Many logistics professionals are experiencing a somber holiday season, as the freight recession continues to rage. Despite what Reliance Partners CFO Thom Albrecht has dubbed a “brutal winter,” supply chain companies can look forward to renewed hope as the market begins to shift in the spring and summer.
“The first signs of encouragement may be around May or June 2024,” Albrecht said. “We might start to get a sense that the worst is in the rearview mirror and things are beginning to stabilize.”
Reliance tracks the number of insured drivers in the marketplace at any given time. That number has gone down 18% since hitting its peak in May 2022. If contraction continues at its current run rate, the first signs of change could begin to appear as early as March, according to Albrecht.
It is important to note, however, that this market stabilization is expected to come as a series of slow changes, not a single monumental shift. It will not be as simple as flipping a switch on the market.
While carrier contraction is one of the primary driving forces behind the coming changes, the correction of bloated inventories also plays an important role in the market. General merchandisers — including retailers like Walmart and Costco — have seen significant improvement in this area already.
“General merchandise is so important because that is a lot of replenishment freight,” Albrecht said. “Folks are going to be buying those items monthly or maybe weekly — a steady state of freight. They are probably in the best shape right now.”
Specialty retailers, like electronic or sporting goods stores, are also seeing some inventory correction, though this is happening at a slower pace. The industrial space, including building materials, is seeing the slowest inventory correction.
The industrial space may get some reprieve from excess inventory in mid-2024, as Albrecht predicts long-awaited improvements to both new housing starts and existing home sales to come during that time period.
Most of the market change in 2024 will be due to supply-side corrections, as consumers largely continue to face difficult financial situations. In the third quarter of 2023, auto loan delinquencies were up 25% year over year. During that same period, mortgage delinquencies grew 41% and credit card delinquencies rose 57%, according to Albrecht.
At the same time, savings rates are down. This is indicative of additional financial strain, which will likely prompt consumers to focus their attention on spending less in 2024. This time of reconstitution could lead to renewed spending in 2025, however.
Overall, while the change will be slow and steady, there is hope on the horizon for stressed supply chain companies.
“By the end of next year, it is going to be clear that the market is in a much better place,” Albrecht said.
