State of Logistics 2024: Waiting for the tide to turn

Logistics professionals are receiving praise for navigating waters during a period when “no tide table seems reliable,” the 35th Annual State of Logistics (SoL) Report concludes. “Logistics executives and policymakers must simultaneously respond to upward and downward forces—to relatively high inflation and interest rates—and also to the reality that demand has not yet fully recovered.”

The latest SoL report was unveiled at the National Press Club in Washington, D.C., on June 18. It’s produced annually for the Council of Supply Chain Management Professionals (CSCMP) by global consulting firm Kearney and presented by leading third-party supply chain provider Penske Logistics.

The influential annual report offers a snapshot of the American economy via the lens of the logistics sector and its role in overall supply chains. The report concludes that “uncertainty is now a near constant” in the global economy.

By the numbers

Total U.S. business logistics costs for 2023 were $2.374 trillion. While that number seems high, it actually represents an 11.2% drop in total logistics costs from 2022. U.S. business costs accounted for just 8.7% of gross domestic product (GDP) last year, compared with 9.1% in 2022. By way of comparison, in the final year of regulated trucking in 1979, total logistics costs were nearly 20% of GDP.

Shippers should prepare for more volatility the rest of this year and into 2025, the report concludes. “Further diversification of the carrier market and reduced volume growth is likely to generate pressure on pricing—and open up additional opportunities for shippers to lock in low rates and enhance productivity,” the report adds.

Today’s soft market represents a chance for shippers to lock in low rates and strengthen relationships with their carriers on a non-transactional basis. “We don’t expect to see any sort of rate increases until well into the second half of this year,” says Josh Brogan, a partner with Kearney and a main author of the report.

That’s the 30,000-foot view of today’s logistics markets according to this year’s SoL. And as Logistics Management has done over the years, we’ve fully digested the latest report and have broken down its key components with some must-knows for shippers. Let’s take a deeper dive into what’s driving logistics in 2024 and beyond.

The USBLC decreased 11.2% YoY between 2022 and 2023

Overview of 2024 USBLC figures ($ billion)

Source: Kearney analysis

Slackening demand

The global economy is expected to see just 2.5% growth this year, down from 2.7% last year. Military conflicts, global instability, persistently high interest rates and stubborn inflationary pressures are all taking their toll on worldwide spending. Climate change is another drag, as historically low water levels resulted in Panama Canal crossings dropping by one-third last year.

“This array of macroeconomic, geopolitical, and climatic stressors influenced demand and capacity,” the report says. This “slackness of demand” has coincided with ongoing overcapacity in the market. “These twin dynamics have contributed to lower cargo rates, though we anticipate both a tightening of capacity and a potential upturn in rates by the second half of this year,” the report predicts.

Inventory levels remain high by historical standards, but they’ve “begun to level off a bit after years of sharp increases,” the report says. “There’s no denying that most freight haulers are in a tight spot, with profits beginning to decline substantially.”

E-commerce sales and e-commerce as a percentage of retail

These conditions will result in some shakeout in the marketplace. “Some thinning of the herd has begun,” the report says, referring to last August’s collapse and cessation of operations of Yellow Corp., the nation’s second-largest less-than-truckload (LTL) carrier and 13th biggest overall. The report called 100-year-old Yellow “a mainstay LTL carrier.”

As proof of slack demand, trucking revenue fell 8.6% last year. The nation’s most popular freight mode saw its overall revenue drop to $931.7 million, down from $1.019 billion in 2022.

Near-shoring a bright spot

Near-shoring—the strategy of moving manufacturing plants closer to customers, usually Mexico instead of the Far East—is increasing due to shattered supply chains during the pandemic.

“Shippers are adapting,” says Kearney’s Brogan. “There’s volatility in logistics that’s just endemic to supply chains.”

Despite some headwinds, reshoring and nearshoring continue to gain broader acceptance, with U.S. imports from 14 Asian low-cost countries and regions declining by approximately 14% from 2022 to 2023. Last year, Mexico surpassed mainland China as the largest exporter to the United States.

