Supply Chain Outlook

2023 Through the Lens of Logistics Leaders

Looking Forward After an Age of Adaptation

Accommodating the shifting dynamics of supply chain disruptions over the last few years has required the industry to adapt and remain flexible with the uncertainty of what will come next. With unprecedented shipper inventory imbalances, rate volatility across the board, and labor and equipment shortages, is there a hint of a slowdown — or even a recession? NFI’s logistics experts shared their thoughts about the state of North American logistics, weighing in on the ongoing impact of supply chain disruptions and highlighting opportunities for 2023.

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Section 1:

What will the economy look like in 2023?

There’s no denying that predictions of a global recession are top of mind for consumers and corporations throughout North America. With a noticeable shift in peak season volume, 2023 will mark the beginning of a deceleration of overall volumes in the market. Combined with various factors, the beginning of 2023 is expected to be undemanding.

Traditionally, Q1 is the time the industry sees a pullback from the peak season. But over the last two years, peak season didn’t emerge or wane as expected, an enduring consequence of COVID-19 volatility. Now, with high inventory levels and subdued demand from higher inflation, market segments — like companies related to the provision of housing products and services, for example — are expected to see challenges throughout 2023. Though pent-up demand in certain pockets, like industrial, may make it feel not as slow as some other down years.

While demand in 2023 is expected to be slower than its aforementioned pandemic years, volumes will likely return to a more predictable peak season. Even in down years, the market still experiences peak-buying seasons like the holidays, indicating that a return to “normalcy” in freight market demand is on the horizon.

Assuming no other unpredictable global events unfold, there should be a rebound out of a recessionary feeling in freight markets starting around 2024.

Section 2:

What are the expectations for 2023’s supply chain?

As the economy continues to capture attention with the slope of ups and downs, predictions for 2023’s expectations are keeping many on the edge of their seats. How will the 2023 layout hold up to these predictions?

Drayage Volumes

Ports will experience a decline in capacity and volume normalization in 2023. Shippers have seen firsthand the impact the last few years have had on the port space, and what goes up must come down. As the industry anticipates a year of normalization, the port space is already starting to level out. How these two factors interact will drive future capacity and pricing in the import market.

Since 2020, there has been record import volumes month after month. Coming out of multiple years of growth, 2022 is projected to finish flat compared to the previous years, and several factors are playing a role in the slowdowns at the ports. Volume has started to moderate on the west coast, while pockets of strength in east coast ports still persist. It’s difficult to separate how much of the west coast slowdowns result from macroeconomic factors or if concerns about ILWU negotiations are driving shippers to push freight over to the east coast.

An additional catalyst worth watching next year is the clean truck requirements coming into effect, specifically in California. These requirements, which mandate that drayage trucks meet a 2010 or newer model year engine standard as of January 1, will push a lot of drayage capacity out of the market. The combination of effects, where capacity is declining at the same time there’s a normalization in volumes, will be interesting to watch in the first half of the year and will drive what happens to price on the import market in 2023. 

Going Global

Global challenges that global shippers have faced shipping their goods into the US continue to be unpredictable. From the beginning of COVID-19 to today, the industry has seen a wavering slope of ups and downs in container pricing. Before the pandemic, costs for a 40-foot container were around $2,500 and intensified during the pandemic to as high as $22,000 per container. As shippers gear up for 2023, prices have descended back to pre-pandemic levels, with anecdotes of shippers seeing rates even sub-$2,000. Some of the decline in pricing can be attributed to quiet outbound shipping from Asia and the loosening of mechanisms ocean carriers put in place to restrict capacity. The reality is that normal patterns will resume in 2023, and shippers may see muted or standard rates in the global freight forwarding market for the foreseeable future.

While net imports are still up compared to 2019, the search continues for the bottom of the domestic side of the business as spot rates continue to decline, leading to a soft and declining market into the first quarter of 2023.

Dedicated Transportation Peak Season

It’s not just the ports experiencing turmoil — dedicated carriers can also feel the fluctuating volume cycles. NFI has been a partner in the transportation and trucking industry longer than anything else, so fluctuating demand isn’t new.

