With all the turbulence in the freight markets right now around tariffs and other issues, it’s not surprising that we have been asked for insights on how to gauge freight costs for the remainder of the year.
And that question poses an interesting challenge. You see, normally when we get to the halfway point of the year, people start asking budget questions about the following year. But this year we’ve heard a different question: “Do we have to revisit our freight budget for 2025?” What’s driving that question?
There are several issues happening throughout the logistics industry simultaneously. One piece of advice we’re sharing is to create buckets to represent the threats or opportunities that could impact your supply chain and freight costs. What these buckets contain will be different for every organization depending on their shipping profiles. Here are examples of some issues your company could face and recommendations for how to address them.
Tariffs and Ocean Issues
Issue: First, tariffs have created significant disruptions, especially in the ocean markets. Four weeks ago it looked like container rates would soar; today the outlook for container rates is more moderate. Looking forward, will the Iran–Israeli conflict cause further disruptions in the Red Sea? Will tariffs be ruled unconstitutional? If they are, will other provisions that allow for additional tariffs be put into effect, like the Section 232 or 122 tariffs? Who knows what’s going to play out in the ocean market based on the import and export activity. Will ocean container rates go back to around $2k or will they soar to around $10k?
Recommendation: With all the uncertainty, companies can benefit from scenario planning. This could also be a time to expand resources or seek outside expertise since this is a particularly challenging situation.
LTL Classification Changes That Could Impact Costs
Issue: The NMFTA is rolling out significant changes to their freight classification system on July 19. How will these changes affect your LTL costs? The answer to that question depends on what type of LTL freight your company ships.
Recommendation: Determine which products are “In Scope” or “Out of Scope" and look at the financial impact of products that will have higher freight costs and rates associated with the revised freight class.
TL Costs
Issue: Truckload rates could rise if the Trump Administration decides to enforce rules in affect since 1937 that require truck drivers to be proficient in the English language. Some estimates project that this will result in 50,000 drivers leaving the market. Will truckload costs go up if there is a significant reduction in the number of TL drivers? Also will fuel costs go up because of what’s going on in the Middle East? Will that continue for the remainder of the year and result in much higher fuel surcharges?
Recommendation: Overall, the length of the freight recession for truckload carriers is longer than many have ever seen, now spanning over 40 months. Prepare to react if rates rebound suddenly.
Parcel Cost Opportunities
Issue: The situation between UPS and FedEx in the parcel market creates unique opportunities or penalties for shippers depending on how it is handled. The outcome for shippers is influenced by their experience and expertise in sourcing their annual parcel spend.
Recommendation: I recently received a note from a friend who is a big parcel shipper that challenged me to focus on the savings opportunities that are available in the parcel market. The rivalry between UPS and FedEx is leading to both cost increases and savings opportunities for certain shippers. I encourage you to look into this for your company and get in touch to learn more.
What's next?
After considering all the possible challenges, you may be wondering how to make sense of it all and address everything. Once you begin to paint the picture of what your supply chain could face and your alternatives, you’ll get a better idea of what you’re prepared for and what resources are needed.
If you’re looking for help, here at TranzAct we address this type of planning through a process we call the Rapid Assessment. Through it, people can come together and see how one decision affects another. To learn more, just send us an email, give us a call at 630-833-0890 Ext 190, or schedule a time to meet.
In the meantime, if you are looking for a few other resources to help you plan for the future, we strongly encourage you to check out the advice about managing balance sheets that our friend Ami Kassar, the CEO of MultiFunding, shared in our interview.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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