What’s Ahead for Transportation & Logistics in 2023?

Growth Of the Logistics Sector In the Next 5 Years

The logistics sector of India is amongst the world’s largest and essential for the economy. As of the 2021’s fiscal, the Indian logistic market was estimated to be at USD 382 Billion and is expected to reach USD 531 Billion by the fiscal of 2026.

The following are the driving forces for the success of the logistics industry:

• Robust demand from the manufacturing, automotive, retail, and pharma industries and the need for effective improvement in the newly generated demand.
• The increasing shift of the industry preferences to integrated supply-chain services and other sophisticated solutions such as inventory optimization, data analysis of transportation, and warehousing.
• Rising eCommerce in India with the soaring demands for the specialized requirement for online delivery.

As a percentage of GDP, the Indian logistics sector's spending is higher than in developed countries like Europe and the US. It is primarily due to the high incidence of indirect expenditures. It is similar to China.

Other than the Indian logistic sector growth, the following are other predictions and trends for 2023:

New Demand For Trucks

In 2023, new truck demand will stabilize, even in uncertain markets. There remains pent-up demand from the big fleets that have not been able to replace the aging equipment in the previous years due to the pandemic, and these companies are most likely to purchase the new equipment. It will flood the used equipment market with the prices of trucks decreasing significantly.

Moreover, the portion of the price will also drop because of the bank seizures, liquidation sales of the trucks, and repossessions of the trucks will be sold a the auction prices.

Freight Rates Will Fall

The primary bottleneck of the supply chain that affected the global supply chain is currently non-existent outside of the few factors and markets and those which disappear in the initial quarter of 2023.

Purchased goods shipped at high prices can be sold before Q1 2023, and the downstream effects of the lower shipping costs will become more apparent in 2023. By this, the freight prices will fall to the pre-pandemic levels. Because of the lingering effect of inflation, the rates will not fully return to the 2019 levels regardless of the falling rates.

For instance, the Freigthos global container index shows that the rates at USD 1400 in 2020 are going back to the rates of 2017. The prices of the containers peaked in September. The prices exceeded USD 11,000 but have dropped about 80% to just over USD 2,000.

The current national rate of the dry van is about USD 2.38 per mile. However, the price per gallon of diesel was $3.06, now $4.98. This difference shows a 35 cent per mile higher cost of the drive truck with an average of 5.5 miles. As the prices of diesel and trucks continue to drop, the freight rates will also decline.

Shippers Will Reroute To East Coast and Gulf Ports

Although the total volume of the container is higher than the pre-pandemic numbers, the numbers have dropped by 21% since last year. Hence, port congestion will not be an issue anymore. However, the shippers will continue to reroute the containers, which results in the Long Beach and Los Angeles port losing their market share.

Due to the higher freight transportation costs than land, the current labor disputes with the rail workers and dockworkers also create uncertainties. Shippers see that the cost savings are associated with more miles on the ocean to get closer to the final destination.

The nearshoring to South America and Mexico and sourcing diversification from China will also reduce Southern California's ports’ market share. Moreover, the effect of California’s Assembly Bill 5 also determines whether workers are independent contractors or employees.

Ceasing Operations Of Trucking Companies

In 2019, the logistics industry saw that trucking companies were ceasing their operations due to the overly aggressive fleet expansion during the trucking boom of 2018. The numbers for 2020 to 2021 show dwarf numbers, which resulted in many closures, bankruptcies, and liquidations. The primary reason carriers are dropping out of business is the falling rates of freights; it makes it impossible to be profitable since the operating expenses are very high.

Will The Freight Market Recover?

The optimistic prediction is that the beginning of Q2 2023 will be good. However, it primarily depends on the best-case scenario for the overall recession of the US. The biggest consumer will be the primary and leading factor in the accessibility of freight in 2023, so the major recession can lead to decreased spending on consumer goods during the weak labor market, which would be catastrophic for small to midsized trucking firms.

If the overall economy goes through the soft landing and starts to recover in the coming year, the freight rates will potentially bottom out during Q1 and will be flat until the seasonal volume of Q2 rises. The rise of cloud computing and AI may boost the logistics market and allow logistics businesses to enhance their operations cost-effectively.

Conclusion

With these statistics, we can see the growth and decline of logistics and transportation business rates. It will be necessary for logistics firms to be knowledgeable of the current market trends and market movements so that they are always prepared to make the first move toward the success of the business.