As some supply chains are experiencing a not-so-typical peak season, the grocery, food,  and beverage industries remain consistent with previous peak levels. During the pandemic, certain products were essential to consumers, and those products typically experienced less demand variability. Even as consumers change their buying habits, there has been considerable demand driven by the grocery, food, and beverage industry, whereas other industries may not be faring as well.

Despite the industry, carrier costs continue to increase from all fronts. New equipment prices, replacement parts, labor, and fuel diesel costs continue to be on the rise even as the market levels out. As a result, the average age of fleets is also rising as new equipment is not readily available, causing a parallel rise in maintenance costs.

Unfortunately, the overall decrease in market demand does not equate to lower costs for carriers, driving a wedge between shippers and carriers concerning the cost of service. As operating costs continue to increase, small and medium carriers are particularly impacted. Rising operating expenses are expected to surface bankruptcies across the board in the first half of 2023. As these bankruptcies start affecting capacity, shippers are likely to have a shift in sentiment from worrying only about covering volume to focusing on partner relationships that continue to provide consistently excellent service and stable capacity. These partners are vital in solving further supply chain disruptions.

Industrial Real Estate

When supply is up, demand is down, but after years of unpredictable volumes and not knowing what the wave will bring next, warehouse demand is outpacing supply.

There are many variables impacting the industrial real estate market, more than just inventory. The volume coming into the ports has driven a lot of complicated dynamics, especially when looking at New Jersey and Southern California. The rent increases are well above double in less than twelve months, something the industry has never encountered. The development of space is also becoming frowned upon in many of these markets. In Southern California, many municipalities shut down warehouse development in their cities. As a result, supply, plus high-interest rates, are driving a market dynamic where the level of development is decreasing in preferable markets. In the country’s central region, there are some dynamics with nearshoring as well, where Texas is still seeing an increase in demand, and the real estate rates are increasing.

There is no or minimal availability in short-term space. In the recent past, companies that were looking for space for six or twelve-month terms were able to find it even if it was a less desirable market. Right now, almost without exception, companies cannot find that short-term space, even in Tier 2 or Tier 3 buildings.

These dynamics are driving companies to figure out ways to utilize the footprint and the facilities more effectively because the cost of real estate is much more of a factor than it ever has been historically. Traditionally, the 3PL industry has been much more tactical in how it’s approached space, and that dynamic will be replicated by other warehousing operators moving forward.

Section 3:

Is there enough warehouse labor?

More than ever, labor has been driving warehousing productivity and costs. There was a tight labor market pre-pandemic, but along with COVID-19 came added pressure to not only attract, but retain employees.

Historically, if a warehouse needed to find additional employees, they’d do so by instituting wage increases and bonuses. Several years ago, a $15 an-hour wage was a far out idea, but in today’s market, it’s a minimum requirement. The warehouse worker of 2023 is looking for more of their employer, and if companies have any hope of attracting and retaining the best workforce, they need to start accounting for quality-of-life and quality-of-work-life measures.

Companies who are at the forefront of this shift are focused on improving the full lifecycle of the employee experience: 

• Shortening the onboarding process and expediting training helps get employees on the floor more quickly and less likely to find another opportunity down the road.
• Creative scheduling works around employees’ lives — rather than arbitrary shifts — to provide opportunities that align with their schedules. 
• Upgraded and temperature-controlled facilities create an environment where people want to work versus being constrained by external factors.
• Finding a way to make the work more appealing for people helps with retention, whether that be working alongside automation to make the job safer and less physically demanding or upskilling and training employees on new pieces of technology.
• Conducting 30-60-90 day and exit interview surveys to monitor the employee experience to help make changes and retain a more satisfied employee base.

Overall, the inflationary wages for warehouse labor are normalizing as a result of both the changing market and the institution of employee-lifecycle improvements, but finding labor is still as difficult as it was pre-pandemic. Finding people to lump trailers for merely a higher wage is a thing of the past, and organizations should be focusing on the retention of employees just as much as their recruitment. If there is a recession, it’s going to be more white-collar and not a traditional recession because labor and hourly employees are still very hard to come by.

