Our boutique approach focuses on seamlessly aligning your business objectives with tailored, expert guidance from our consultative approach. Reach out today to learn more about Managed Transportation, The Synchro Way.
Our boutique approach focuses on seamlessly aligning your business objectives with tailored, expert guidance from our consultative approach. Reach out today to learn more about Managed Transportation, The Synchro Way.
On August 6th, after 99 years in business, Yellow, one of America’s most prominent trucking firms, declared bankruptcy due to falling sales and significant debt, laying off its 30,000 staff.
The American logistics industry witnessed a surge in demand between 2020 and mid-2022, with revenues growing by approximately a third, driven by stimulus checks and the lockdown-induced focus on goods, leading to the industry hiring a million workers and constructing 1.8 billion square feet of new storage space.
A shift is occurring as consumers prefer experiential over material goods, resulting in stagnated goods spending; the logistics sector saw three consecutive quarter-on-quarter declines in revenues, with the volume of goods in American ports in July 2023 dropping 14% compared to the previous year.
The industry’s downturn has caused a drop in dry van shipping costs by 21% since early 2022, and approximately 20,000 truck operators (nearly 3% of the total) have halted operations since mid-2022; the sector has also seen significant layoffs, with parcel delivery and warehouse operators shedding almost 100,000 jobs combined.
While investments have decreased with a 40% reduction in warehouses under construction compared to a year ago, analysts remain hopeful for a rebound in the latter half of the year, anticipating growth for major players like UPS and FedEx, provided the American economy maintains its strength.
New home construction rates are often viewed as a leading indicator of flatbed truck demand. Now that the country is in the midst of a housing market correction, we foresee potentially far-reaching implications for those in the freight industry who support housing.
New housing dropped once again last month; it is now at the lowest point in over two years. In addition, heightened mortgage rates are discouraging builders-reducing the possibility of a recovery. Further, due to COVID, problems in the supply chain have also affected the housing industry.
The Federal Reserve’s decision to increase interest rates has lessened the demand for new mortgages. According to Forbes, these rate hikes have led to an average increase of $800 for monthly mortgage payments. Demand has been greatly reduced, with the sales of new homes dropping by almost 30% in 2022.
The chart below, from Freddie Mac (a government agency), demonstrates the recent spike in mortgage rates. The chart illustrates that in the last ten years mortgage rates have not risen to above 6%-until now.
What does the housing market recession mean for those in the freight industry? If a company brokers or handles directly loads that transport housing materials, and if there is less of a demand for these materials, less revenue will be generated from these products.
As seen in the chart above from DAT analytics, the flatbed load to truck ratio has fallen to its lowest level since the beginning of the pandemic. In fact, the ratio of 12 loads per truck in October 2022 is 1/4th of what it was in October 2021 – 48 loads per truck. This softening of demand means that spot rates are falling, as can be seen in the chart below.
The lack of demand for new housing shows no signs of stopping any time soon. On November 18th, the National Association of Realtors revealed that home sales have dropped for nine months straight. Sales have dropped 5.9% since September and over 28% from last November. The median sales price for a home increased to $379,100, a rate that is 6.6% higher than last year’s.
Without a robust housing market, the demand for industries connected to housing will be profoundly affected. Only time will tell when the housing market rebounds.
Odds of a US recession are now at 96% as the economy transitions to slower growth and grapples with inflation (over 8%) and rate hikes (Fed rates at ~4.71%). Even if we avoid an economy-wide recession, we believe that a freight recession (meaning negative trucking shipment volumes for two or more consecutive quarters) is highly likely.
If a freight recession is coming, it will be due to the following reasons:
While we are navigating uncertain economic times, our full-service managed transportation clients are benefiting from recent declining spot market pricing through our transparent model. Please contact customerservice@synchrogistics.com today to learn about a managed transportation partnership, the Synchro Way.
We’ve heard from people that the trucking industry is currently in a freight recession or even that one began earlier this year. A freight recession typically combines falling shipment volumes with flat to negative pricing trends. What some industry participants (particularly brokers) are likely feeling right now is the pain from a collapse in spot market pricing as a greater supply of trucks chases a more slowly growing shipment market.
