2016 was a memorable year in the supply chain. Factors like elections, ocean alliances, trade agreements, technologies, and demand have all affected the evolution of the logistics industry. NFI’s executive team shared insight into the top trends this past year.
Warehouse vacancies saw much improvement during the calendar year. Initially, an excess of 5 percent overall space vacancies was reduced to less than 3 percent as the year came to a close. An overall tight real estate market will continue to drive this number down which will result in distribution companies offering more space options for customers through further expansion with new facility openings. Fulfillment space is driving a good amount of demand due to the growth in e-commerce and taking far more space than a traditional pallet business, hence the current and future projected tight market. 3PLs continued to focus on continuous improvement in order to counter rising wage pressure in our warehousing division.
Excess one-way capacity in the transactional market continues to challenge asset-based dedicated fleet business. Right sizing of fleets and increased optimal performance remained the driving forces in growing business during low volume periods. There has been a conversion of company-owned private fleets as a good source of growth due to the continuing difficulty of navigating the regulatory environment for transportation.
Across North America, lower fuel costs and excess over-the-road one-way capacity resulted in a highly competitive intermodal climate. Intermodal companies focused on overall growth of service offerings while focusing on developing core lanes to continue to provide service to their customers. Surplus of over the road capacity and fuel prices will continue to drive the industry in 2017.
Brokerage & Transportation Management
The supply and demand aspects of our industry are both the best and worst thing about the transportation economy. Predictability and consistency do not tend to be the core tenets of the way in which we operate every day, yet 2016 had a good degree of both of these qualities. The year began with tonnage sliding year-over-year and rate pressure coming to carriers from all sides, and it seems the year is ending this way as well. Carriers have consistently had trouble finding a foothold in what the bottom of the market looks to be from a pricing perspective, and shippers continue to look for ways to lower costs and streamline their overall bench strength with respect to quality and volume of providers. Overall, 2016 was a year of treading water and looking forward to 2017 where the economy’s acceleration would mean a return to the growth in volumes and full utilization of our industry’s capacity for freight.
2016 will go down as one of the most memorable years in global trade. Trade agreements have been a central theme throughout the elections. The overall global economy has cooled; major governments are voting increasingly populist, and the ocean industry itself made headlines with the collapse of the Korean carrier, Hanjin. On the other hand, it was also a pivotal year for change. Regulatory enforcement, including the Advisory Committee of Enforcement (ACE) and Safety of Life at Sea (SOLAS), has shippers continuing to ensure that they have compliance measures throughout their entire supply chain. Countless technology companies are appearing on the scene, targeted at automating everything from transparency to efficiency. Barriers to communication were lowered further with developments in bots and improvements in communication infrastructure, tools, and technology. Manufacturing and transportation processes are rapidly developing with 3D printing, affordable satellites, and driverless vehicles. Ecommerce continues to rise, creating customer expectations of getting what they want, when they want it, and where they want it – leaving all but the most robust supply chains worldwide running to catch up. Looking ahead, the advantage will continue to go the agile players who can anticipate and respond to these changes and those who view change as opportunity.
Industrial or logistics real estate had another strong year. While our prediction of interest rate growth at the start of the year did not happen, substantial rent growth did continue as predicted. The market did not see a lot of new supply being delivered and the demand was robust. Most markets in North America are currently experiencing historically low vacancy rates and rental rates at historical highs. As consumption is the main driver for Industrial properties, this market has performed better than the overall economy in recent years. The rapid growth of e-commerce with its high intensity of real estate use and the increasing need to locate closer to market centers is causing a shift in how goods are distributed, which further compounds the demand curve. Beyond these factors, it will be interesting to see how the results of the U.S. election will impact the overall economy and specifically the commercial real estate market. It also seems like 2017 will finally be the year of an increasing interest rate environment.