Freight Market Update: How 2023 Consumer Holiday Spending Shaped The Last Quarter

The holiday shopping season, more so than any other singular event in a year, has an outsized impact on freight flows in North America. Whether it’s the rebuilding of inventories in Q1, peak import season in Q3, or the scramble to get and keep products on shelves in Q4, a large portion of freight volumes is the direct result of preparations for and responses to holiday shopping in November and December. As the dust settles from 2023’s holiday season, we provide a freight market update to show how the spending patterns of consumers shaped freight market conditions in the previous quarter and how shippers can better prepare for the freight market in the first half of 2024 and beyond.

2023 holiday spending meets National Retail Federation’s expectations

The 2023 holiday shopping season was expected to be a return to more typical consumer spending growth following 2020 and 2021’s record-setting numbers and 2022’s pullback from consumers. The National Retail Federation (NRF) forecasted holiday spending to grow between 3% and 4% in 2023, not adjusting for inflation. Their measure of holiday spending is retail sales, as reported by the U.S. Census Bureau, excluding food service spending, automotives and parts dealers, and gasoline stations. In nominal dollars, this forecast appears to have been accurate with actual holiday spending growing 2.5% in November and 1.6% in December. However, when adjusted for inflation, the NRF’s preferred measure dropped 1.1% during the final two months of 2023.

Yet total North American freight volumes depend on much more than this narrow slice of retail, and several real, inflation-adjusted spending metrics provide reasons to be optimistic for a recovery in freight volumes in 2024. Real spending on all goods increased 3.6% year-over-year in November, a level of growth that is very close to its pre-pandemic average of 4.0%. Additionally, real retail and food service sales, excluding gasoline purchases, rose 2.1% in November and 3.3% in December over 2022 levels.

In the Breakthrough Ecosystem, freight volumes during the final quarter of 2023 remained down on a year-over-year basis but continued to trend back towards positive growth territory. Total Q4 volumes were down 4.2%, a marked improvement from Q3’s 8.3% decline. On another encouraging note, volumes among paper and packaging shippers increased 12.3% in Q4 and retail shipments, although still negative for the quarter, fell just 0.7% from year-ago levels in December. Shipments in the retail segment experienced double-digit percent declines for much of 2023.

Inventory replenishment drives an increase in freight volumes in the new year

With goods spending, in particular retail spending, remaining strong through the holidays, the need to replenish inventories could provide near-term support for freight volumes in Q1 2024. Retailers struggled with excess inventories in 2022 and it’s likely that many retailers adopted a wait-and-see approach for inventory decisions in 2023 as uncertainty surrounding consumers’ ability to spend remained high given the variety of economic headwinds impacting the U.S. economy. However, as of November, the inventory to sales ratio for retailers, excluding motor vehicles and parts dealers, remained 4.8% below the 2019 average. While December’s inventory data is not available yet, it seems likely that strong consumer spending during the holidays coupled with the slack in the retail inventory to sales ratio could result in widespread inventory replenishment in Q1. This is something we have not experienced the last 2 years, and it could provide a boost to volumes in the new year.

Some underlying macroeconomic fundamentals also support ongoing spending growth from consumers and potentially the beginning of a recovery in freight volumes in 2024. Real disposable personal income growth has remained positive for the last 11 months, with real income growth being supported by diminishing inflationary pressures. Falling inflation has also supported real wage gains, as year-over-year growth in average hourly earnings has outpaced growth in prices since May 2023, with real wage gains reaching 0.8% in December 2023. Despite this positive freight market update, consumers still face considerable headwinds from higher interest rates and the resumption of student loan repayments.

Macroeconomic conditions will play a crucial role in shaping a resilient freight strategy in 2024

Looking ahead to 2024, shippers will need to consider how the growth of e-commerce may impact their transportation needs. As of Q3 2023, the period for which data was available, e-commerce retail sales accounted for 15.6% of retail sales in the U.S. This is slightly less than the pandemic-high of 16.5% but represents a nearly 1 percentage-point increase from the same period in 2022.

Additionally, shippers should consider how new disruptions in global maritime trade may impact their inland transportation strategy. Drought conditions have resulted in low water levels in the Panama Canal, restricting the capacity of the key waterway. Typically, about 40 vessels can transit the canal each day, however, this has nearly been cut in half due to the Panama Canal Authority’s restrictions. This is particularly impactful for shippers who may have relocated imports from West Coast ports to Gulf and East Coast ports following the congestion at West Coast ports during the pandemic. Geopolitical uncertainty and conflicts in the Middle East have also made transits of the Red Sea dangerous, with many container vessels avoiding the region altogether. Rerouting vessels around the Cape of Good Hope adds a significant amount of cost to voyages, approximately 12 additional days of transit, and up to a 40% increase in emissions.

Key Strategies for an Effective Transportation Plan in 2024

Continued consumer spending will be necessary if freight volumes are to recover in 2024. The recent holiday season provides compelling evidence that consumers are beginning to reap the benefits of falling inflation and real wage gains. Although macroeconomic conditions are improving for consumers, significant headwinds persist. Additionally, recent disruptions in global trade bring new challenges this year. Shippers need to develop an agile freight strategy for changing macroeconomic conditions and global trade disruptions to execute an effective strategy in 2024.

Given the ever-changing dynamics in the freight market, leveraging a comprehensive productivity platform like Capac-ID in your logistics strategy has become increasingly crucial. Capac-ID equips you with real-time, transacted rate benchmarking, lane-specific carrier identification, and actionable recommendations to make informed decisions, enabling your team to swiftly adapt to freight market updates and maintain a competitive edge. Start the conversation today and establish a more resilient, efficient, and proactive freight network!