Report looks at U.S. supply chain performance and expectations for the future 

The U.S. supply chain sector saw declines across various modes of transportation over the past year due to softening demand and higher fuel prices. At the same time, costs for storage, container rates and other financials were down, though these varied greatly by sector. 

During a presentation at the Council of Supply Chain Management Professionals (CSCMP) Edge 2024 Conference in Nashville, Tenn., in October, Josh Brogan of Kearney — which authors the report in collaboration with Penske Logistics and CSCMP — highlighted findings from the 35th annual State of Logistics Report. 

Motor carriers 

Examining the performance of transportation modes in 2023, Brogan said motor carriers saw an 8.6 per cent decrease due to softening demand and stable capacity. Spot rates for motor carriers were relatively flat in the U.S. last year, with no indications of increases until late 2024. 

Citing a Morgan Stanley index, Brogan noted that while motor freight capacity was inflated in 2023 and 2024, demand has begun to pick up in some regions, including cross-border routes between the U.S. and Mexico, driven by increased nearshoring and long-haul loads out of Pacific ports. Spot and contract rates for dry van shipping also remained low, putting pressure on carriers’ margins. 

For the first time since the COVID-19 pandemic, there was a decline in the number of carriers and brokers in the U.S., with a six per cent drop in 2023. The report indicated that about 25,000 asset-based carriers and 1,500 freight brokers exited the market last year, a trend Brogan said is continuing in 2024. 

Air freight 

Air freight was down significantly in 2023, dropping by 15.4 per cent as ocean carriers entered the air cargo market. The State of Logistics Report projects demand for air freight will increase by 4.5 per cent in 2024, while rates will remain stable. Revenues, however, are expected to decline despite rising demand, a trend attributed to stagnant international trade and shippers leveraging expanded passenger freight capacity. 

Geopolitical disruptions, including conflict in the Middle East and turmoil in ocean lanes, are pushing some shippers toward air freight. 

Rail 

Rail saw mixed results in 2023, with moderate year-over-year traffic growth of two per cent in April, though down three per cent from the same period in 2022. U.S. Class 1 railroads experienced a two per cent drop in revenue, an 11 per cent decrease in operating income, and a four per cent increase in operating ratios. 

Carload volumes rose 1.6 per cent, but intermodal volumes — often viewed as a key growth driver — dropped 5.7 per cent, reaching a three-year low. 

The outlook for 2024 is positive for rail, with dwell times decreasing by 1.8 per cent and potential cross-border expansion involving Canadian National, Union Pacific and BNSF. 

Ocean and ports 

The normalization of ocean freight rates from inflated pandemic peaks led to a 64.2 per cent drop in water expenditures. However, ongoing disruptions in various ocean lanes caused spikes in certain trading lanes throughout 2023 and into 2024. 

Discussions during the State of Logistics Report presentation turned to the U.S. East Coast port strike, which began just before the session. Ronald Marotta, vice-president of Yusen Logistics, Americas, emphasized the significant impact of port disruptions on supply chains, noting parallel strike action at the Port of Montreal. 

“Our lives are sustained by a smooth global supply chain, and I don’t think we expected dock workers to take this action,” he said, adding that each day a port shuts down requires four to five days to recover. “I hope the executive branch of the government recognizes this is not just a labour issue but a humanitarian one.” 

During the pandemic, ocean carriers saw record profits, prompting fleet expansions and an eight per cent increase in container capacity in 2023. Growth of 41 per cent is projected in 2024. 

Parcel and last-mile delivery 

In 2023, shippers turned to regional partners for multi-sourcing, with parcel volumes for major carriers dropping and overall volumes down 0.5 per cent. The U.S. e-commerce market grew by eight per cent, though at a slower pace than pre-pandemic rates. 

The “buy online, pick up in store” (BOPIS) market grew by 37 per cent, significantly contributing to the e-commerce sector. 

FedEx, UPS and the U.S. Postal Service all saw year-over-year declines, while Amazon surpassed FedEx and UPS in total deliveries for the first time. E-commerce represented 15.6 per cent of total retail sales in 2023, up from 5.9 per cent in 2013. 

Freight forwarders and 3PLs 

Freight forwarders and third-party logistics (3PL) providers will need to implement strategies to keep up with shipper demands and industry trends to maintain market share. Although the freight forwarding sector experienced a financial performance decline in Q4 2023, it is expected to grow at a rate of 5.5 per cent annually through 2032. 

Brogan said focus areas for freight forwarders and 3PLs include technology investments, new and value-added services, targeting higher margins and mergers and acquisitions. Low freight rates and excess capacity may drive consolidation, particularly among smaller 3PLs. 

Warehousing 

Vacancy rates for industrial real estate in the U.S., including warehouses, distribution centres and storage, spiked 68 per cent year-over-year by the end of 2023. Rental rates increased despite the high vacancy. 

According to Statista, a global data and business intelligence platform, Canadian warehouse rental rates were highest in B.C. at the end of 2023. Vancouver rates averaged $21.44 per square foot, followed by Victoria at $20.42. Rates in Toronto were $18.45, while Calgary’s rates stood at $11.80 per square foot. 

By Q4 2023, the U.S. had 156 million square feet of warehouse space available for sublease. An additional 610 million square feet of industrial space was built last year, contributing to record-breaking construction levels over the past four years.