Three Best Practices for Thriving in 2024

Fundamentals of LTL Hybrid Sessions

What does the rest of 2024 have in store? As we enter Q2, this is the question on every LTL leader’s mind. Macroeconomic shifts, industry trends, unexpected current events––each of these factors into core decision-making, and accordingly, each should have a consistent spot on the radar of any logistics leader looking to successfully adapt to market conditions.

In the third of four new SMC³ LTL Hybrid Sessions, Keith Prather, the co-owner and managing director of Armada Corporate Intelligence, shared his outlook on the current state of the logistics industry and where it’s headed. Even better, he left attendees with some guidance on how to analyze key industry statistics in order to leverage opportunities and mitigate losses as the market inevitably fluctuates over time.

1. Keep an eye on key market stats

Broadly speaking, Prather has an optimistic view of the immediate LTL future, predicting steady recovery from the recessionary pattern freight has been stuck in since fall 2022. Speaking on the U.S. economy as a whole, Prather noted that Armada has taken all recessionary outlooks out of Armada’s predictive dashboard and suggested that GDP growth of around 2% was likely in 2024. He also noted that a few federal-level legislative interventions had yet to make their full impact known and were likely to nudge the industry’s recovery forward.

“Things like the CHIPS Act, the infrastructure act––a lot of that spending is still ‘hitting the road,’ so to speak, and making an impact,” he said.

Prather paid special attention to the “secular recession” that the freight industry has been dealing with recently, pointing out that it stood out against a macroeconomic picture that suggested recovery/a return to relative stability. How should logistics leaders understand this secular recession, and how might they see another one coming in the future?

The key stat to keep an eye on is the inventory-to-sales ratio which measures the effectiveness with which the industry is managing inventories relative to sales. The higher this number, the more manufacturers are sitting on a painful amount of inventory, and its current elevated level is behind the current secular recession in the industry.

Prather expressed optimism, however, that this would soon take a turn toward greater stability.

“Globally, we’ve gone through this destocking trend that took place from the fall of ’22 through ’23. Now, a new order for manufactured goods is igniting and firing up the whole upstream portion of the supply chain.”

Another statistic Prather suggested keeping an eye on was PMI, or Purchasing Managers’ Index. This monthly economic indicator reflects the health of the manufacturing sector in a given country. If a country’s PMI is above 50, the manufacturing sector in that country is expanding; if it’s below 50, it’s contracting. The United States’ PMI currently stands at 52.2––a rosier picture compared to 46.5 in the Eurozone and slightly better than China’s 50.9.

• Understand how trends get distributed throughout the economy

Prather pointed out what many of us already know: Unemployment and inflation have stabilized, and other key economic indicators appear quite strong.

However, he warned against projecting these insights onto every corner of the economy. Middle- and lower-income households (55% and 85% of which are living paycheck to paycheck, respectively) are harder hit by inflation and less likely to experience the financial gains of a strong stock market.

This distributed impact of macroeconomic trends affects spending habits on the whole, which has implications for every part of the supply chain.

Prather put it in terms of a family trip to a big box store: “Households are going in and spending the same amount they always have been. But the problem is, because of inflation, they’re only hitting up the grocery and pharmacy section. They don’t have the discretionary income to spend on, say, sporting equipment or other leisure-related goods.”

This means that one portion of the big box’s supply chain (food, medicine) is cranking along at a breakneck pace while others have slowed to a glacial pace. Logistics companies can’t change these high-level economic trends, but they can recognize them and build them into their business strategies in an effort to maximize opportunity in hot areas while mitigating losses in slower markets.

• Don’t forget the black swan

Black swan events––defined as major, unforeseeable events that impact the financial world––are a constant possibility. And yet they are, by definition, difficult to plan for.

Prather used a recent geopolitical example to illustrate this point: a Ukrainian drone attack on key Russian oil infrastructure. The event impacted oil production in the region, which led to an added $3–$4 per barrel cost––based on this one attack alone.

Events like this underscore the importance of having a good risk management plan in place at your logistics firm. Obviously, there is no fail-safe way of preventing black swan events from negatively impacting your business. But with the right set of analytics devoted to identifying, assessing, and mitigating potential threats to the supply chain, logistics companies can build a greater level of resilience into their operation––an asset in any type of economy.