Looking into the future, these same trends will continue to drive 3PL warehouse demand, CBRE said. Economic, geopolitical and supply chain uncertainty will remain prevalent in the coming quarters but will not diminish the need to effectively manage inventory levels.
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."
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.
Supply chains are subjected to constant change, and the most recent five years have forced supply chain professionals to navigate unprecedented issues, adapt to shifting demand patterns, and deal with unanticipated volatility and, to some extent, “black swan” events.
As a result, change management has become an essential capability to help improve supply chain operations, support collaboration both internally and with external partners, deploy new technology, and adapt to sometimes continually changing market pressures. Recognizing this importance, the 2025 Annual Third-Party Logistics Study (www.3PLStudy.com) took an in-depth look at change management. The majority of respondents to the study’s global survey—61% of shippers and 73% of 3PLs—reported that the need for supply chain change management is either critical or significant.
Shippers says that the biggest drivers of change in their supply chain organizations are customer demands, economic factors, and technological advancements.
2025 Annual Third-Party Logistics Study
Figure 1 above focuses on several factors that were identified as likely drivers of change in supply chains. Among shippers, the biggest drivers of change in their supply chain organizations included customer demands, economic factors, and technological advancements. Other factors included supplier considerations, societal shifts, and labor restraints. 3PL responses were similar to shippers’ except 3PLs ranked labor restraints as the fourth most important driver of change.
The study also asked respondents to identify areas in need of change. The most-identified area was supply chain visibility, cited by 69% of shippers and 68% of 3PLs. Technology, planning, and relationships also ranked highly.
Respondents also reported varying degrees of receptivity to change. About one-fourth of shippers and 3PLs said they are extremely receptive to change, while 45% of shippers and 53% of 3PLs said their organizations are moderately receptive to change.
AI underscores need for change management
Most supply chain professionals agree that the need to embrace change is likely to continue to increase. Technology is advancing rapidly, and artificial intelligence (AI) and machine learning are creating new opportunities to increase efficiency, improve decision-making, and optimize operations within the supply chain.
Among the many pertinent messages that received attention at the 2024 CSCMP EDGE Supply Chain Conference and Exhibition was that nearly every aspect of the supply chain will be involved with or impacted by AI. Example areas where significant improvements and results may be achieved include demand forecasting, inventory management, warehouse operations, predictive equipment maintenance, supplier relationship management, and more. As a result, AI may bring change to nearly every aspect of supply chain management and every level of employee.
This year’s 3PL study also focused on the growing role of AI in supply chains. Shippers and 3PLs are aligned on the top use cases for AI, with supply and demand forecasting and transportation and route optimization ranking at the top. Order management also ranked highly for both groups, while 3PLs see a slightly higher use case for warehouse automation than do shippers.
Both groups are also aligned on their view of AI as a tool that can automate data analysis, identify patterns, solve problems, and automate repetitive and mundane tasks. The hope is that AI will help companies better use their data to make improved and informed decisions. AI can process data and identify patterns and repetitive operational issues faster than a human can, which can improve forecasting, uncover inefficiencies, optimize processes, make predictions, and increase resiliency. Machine learning, a subset of AI, is expected to be especially useful for solving complex logistics problems by refining its predictions and recommendations over time to create more efficient operations.
Shippers and 3PLs agree that the greatest return on investment from AI will come from service-level improvements—cited by 40% of shippers and 37% of 3PLs—as well as data accuracy, cited by 34% of shippers and 39% of 3PLs.
Given the potential benefits of AI, shippers will increasingly be looking for 3PLs that offer AI solutions that they can use to achieve reliable results and gain a competitive advantage. Nearly three-quarters of shippers said 3PLs’ use of AI would influence their choice of a 3PL partner. On a more granular basis, 13% of shippers reported that they are very likely to switch 3PL providers based on their AI capabilities, 29% said they are likely, and 32% said they are somewhat likely to switch 3PL providers based on their AI capabilities. As demand for AI-based solutions increases, 3PL offerings will evolve, further exacerbating the change that supply chain organizations are experiencing.
Realizing benefits from change management
While the ability to manage change is critical to survival, so too is the ability to determine when change may be needed. To determine whether they need to change, companies should start by assessing their current state and opportunities for improvement. Next, they need to identify the desired state and benefits of change. To help drive success, the change management strategy should create a vision, identify solutions, and develop a plan for change.
For successful change to occur, stakeholders must work together to operate as a systematic supply chain rather than working as individuals with departmental goals that may not align. It is also critical to gain support for the change initiative among those who may be involved. Educating stakeholders about the need for change, creating a clear vision of what the change will accomplish, and outlining the benefits can help build support.
Many companies have found that using a structured change management process can reduce resistance to change, improve communication, and increase the likelihood of success. In the study, 58% of shippers and 76% of 3PLs reported using a change management framework. The two most frequently cited frameworks used by both shippers and 3PLs were the McKinsey 7-S (which identifies seven factors that influence an organization’s ability to change) and the ADKAR change management model (awareness, desire, knowledge, ability, and reinforcement). Use of an in-house proprietary system was cited by 36% of shippers and 29% of 3PLs.
The good news for those in supply chain is that key stakeholders are dedicated to minimizing disruptions, enhancing agility, and ensuring long-term success. In this year’s study, 89% of shippers reported that they are committed to the success of the broader, end-to-end (E2E) supply chain. It is clear that shippers sense a deep commitment to the broader concept of supply chain management and recognize the need to align themselves with multiple supply chain participants to create value for their end-user customers and consumers. What’s more, 64% of shippers reported that their 3PLs share this commitment to the E2E concept, and 69% indicated that some of their 3PLs are involved with their change management processes. Also encouraging is that 77% of shippers agree that their 3PLs are enthusiastic about joint efforts relating to change management.
In the complex and ever-evolving world of supply chains, change is inevitable. With effective change management practices in place, shippers and 3PLs can navigate these changes with greater confidence and turn them into opportunities for growth and improvement.