It was a year of epic highs and crushing lows. From bankruptcies and cyber attacks to layoffs and labor agreements, the challenges of 2023 likely won’t end when the clock strikes midnight on New Year’s Eve.
The signals we saw in late 2022 telegraphed a tumultuous year in logistics as companies began laying off workers and shutting down even before the calendar flipped. This year, dozens of companies faced significant layoffs and bankruptcies. The booming logistics industry of the pandemic, which included record profits and delays, drove companies to expand as demand exploded. This comprehensive list from FreightWaves details the year’s closures, layoffs, and bankruptcies since April 2022.
Boom times cannot last forever. Yet, the issue doesn’t arise from the natural ebb and flow of commerce; the problems hail from human error, the consistent failure to see a cycle as a cycle and prepare for changes. Hiring too many when times are good because you cut staff so significantly when times are tight is a different problem than weather patterns taking a port out of rotation for a month due to flooding or fires.
Misunderstanding scarcity, expecting people to keep shopping forever despite entertainment and travel restrictions lifting, and buying up all the available ocean capacity only to be stuck with it when the balance returned all have led to an inversion of conditions in record time. This isn’t to say the situation is anyone’s fault.
More than likely, the massive pendulum swing of the early pandemic, when carriers expected sales and orders to dry up and blanked sailings but people actually shopped uncontrollably as they had no entertainment or service options for their money, threw the market out of whack and the backswing was too strong to return balance. We’re at the end of the retro arc before falling back to dead center.
From where we are, rates are struggling, but because the world is imperfect, there are situations that will balance the descent. First, the Panama Canal drought, an issue we’ve been watching since May, will likely improve in the new year. While the drought caused a huge reduction in the number of ships passing and the maximum weight a passing ship can hold, the 18 currently allotted will increase to 24 in January. This net positive will help to alleviate the delays at the canal while not bringing it to full functionality, thus ensuring the pass stays slow, tying up ships, holding back capacity, etc.
That, in addition to the conflict in the Red Sea, where Houthi rebels are attacking commercial ships, prompted US naval ships to arrive for escort after more than 100 ships were paused or diverted away from the conflict. Were we desperate for cargo, scraping the end of available capacity, or stuck with empty shelves, this disruption would be a huge problem reminiscent of the Ever Given getting stuck in the Suez at the height of the pandemic shipping boom. But the current market conditions will benefit from anything that reduces capacity. Whether that’s by slowing down the ships, requiring them to carry less cargo, or skipping stops, all those practices will buoy rates and stave off further declines.
While we don’t expect 2024 to be particularly catastrophic, it will be complicated. In our next blog, we’ll look at some of the more interesting opportunities, challenges, and ideas we have to help guide our clients into the future. If you’re ready to take a proactive approach to your logistics and warehousing needs, contact your Argents representative to get ahead and stay ahead.