Section 4:

Is the truck driver shortage improving?

Tackling the labor crisis is a concern in both the warehouse and out on the road. In 2022, the driver shortage caught the attention of transportation professionals all the way up through the White House.

In 2023, the driver market will become more stable and balanced, but it will still be a challenging market nonetheless. A driving factor causing this shift is that many drivers headed the independent contractor route during the thick of the pandemic, chasing the spot market at the time. Hopping on that roller coaster was only tenable for so long, and now we are seeing many of those drivers returning to larger carriers looking for stability and a more consistent income. Larger carriers can supply a larger volume of loads and pay the increased wages drivers are seeking.

Making driving an attractive career is an ongoing challenge, but changes are happening. Woefully, demographics are still against the industry as a whole. The average age for a driver is 50, and a continuing focus on getting younger drivers into the industry is needed. A promising sign of change is that the truck-driving schools that closed during the pandemic are opening back up, and enrollment seems to be growing. The more these schools fill their capacity, the more opportunities the industry will be able to provide to drivers. The country and economy depend on our drivers, and as consumers start to recognize that, things are changing for the better. 

A factor hindering growth is the number of drivers with a prohibited status in the federal Drug and Alcohol Clearinghouse. In October, the number grew to over 110,000 drivers sitting in the prohibited status, with over 85,000 of them not having begun the return-to-work process required to become eligible to drive again. It’s more critical than ever to make the driver experience the best it can be and focus on retaining each and every one of the drivers within the industry. 

Section 5:

Will companies see a relief in equipment shortages?

Heading into 2023, the industry was hopeful that equipment would become quickly and readily available, returning to pre-pandemic production numbers.

Regrettably, OEMs have to relay the news that equipment will still be under allocation for the majority of 2023, meaning carriers will once again see a shortfall in tractor and trailer equipment orders. Improvement is possible as the year progresses, but might be reliant on smaller and medium-sized carriers lowering or canceling their orders based on a lack of volume. As a result, parts availability will still be a challenge well into 2023, making it increasingly more difficult to maintain existing equipment. These shortages should progressively improve as we reach 2024, as other obstacles in the supply chain work themselves out. In the meantime, carriers should look to diversify their fleet suppliers, so they aren’t subjected to the delays of a singular OEM.

From the warehousing side, the biggest shortage the industry is experiencing is in space, which is being met with creative storage solutions. Many operators are looking for ways to increase the cubic usage of their warehouses to have less empty space up above instead of expanding their footprint with more square footage. But with racking costs soaring higher than ever before, equipment to manage inventory in those environments — like standup lifts or cranes for narrow aisle environments — is limited, and lead time for that equipment can be outside of a year if not planned properly.

Outside of adjusting plans with proper lead time, it’s recommended that shippers establish preferred partners who can provide more stable pricing based on the order volume of equipment like steel, racking, and MHE. The demand for cubic-space maximization will likely drive a different dynamic for parts ordering in the distribution industry for the foreseeable future.

Section 6:

How is supply chain data impacting the industry?

Over the last 20 years, there’s been an emphasis on gathering supply chain data; however, it’s more important than ever to correlate that data into actionable insights.

Modeling

As data is gathered from various systems, the value in connecting and harnessing that data can uncover opportunities, whether it’s automating the manual manipulation of data or developing models to make proactive decisions. The last three years highlighted that many shippers lacked the tools needed to pivot their strategies in instances when they needed to move to a different supplier, source from a different location, or stand up a buffer warehouse in a new location. In response, there’s been more interest in transportation management-related solutions, whether that be network analyses, the creation of new systems and processes, or people looking to figure out a way to be more proactive the next time there’s a major disruption. Specifically, interest in modeling tools like our digital twin technology has increased as shippers want to prepare better and understand how to handle disruption. With this technology, shippers can model various scenarios based on their current data. These types of technologies are at the forefront of what NFI is trying to accomplish to help people modernize their supply chains without a huge capital investment upfront.

