5 Freight Market Trends To Watch In 2024

After three years of disruption, we can finally say most freight market trends are approaching a pre-pandemic state with inventory levels for some retailers finding a balance and the mix of contract and spot rates returning to normal levels.

In 2024, shippers will need to be prepared to navigate notable macroeconomic changes, such as the implications of the Panama and Suez Canals, the need for partnerships due to nearshoring, and the ongoing monitoring of railways for cost-competitive transportation. Additionally, the finalization of phase 3 heavy-duty vehicle emissions standards by the EPA and concerns about interest rates and inflation will require close attention. To maintain resilience and adaptability, it will be important for shippers to closely monitor supply chain developments and freight market trends.

1. Nearshoring

In 2023, the U.S. saw a decline in imports from China, leading to Mexico and Canada becoming the largest producers of U.S. imports. Carriers looking to capitalize on the opportunity have started forming strategic alliances that connect Mexico, the U.S., and Canada. This transition has led to Laredo emerging as a crucial entry point for truckload and rail transportation between the U.S. and Mexico. With Laredo attracting increasing attention, it is important to anticipate potential congestion in 2024. Additionally, there has been a notable rise in imports from Europe, as well as several Asian countries including India, Thailand, and Vietnam, as reported by the WSJ.

2. Panama and Suez Canal

The recent disruptions in the Panama and Suez Canals have had significant global ramifications on the shipping industry, highlighting the vulnerability of our interconnected world.

The Suez Canal, accounting for about 12% of global trade, has seen major shipping lines diverting their routes due to a surge in Houthi-led attacks on cargo ships, causing an upheaval in the logistics landscape. The rerouting of shipping routes results in longer transit times and higher fuel expenses, particularly with the implementation of the EU ETS that took effect January 1, 2024.

The Panama Canal has encountered its own set of challenges. With substantial rainfall deficits, worsened by the El Niño phenomenon, water levels have significantly dropped. This has forced ships to lighten their loads and prompted the Panama Canal Authority to impose surcharges on vessels. The persistent drought has highlighted the canal's susceptibility to climate variability and raised concerns about its long-term sustainability in the face of global climate change.

3. Railways

In 2023, Class I railroads showed an improvement in service metrics year over year. Notably, the "Big 4" railways - BNSF, CSX, Union Pacific, and Norfolk Southern - achieved a 6% increase in intermodal train speeds and a significant 6% decrease in average terminal dwell time. However, as we approach the end of 2024, contract negotiations may introduce tension, as wage increases are only guaranteed through 2024 under the National Railway Labor Act.

Watching this freight market trend, Class I railways are strategically positioning themselves to enhance their competitiveness in the freight market. However, these efforts may not yield significant benefits if the mode continues to lack competitiveness compared to truckload. Therefore, it will be important for shippers to conduct a comprehensive cost-benefit analysis at the lane level to evaluate alignment with their transportation network priorities.

4. The impact of interest rates and inflation

Much like the 2023 trend, the Fed will continue to use policy tools, including adjusting the Federal Funds rate, to move inflation back down to its 2% publicly-mandated goal. According to the Federal Open Market Committee's (FOMC) economic projections in December 2023, the median appropriate fed funds rate for 2024 is projected to be 4.6%, which is roughly 75 basis points below the current target range for rates, between 5.25% and 5.5%. Although we are making progress towards achieving their goal, there is still more work that needs to be accomplished.

This will make borrowing more expensive, reduce demand for durable goods, and place additional limits on expansion for shippers. Moreover, higher interest rates will squeeze the disposable income of consumers and limit their discretionary purchases. These high costs, in turn, will likely push up prices and dampen demand for goods and services in the coming years.

5. EPA finalizes phase 3 heavy-duty vehicle emissions standards

The EPA is set to release the final phase 3 heavy-duty vehicle emissions standards in Q2 2024, with significant implications for the automotive industry. These standards will take effect from the model year 2027 and are projected to have lasting effects until 2055. According to the EPA, these standards have the potential to prevent nearly 10 billion tons of CO2 emissions across light, medium, and heavy-duty vehicles, equivalent to more than twice the total U.S. CO2 emissions in 2022. Additionally, the EPA is currently evaluating emissions standards for power plants and actively seeking ways to promote clean energy generation. It's crucial to monitor these upcoming regulations as they can greatly impact shippers' transportation networks.

The response from the automotive industry to the EPA's proposed phase 3 heavy-duty vehicle emissions standards has been mixed. While some manufacturers express concerns about the associated costs, others view it as an opportunity to invest in cleaner and more efficient vehicles.

Develop an Agile 2024 Freight Market Strategy

The New Year is sure to bring surprises, but leveraging accurate and unbiased data to anticipate the future will enhance operational visibility, optimize performance, and support agile strategies as shippers adapt to shifting freight market trends. As technology advances and data becomes more accessible, shippers must find ways to leverage data to make smarter decisions that can help them stay competitive in a constantly changing market.

Shippers that equip themselves with the right technology and transportation management partners will be best positioned to take advantage of freight capacity opportunities in 2024. Get started by exploring how you can create an agile freight strategy with Network Intelligence.

Interested in more data-driven insights for the coming year? Download our 2024 Freight Trends Report.