Predicting the next freight cycle: A shippers’ guide to planning transportation budgets

This is an excerpt of the original article. It was written for the September-October 2023 edition of Supply Chain Management Review. The full article is available to current subscribers.

September-October 2023

Best of the best. Best in class. The elite. Whatever terminology you use to describe the top performers in industry, they all have one thing in common: Companies try to emulate them. That is not easy, of course, but honors such as the annual Gartner Supply Chain Top 25 provide a roadmap for firms hoping to reach the upper echelon. As we do each year here at Supply Chain Management Review, our September/October issue dedicates significant real estate to the Gartner Supply Chain Top 25. Why do we do this? Because our mission is to help inform you, the supply chain practitioner, in all the best ways to make your own supply chains more efficient and…

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Logistics planners want to know as much as possible about the direction of freight pricing for the next few years so companies can appropriately budget. We saw this vividly during COVID, when transportation budgets became very visible to the C-suite. Yet getting such insights was (and is) difficult, leaving planners vulnerable to firefighting and leading to serious implications.

Fortunately, historic macroeconomics give us clues about what to expect in future U.S. freight cycles. As we enter the next freight cycle, we can use directional indicators to help predict freight pricing. We analyze the factors that impacted previous supply and demand and translate them into projected macroeconomic implications.

While not exactly a crystal ball, this exercise can provide a centerline to anchor customized models around, potentially help shippers set transportation budgets and guide strategic planning for the next few years.

Macro factors that will shape the next freight cycle and pricing

We define a freight cycle as a three- to four-year rebalancing of supply and demand, with its shape impacted by macroeconomic factors and its beginning usually marked by a demand increase starting in the high-supply/low-demand phase, as illustrated in Figure 1. When we look at freight cycles, we estimate which macro factors have been responsible for freight pricing changes; recent examples include unemployment, global wars, the pandemic, inflation, recession, fuel fluctuations, labor challenges, nearshoring, driver laws and inventory levels.

What’s in store for the future? As reported in Kearney’s 2023 State of Logistics report, we expect the most impactful macro factors to be the recovery vigor from the 2023 downturn, inflation, the labor market, nearshoring, recessionary cycle and technology (that improves truck and haul efficiency).

The latest projections from Kearney’s Global Business Policy Council (GBPC) forecast a minor recession in the third and fourth quarters of 2023, but, overall, a positive 0.9% annual GDP growth. While the U.S. economy is likely to exit a minor recession in the first quarter of 2024, firm downside risks may set the stage for a bumpier landing. Inflation and the Federal Reserve’s efforts to tackle high prices, a tight labor market and geopolitical tensions all have the potential to add turbulence and recessionary pressures.

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