Automation

Data can also uncover opportunities to automate tasks and increase productivity, though warehouse automation is not a one-size-fits-all solution. For businesses that experience consistent inventory volumes, automation can be a great investment to increase safety, productivity, and employee experience. There are various technologies being tested throughout the industry. Collecting data on productivity and safety KPIs can help determine ROI on automation. 

NFI continues to be a people-led, technology-enabled business with a current focus on piloting technology like Boston Dynamics’ Stretch robots, used to unload containers and create a less repetitive and physically-demanding environment for employees. Another technology being piloted is Phantom Auto’s remotely-driven warehouse equipment, which allows companies to increase productivity in their warehouses during off-hours or labor shortages.

Fleet Optimization

Through mobility applications and Al, NFI has been able to help our drivers become more efficient through a significant investment in a proprietary tool called Fleet View, which our teams use out in the field. Fleet View gives us up-to-the-minute data and uses current weather overlays, traffic overlays, and a variety of metrics to make our fleet more efficient and improve the overall driver experience. That data is then shared with customers through their portals so they receive accurate metrics and visibility into their inventory. Through these tools, NFI can continue identifying opportunities to improve the supply chain.

Section 7:

What will be the two biggest drivers of change?

The supply chain industry is ever-evolving, but there are two drivers of change that will impact the market and, more specifically, capacity.

Sustainability

As diesel emission requirements go into effect in California, many older trucks will be pushed out of the market. As a result, there will be more broad applications of electric trucks in Southern California, particularly in the drayage space, due to the round trip, short-haul nature of the routes. At NFI, 2023 is going to be the first time we’re pushing beyond small-scale piloting of electric vehicle technology and moving into more broad applications. With deliveries of electric vehicles happening through 2023, our Southern California drayage fleet will be the first 100% zero-emission fleet in the US, with 100 battery electric-powered Class 8 tractors.

Increasing Carrier Costs

Trucking companies’ costs have gone up tremendously over the last three years due to insurance, fuel, and the cost of equipment. The industry is past the point where a $2 rate to the market will keep a carrier profitable. In a normal year, there may be 3,000 – 5,000 power units go bankrupt in the industry. As the market’s pricing continues to slide, we’ll see more carrier bankruptcies next year. Other non-asset logistics companies that have over-invested or invested based on the frenetic pace of the spot market are now starting to shed talent. As asset and non-asset players leave the space, it will lead to an eventual tightening of capacity as demand for a movement of freight comes back towards the end of next year.

Improve Asset Utilization

High operating costs and lack of equipment lead to more emphasis on asset utilization. It’s more important than ever to get the most efficient use of assets, including warehouses, trucks, trailers, and drivers. As a result of asset utilization, the average length of haul within NFI’s dedicated fleets has expanded. There have been more discussions with partners, “How do you tie in more inbound vendor products? How do you capture more return volume?” The goal is to improve service but also lower the overall cost within the supply chain. 

Next year, there will be an increase in smaller to medium size private fleets converting to carrier fleets. Private fleets that don’t have the size and scale will experience the impact on their costs more than the larger fleets out there. If you don’t have the scale and breadth to absorb some of these variables, it will be a challenge.

Section 8:

What are two things a shipper can do right now to prepare for 2023?

Over the past two years, the market’s volatility has been challenging for shippers to navigate. Consumers felt firsthand the impact of disruptions throughout the supply chain. To better prepare for 2023 and beyond, shippers should forecast their inventory demands and evaluate their current supply chain partners.

Forecast Demand

To prepare for 2023, shippers should work with their providers to determine normal inventory volumes. As the industry comes out of a sustained period of record volume, shippers built a lot of capacity to support those volumes. Although many shippers will have an initial reaction to cut capacity in the short term, it’s important to align with their partners to ensure there is the capacity to support short, medium, and long-term forecasts. As the market normalizes, shippers can start reconciling their inventory to prepare for the next wave of demand and understand what is currently in their distribution centers. Collaborate with providers to develop ramp-up and ramp-down strategies to support your demand forecasts.