While the US economy is in transition to a lower growth rate, we wouldn’t use the term “freight recession” yet for the following reasons:
Nobody is arguing that we were in a freight recession in September 2021, so if the things that drive the trucking sector – shipments, inventory levels and manufacturing – are above the same period in 2021 then you’d have to argue that we weren’t in a freight recession as of September 30, 2022. That’s not to say that we don’t have pain and dislocation in certain sectors, just that it hasn’t coalesced into a full-blown hurricane of bad news just yet. However….
Next Week: How can shipments increase but rates decrease? Check back next week for 8 Reasons Why a Freight Recession May Be Right Around the Corner
It’s an honor to join Inc 5000’s fastest growing privately held companies in America again! The Synchro team grew revenue by over 120% in 2021 and is on pace to nearly double again in 2022. Since 2019, Synchro’s compound annual growth rate (CAGR) has exceeded 50%.
For most companies, freight costs represent one of the top 3 spend categories. Synchro evaluates challenging or inefficient shipping networks then builds and executes custom, data focused solutions through deep network analysis, comprehensive RFPs, in-house automation, and optimization technology. Time again our efforts result in cost reductions and improved customer service experience through our hands-on, consultative, and performance driven approach.
Our customers include companies in food distribution, custom home flooring, automotive parts, pipe manufacturing, and construction materials.
Our Managed Transportation division welcomed three new clients in the first half of this year and is currently preparing for additional implementations this fall. With transparency from day one and rapid results, we are quickly gaining additional business across existing clients. Doubling our talent by welcoming ambitious, reliable team members to the Synchro family is the heart of our record success and trusted partnerships.
The Synchro Way focuses on transparency, dependability, and professional service available 24/7/365. We live by our promise to all partners – 2pm or 2am, you call, and we answer within 10 minutes, guaranteed.
Interested in joining our family as a new client, team member, or vendor? Please reach out for an introduction today!
Freight managed services and web-based tendering platforms are different things. While there is a place for both, a mismatch between client expectations and capabilities can lead to great frustration.
Managed transportation services is an outside team led by a dedicated account manager. The team invests time and expertise into customizing a solution to your needs. They have access to multi-disciplinary teams such as truckload, LTL, small parcel, ocean, warehousing and optimization, etc. Their compensation is tied to your organization achieving its goals. Often they will identify issues with processes that are not purely logistics – for example, Synchro has assisted clients in reducing inventory carrying costs.
A web-platform offers a low cost way to take advantage of infrastructure you may have already set up. The more customization a client needs, the less profitable that client is. The best web-platform customers have a stable carrier base and a logistics team that feels that they have already solved all major logistics issues for the company. In other words, specialized help is not needed.
Both business models coexist in the market and have their areas of greatest value. Contact Synchro today to learn more about our offering and whether it fits your needs.
Read more about Synchro’s Managed Transportation Services here: Your Synchro Solution
Synchro’s sister company achieved a major milestone recently producing 25% in LTL savings for a client in this inflationary market. Interested to learn how they did it?
Read the full case study here: LTL Rate Negotiation Sister Company Case Study
Here’s a skimpy idea – skimpflation means that you pay the same price for something but get less of it.
Think of hotels charging the same room rate but closing the breakfast buffet, or cereal companies charging the same price per box but reducing the size of the box.
Skimpflation is rampant in freight. Companies charge 50% – 100% more than a year ago yet won’t give you an update on your freight’s ETA.
Synchro is fighting skimpflation – we have increased our staff so that we can answer customer calls any time day or night. Contact our team today for a free rate analysis!
Read more here: Skimpflation: Planet Money : NPR
Happy International Women’s Day! Our resilient women account for nearly half of the team and each holds a multifaceted role with grace and vigor. While fostering a welcoming culture, we strive to do great work and be the best for our team and clients. Here’s to all the Synchro ladies!