“Overall, global trade fragmentation will persist as geopolitical instability continues to darken the economic picture and complicate the investment calculus for companies and governments alike,” the report concludes.

According to the SoL authors, this instability will continue to manifest in several areas. “Continued uncertainty in China’s economy; mercurial shifts in Sino-American relations; the prospect of additional global economic fragmentation; a further spike in nationalism and protectionism,; an increase in military tensions or outright conflict; and the potential implications of the global election super-cycle, in which nations comprising a majority share of the human population are holding major elections in 2024” are all factors adding to uncertainty in the global economy.

These converging forces, say the authors, indicate that uncertainty will remain a major theme of the global economy over the next few years. “Overall, global trade fragmentation will persist as geopolitical instability continues to darken the economic picture and complicate the investment calculus.”

Building capacity through long-term contracts

The report authors also strongly suggest that shippers should be taking advantage of today’s soft market to lock in long-term contracts with their core carriers.

During last year’s fourth quarter, the report noted that 45% of new shipper contracts were for longer than six months. That’s up from 27% in 2022. Since they’re protected from seasonal spot rate changes, these long-term agreements allow shippers to increase capacity at more predictable pricing.

Companies should look to build capacity through an increasingly potent array of technological solutions, the report recommends. Digital platforms such as Freightos and Flexport connect shippers, forwarders and airlines to help ensure more seamless communication and booking.

“The uncertainties in both demand and capacity will continue to confront shippers and carriers with significant challenges and some hard choices,” the report concludes. “Shippers should consider signing long-term air capacity contracts today.” Several big shippers have already lowered transit time constraints. Increased demand from Chinese e-commerce companies may make airfreight seasonality less predictable in the future. However, investment in technologies such as market monitors and digital compliance tools will help shippers stay on top of market trends and savings opportunities, the report recommends.

“For the time being, the advantage still resides with the shippers, which now have an opportunity to lock in lower rates, diversify and reset their carrier portfolios and otherwise boost their logistics resilience,” the report advises.

During the media preview of the SoL, Ron Marotta, vice president with Yusen Logistics International Division, said that shippers are not waiting: “Companies are clearly moving up to tackle potential issues. Shippers are well-schooled not to wait until the last minute.”

Cracking the 4PL code

According to the report authors, some of the largest manufacturers and retailers are seeking to monetize their own logistics capabilities, while viewing their supply chain successes as a service from which to market and profit—a move that continues to blur the traditional distinction between shippers and traditional 3PLs and brokers.

Some of the latter are even adapting by offering asset-heavy services such as truck fleet management or drop trailers. However, this movement is not so advanced as to give shippers their long-sought “4PL ideal” of end-to-end supply chain management. That would require more capitalization of advanced technologies to enable such coordination.

While no company has totally cracked the 4PL code, one is coming close. Amazon, the report says, is making some very interesting moves toward rewiring their supply networks. “Those trailblazers are doing something very smart: looking at their logistical functions as a whole and redesigning them with an eye not only toward cost reduction, but also the unleashing of capacity,” the report concludes. “Not many companies are at this level of innovation, but more are
getting there.

SoL conclusion

Shippers are getting wiser, more collaborative and have many more technological tools at their disposal. But they should be doing more to build longer-term contracts with their key carriers to lock in today’s advantageous rates.

Investments in emerging technologies, such as artificial intelligence, end-to-end visibility and advanced automation are expected to drive competitive advantage and greater resilience to future disruption in the logistics sector. Because if there’s anything that can be concluded from the last five years it’s that there’s no certainty in anything anymore. Global conflicts spread into the logistics arena quickly. Nimbleness is not just an asset any longer—it’s a requirement.

“Business changes, events change and you need to be able to change and move procedures and processes,” adds Yusan’s Marotta. “Priorities change depending on what customers want.

Go in depth with 2024 State of Logistics by mode. 

• Truckload
• Less than Truckload (LTL)
• Rail/Intermodal
• Ocean Freight
• Air Cargo
• Third Party Logistics (3PL)