Evaluate Providers

Shippers should evaluate their current supply chain partners and determine if they have the right providers moving forward. Partner with providers with the financial stability to withstand market volatility and offer multi-channel solutions with the scale and agility to support managing shifts in demand. A 3PL partner should be able to have the expertise and resources to develop customized solutions for your business as your prepare for the new year.

Section 9:

What is NFI doing to prepare for 2023?

For NFI, 2023 is going to be a year of investment in our employees and our business. With people at the forefront of our strategy, our focus will be on training and developing our team and evaluating the systems we have in place.

NFI is focused on the recruiting and retention of talent throughout the business. The pandemic has accelerated the interest in the supply chain, so there’s a huge opportunity to attract talent from other industries. We’ll continue to focus on the employee experience and investing in our talent.

For example, the Integrated Logistics team has had a few strong years, and now, as the market slows down, we are using this time to reinvest in training and technology to enhance our services and provide more value for shippers and carriers. We’ll focus on enhancing integrations by utilizing existing technologies and providing more value to shippers through automating processes. When the market does pick back up, NFI will be even more capable of supporting our customer base. 

To strengthen our value to the market, we’ve also invested in enhancing our solutions and network. This past year NFI has strengthened our expertise in the eCommerce space, launching NFI eCom. Positioned uniquely for eCommerce brands that are looking for a 3PL partner with the scale and expertise to support their growth. NFI eCom pairs our end-to-end omnichannel solutions with the fulfillment technology and network to provide on-time delivery and exceptional service.

NFI has also invested in the geographic diversification of our port services solution. There’s been a trend over the last 10 years where discretionary import freight that used to come through the Southern California gateways is now pushed to the East Coast or the Gulf Coast, which was accelerated during Covid. To make sure we’re positioned with scale, we’re investing in port markets like Savannah, Virginia, Wilmington, and Houston to support our customers that are looking to diversify their import gateway strategy. In 2023, we’ll be opening new facilities and have capacity coming online.

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About Our Experts

William Mahoney, Chief Commerical Officer

Bill Mahoney, Chief Commercial Officer at NFI, leads the Sales and Account Management teams and helps to design comprehensive supply chain solutions for existing and prospective customers.

David Broering, President, Integrated Logistics

Dave Broering leads NFI’s Integrated Logistics team, providing brokerage, transportation management, intermodal, and global forwarding solutions to shipper and carrier partners. His team brings value to its partners by connecting in the most flexible and scalable ways possible.

Kevin Patterson, President, Distribution

Kevin Patterson leads NFI’s distribution solution, where his focus includes creating unique, cross-functional solutions for customers. The distribution team that Kevin oversees designs and manages over 65 million square feet of warehouse space in North America.

Aaron Brown, SVP, Port Services

Aaron Brown brings his expertise to the NFI Cal Cartage port services team, where he works to provide end-to-end solutions for NFI customers seamlessly. As one of the largest drayage providers in North America, NFI Cal Cartage operates across major ports, rail terminals, and logistics hubs.

Bob Knowles, President, Transportation

Bob Knowles is the President of Dedicated Transportation at NFI. With more than 5,170 tractors and 13,275 trailers across North America, Bob oversees NFI’s asset-based operations and spearheads the company’s continued growth in transportation.

About NFI

NFI is a fully-integrated North American supply chain solutions provider headquartered in Camden, N.J. Privately held by the Brown family since 1932, the company generates more than $3.9 billion in annual revenue and employs over 16,000 associates. NFI owns and operates more than 70 million square feet of warehouse space alongside a dedicated fleet of 5,170 tractors and 13,275 trailers. By 2023, NFI will operate the first 100% zero-emission drayage fleet, leading the transition to zero-emission goods movement in the United States. NFI’s relentless innovation and unparalleled service deliver logistics solutions that transform the way business gets done. The company’s business lines include dedicated transportation, warehousing and distribution, ecommerce fulfillment, brokerage, transportation management, port drayage, intermodal, global logistics, and industrial real estate. For more information about NFI, visit www.nfiindustries.com or call 1-877-NFI-3777.