Expect the unexpected: what’s in store for logistics in 2023

11/09/2022 | 7 min

Author’s note: I was asked by Transporeon to look at what is happening in the European transportation market and they provided me with access to their Transporeon Insights market data for additional insights and perspective. This post is an excerpt of my comments from the October 2022 Transporeon Journal video commentary. I encourage you to watch the full video commentary for more insights about the European transportation market.

From a supply chain and logistics perspective, 2022 has proven itself to be as challenging and volatile as the previous two years. It feels like a long time since we started the year with yet another Covid-19 variant (Omicron), but not so long time since the tragic news of war breaking out between Russia and Ukraine. As the war continues today, levels of risk and uncertainty remain high.

In tandem, supply chain and logistics professionals find themselves wrestling with a weak economic environment in which growth has slowed and record inflation is impossible to escape.

Nonetheless, companies must continue to look ahead regardless of how difficult things are right now – and as they set their strategies and budgets for the next 12 months, they’re all asking the same question: “What do you think will happen next year?”

No one knows with certainty – even without global crises, the transportation market can still surprise us. However, today’s circumstances demand change as legacy inefficiencies simply become more and more expensive to hold on to.

With greater access to real-time data and information than ever, it’s easier to stay informed about what’s going on – from regulations, economic conditions, geopolitical activities, transportation and labor markets, to the competitive landscape, emerging technologies and more. So, now is a great time to make sure you’re following the sources you consider the most reliable and most informative as big decisions loom. 

Top 2023 predictions

The Russia-Ukraine war, monetary policy tightening, and continued Covid-19 outbreaks (particularly in China) contribute to predictions like these: 

“World trade is expected to…remain subdued in 2023 as multiple shocks weigh on the global economy. WTO economists now predict global merchandise trade volumes will [increase only 1.0% in 2023] — down sharply from the previous estimate of 3.4%.” Source: World Trade Organisation.

Earlier in October, CNBC reported that the International Monetary Fund predicts global growth will slow to 2.7% next year, a decrease of 0.2 percentage points compared to its July forecast.

Meanwhile, IMF Managing Director Kristalina Georgieva said, "We are experiencing a fundamental shift in the global economy, from a world of relative predictability...to a world with more fragility — greater uncertainty, higher economic volatility, geopolitical confrontations, and more frequent and devastating natural disasters."
As more scheduled sailings from Asia to the US and Europe are cancelled, Transporeon analysts summarized the impact of the slowdown in global trade growth on ocean shipping: “While contract rates on all Ex-China trades are trending downward, the battle to establish the rate level for the upcoming tender season is still ongoing and we will likely see further downward corrections.”

Experts shared the latest insights into spot and contract rates at the Transporeon Ocean Annual Conference: 

  • China-to-North Europe spot rates are below contract rates for the first time in two years
  • Spot rates from China-to-North America West Coast ports are down 85% from peak
  • Contract rates (based on Transporeon Market Intelligence) are currently down 20%

And if tough economic conditions weren’t enough to contend with, labor unrest around the world is on the rise:

  • In the US, the risk of a labor strike at the West Coast ports remains. 
  • Strikes at UK ports, Felixstowe and Liverpool, threaten imports and exports across industries during a critical ramp up in the holiday shipping season – likely to result in increased travel time of up to 14 days plus five days of ground or rail transport as Hamburg and Rotterdam pick up the fall out. 

Finally, through December 31 2022, companies from all EU countries, Norway, Ukraine, and the UK will no longer be able to transport goods through Russia by road. This regulation compounds existing delays as further time will be needed to match up European vehicles with Russian trucks and the ongoing transfer of containers between them.

What the data tells us

EU Cost Index

Let's check out Transporeon’s brand new EU Cost Index that shows the evolution of costs for trucking carriers across the 70 biggest lanes in Europe. It aggregates data into 5 clusters which represents the 5 biggest cost factors for carriers – Driver costs, Fuel & Adblue, Vehicle, Toll, and Services – and sums it up into a single index via a total-cost-of-ownership calculation model. Watch the latest episode of Transporeon Journal for a detailed look at how to get the most value from this cost index.

Tracking and analyzing the costs incurred by trucking carriers is important because in the event carrier costs go up, upward pressure is put on both spot and contract rates, and if carriers aren’t able to increase rates quickly enough to cover these increased costs and remain profitable, they will ultimately go out of business, thus reducing available capacity in the market.

What the data tells us

Capacity Index

The first half of the year saw capacity tightening each month. By June, however, we saw the market loosen a little, with the index increasing slightly in August 2022 versus the previous summer. Note that a Capacity Index reading under 100 indicates constrained conditions.

Transporeon Insights includes access to this trend indicator, and market conditions suggest capacity is more likely to open up in the months ahead (even if only a little bit) than get tighter.

What the data tells us

Spot Price Index

The Transporeon Insights Spot Price Index tracks the spot rate across 70 major lanes in Europe and weighs each lane according to its transport performance. From June through September 2022, the index decreased 4.2%, which aligns with the aforementioned softening of capacity. However, year-on-year, the index increased 13.3% in September. The corresponding Contract Price Index is explained in detail in the latest episode of Transporeon Journal – where a small increase of just 1.3% from June to September suggests contract rates are starting to level off.

What you need to succeed

I suggest a better question to ask ourselves now is:  

“Do we have what we need to respond quickly, intelligently, and effectively to whatever happens down the road?” 

Here are my top four things you will need:

  1. Transportation Management Platform, including procurement capabilities 

  2. Real-time visibility to market rates and capacity 

  3. Access to a large network of carriers, including a core set of strategic partners 

  4. Knowledgeable and experienced people 

It’s not a complete list, but it’s a good start to help you manage your transportation operations in a more intelligent, responsive, and efficient way. 

About the author

Adrian Gonzalez is a trusted advisor and leading industry analyst with more than 20 years of research experience in transportation management, logistics outsourcing, global trade management, social media, and other supply chain and logistics topics.

In addition to launching Talking Logistics, Adrian is the founder and president of Adelante SCM, a peer-to-peer learning and networking community for supply chain and logistics executives and young professionals. He is also the founder of Indago, a market research service that brings together a community of supply chain and logistics practitioners who share practical knowledge and advice with each other while giving back to charitable causes.

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