Navigating the Ups and Downs of the Freight Recession

In 2023, global supply chains were hammered by geopolitical crises like the Ukraine-Russia War and the Hamas-Israel War. Labor shortages stopped goods from being shipped when they needed to be. Cybercriminals increased their attacks with more sophisticated techniques. 

Moving into 2024, the supply chain will face new challenges, like the ongoing deterioration of the US-China relationship. With the Chinese economy underperforming, manufacturers are reassessing where to ship products from. US trading laws may further add to the disruption, with a crackdown on tariffs, licence applications and hazardous material regulations. 

Many wholesalers are dealing with high inventory levels, fuelled by customers wanting to spend less and the supply chain complications mentioned above. Because of this, big entities like Amazon have looked for ways to destock through ‘overstock stores’ and branding them as secret, insider clubs that you have to be in the know to know about. 

Elsewhere, home and furniture and electronic wholesalers are struggling to offload, meaning they are paying more for storage fees. Jonathan Chappell, a senior managing director at the global advisory firm Evercore, has said the slowing demand for products means “there’s no identifiable restocking for the peak season” reflecting on freight uptick between August and October 2023 in the run-up to the holidays. 

According to the American Trucking Associations, 2023 had a shortage of 60,000 drivers. In 2024, that number will increase to 82,000. Other factors that are linked to this could be the steady decrease in driver wages, which had been seeing an uptick of 15.5% back in 2022, but the softer freight demand of 2023 impacted it negatively. 

Another recruitment challenge is the ongoing debate on lawsuit abuse reform and insurance cost and availability. The size and frequency of settlements against insurance carriers have increased in recent years and so insurance premiums have gone up too. 

With fleet managers feeling pressure from multiple sides, expect big recruitment drives to be a part of fighting the freight recession.

Along with everything else, the ongoing turmoil has affected the pricing of commodities, especially diesel. Fuel prices are a big concern for fleet owners. In 2023, operational costs rose 53.7% per mile compared to 2022, with fuel accounting for 28% of total operating costs. As of September 2023, the average price per gallon of diesel was $4.563. 

The knock-on effect here means that drivers may not want to travel as far to deliver goods to save costs. And those who aren’t willing to go the extra distance could risk losing out on vital revenue from businesses dependent on those products. 

Now that I’ve painted a picture of what the 2024 outlook is looking like for the freight industry, it’s important to remember that it isn’t all doom and gloom. There’s plenty you can do to protect your bottom line and maintain a steady cash flow. One of the best ways to do that is to optimize your technology stack in various ways.

First, you’ll want to make sure you’re using the right credit risk software that can integrate with your own financial data and the data you have on your customer portfolio. This will be key as it will provide valuable data and insights into the financial health of your accounts. And that means your Accounts Receivables team will be able to better manage and prioritize collections, lower the risk of bad debt, speed up invoice payment times and, ultimately, improve cash flow.

On top of using credit risk software that can integrate with your sales ledger, you should also look at using software to automate the credit decisioning process. By doing this, you can create customized workflows based on your credit policy. Not only will you reach credit decisions quicker, but you’ll also be able to rely on those decisions. Don’t just take our word for it. We recently surveyed finance managers to understand their credit decisioning process.

Here's what we found:

• 97% of finance managers process up to 100 credit applications a day.
• For 63% of businesses, it takes up to 5 people to make credit decisions on new customers.
• 75% of finance managers take up to a full day (8 hours) to reach a credit decision on a single customer.

These findings just prove how much value you’ll get if you automate the credit decisioning process.

You should also look at automated cargo dimensioning technology. This type of tool will save time on the manual measurement of goods that need to be delivered and provide more accurate billing. The result? A potential recouping of costs compared to physical rounding down. 

Finally, you can also reap rewards from using freight forwarding software as it can help cut down on manual work. By automating the creation and sharing of import documents and quotes and managing margins, you’ll end up saving more money and time in the long run. 

In any kind of recession, you can’t afford to put all your eggs in one basket. And that means not being over-reliant on any one supplier in a climate of product shortages and low customer demand. So, the more you can diversify your suppliers, the more protected you are against revenue and cash flow losses.

There are several strategies for creating a diverse supplier base. The first thing is to run a credit check on both new and existing suppliers. You’ll want to look at a lot more than just their business credit score. You’ll want to look at how long it takes them to pay their bills, if their payment behaviors have changed (for the worse or the better) over time, if they have any legal troubles and if they’re violating any regulations or sanctions. All this information is critical to know before you sign any contract and submit any orders.          

With trucks and shipping products being inextricably linked, it makes sense to create an adaptable shipping strategy. Here are some steps to consider:

• Use promotional offers to provide discounts: Promo codes can be issued with bulk orders and incentivize customers to buy extra products.

• Go with a flat shipping fee: This works with smaller goods that don’t need much packaging. Plus, customers are clear on how much they need to pay for shipping.

• A variety of shipping methods: Give customers the choice of how they want items to be shipped (i.e. express delivery or standard).

• Provide free shipping with a certain value: Create an offer where a customer buys items over a specific threshold like $60. This means the cost of shipping can be spread out, while encouraging them to buy more. 

• Create a loyalty program: This could involve giving loyal customers lower-than-average shipping or free shipping in exchange for a yearly subscription. Other perks can be added over time with extra tiers. 

• Partner with cost-effective third parties: Working with shipping partners who match your values and budget means you don’t have to worry about a lot of the heavy lifting. They’ll have keen insight into the nuances of the freight industry and lower overhead costs for you. Then, you could pass those savings onto customers and continue to strengthen the relationships that’ll keep the cash flowing.