Transportation in 2019 and Beyond: Key Factors Impacting Supply and Demand

With tight capacity and rising rates dominating the headlines, 2018 certainly didn’t go as planned or expected for many shippers. As we begin 2019, what are the key lessons learned from last year, and what trends and factors should shippers keep an eye on to make sure they’re able to respond effectively to whatever happens in the transportation market in the weeks and months ahead? Those are the main questions I discussed with Steve Raetz, Director of Research and Market Intelligence at C.H. Robinson, in a recent episode of Talking Logistics.

A “new normal” in transportation?

A strong economy in late 2017 through to late 2018 drove demand to outstrip supply for transportation across truckload, LTL and intermodal, with shippers shopping across modes to cover loads. With the resulting tight capacity and rising rates, I asked Steve if this is a new normal shippers must adapt to?

Steve comments that, “At a session we did at CSCMP in October 2018, we asked that question and 81 percent of the audience felt it is a new normal. But what also came out of the session was a feeling that with new capacity now coming on-line, we should see better balance in 2019. Labor statistics show more drivers coming into the industry and the growth rate of the economy has slowed, which will start to normalize the market.”

Economic factors impacting 2019 transportation

If the market is starting to normalize, what factors should shippers consider when planning for 2019? Steve says, “The corporate tax cut and attempts to get ahead of a potential trade war were driving forces in the surge in demand in 2018, and there is still plenty of uncertainty over tariffs. There seems to be a bit of a truce right now, though, that may impact plans for the first quarter. Companies are re-examining their inventory levels and where to place inventory to best position themselves for various potential economic outcomes.

“One thing we are seeing in both the shipper and carrier communities is people are becoming more sophisticated in how they deploy technology to optimize their supply chains and get more use from existing fleets,” continues Steve. “They are better leveraging data to make decisions and there are more sophisticated conversations between shippers and carriers to deal with the economic levers.”

Other influential factors we discussed include interest rates, oil prices and consumer sentiment and buying patterns. And we can’t forget the disruptive force the rise in e-commerce has had on freight transportation, either.

The labor market

A key factor impacting the supply side of the equation is the availability of truck drivers. “An important thing to remember,” notes Steve, “is that drivers are a shared resource with warehousing, logistics, the construction industry and manufacturing. When you have all of these industries doing well, they are competing for this common labor pool. To attract drivers you have to ask: are the jobs attractive, is the pay competitive?”

“Another factor to watch is the demographics of the labor pool,” continues Steve. “As baby boomers age out of the job market, we don’t know how evenly the age range is distributed. Are there large bubbles at certain age groups? If a large bubble retires during soft economic times, we can absorb that, but during high-demand times it can create real problems.”

What to watch for in 2019

Besides labor trends, what other factors should companies watch to help discern changing supply and demand balance in 2019? Steve says high demand drove very large orders for both tractors and trailers in 2018, but that is starting to dissipate, indicating that carriers are starting to see demand slowing. He says to watch order volumes and whether any orders are being cancelled.

Steve notes another important factor to watch is the spot market, which is about 10-15 percent of the total market. Why is the spot market such a key indicator? And what other trends and indicators does Steve recommend companies keep an eye on? How do convergence and technology fit into the equation? Are we, in fact, in a new normal? Watch the full episode for answers to those questions and more. Then keep the conversation going by posting a comment and adding your own thoughts and projections for 2019.