Mark Twain said: “History doesn’t repeat itself, but it often rhymes.” This seems like an appropriate view of what’s been going on lately in the logistics and freight transportation management sector.
While 2024 wasn’t 2023, there certainly wasn’t a radical change. So, before we offer our take on the 2025 Rate Outlook, let’s first take a quick peak back at the key themes of 2024 and see what we can make of it. While we don’t have seismic shifts to report, there are elements worthy of a quick comment:
- artificial intelligence (AI) has been the hottest topic as it gallops forward at unprecedented speed;
- cybersecurity has become an increasingly difficult challenge that will only worsen with the advanced capabilities of AI;
- with the economy chugging along at a respectable pace, we still have historically low unemployment rates and a shortage of labor in a number of sectors;
- fuel cost has moderated after spiking up during the pandemic;
- •urning mountains of data into usable intelligence remains a massive challenge; and
- Use of autonomous and semi-autonomous trucking is moving forward.
A recent KPMG study highlights Generative AI’s (GenAI) potential to transform supply chain management, logistics, and procurement. Powered by larger data sets and capable of analyzing complex variables, GenAI can also learn and adapt to a company’s supply chain over time.
Despite this potential, widespread transformation has yet to be seen. While the technology advances rapidly, supply chain organizations remain slow to adopt these innovations.
A core challenge, according to the KPMG study, is the overwhelming growth of data. As digital technologies, IoT devices, and tracking systems proliferate, data silos and disconnected systems tend to complicate management.
With the digital universe doubling every few years, data management will remain a critical hurdle for logistics professionals right along with managing rising rates and tightening capacity. Against this technological backdrop, we’ve gathered insights from our assembled panel of logistics and freight transportation analysts and key industry players to help shippers prepare their budgets for the coming year.
What’s ahead in 2025?
Shippers are constantly beset with challenges that test their supply chain management capabilities for improving supply chain performance—from price fluctuations to geo-political issues, natural disasters and infrastructure problems, just to name a few.
Bill Hutchinson, long-time supply chain veteran and most recently senior vice president of logistics at major paper producer Westrock, observes that the truckload market maintained its supply/demand imbalance about six months to nine months longer than we all predicted at the beginning of 2024—but we’re finally getting back to reasonable parity in the market as we close the year.
“Shippers and carriers have maintained their focus on waste elimination, and need to continue to do so regardless of market conditions,” says Hutchinson. “Visibility solutions, asset tracking, and more frequent fleet optimization and sizing activities help to improve asset and driver utilization and reduce demurrage and detention—that’s good for all.”
Hutchinson also remarked that organized labor, fresh from negotiations wins with UPS, Class-1 railroads, and the automakers, is making a huge impact on the supply chains of global companies. “Labor actions are also a concern with the Canadian railroads, customs and boarder workers, as well the looming situation at East Coast and Gulf Coast ports,” he says. “While retailers and many shippers have moved product early, it will be interesting to see how long these disruptions persist, especially in an election year.”
Finally, in Hutchinson’s view, AI is becoming a part of everyone’s supply chain roadmap. “Most shippers are finding test-and-learn opportunities to streamline redundant tasks and improve speed to proficiency in technical roles requiring the analysis of large amounts of information,” he says. “Efficiency gains here will help with the labor shortfall in the U.S., especially if we hope to near-shore more industry with IP concerns in China. Innovation here is also data intensive and is forcing companies to rethink their computing power and data storage needs.”
Domingo Amunategui, formerly senior supply chain executive at Arauco and Mohawk Flooring, says that even though the 2024 year-over-year numbers show a recovery, it’s compared to
a pretty low baseline of 2023.
“Carriers are still struggling with high operating costs and low rates, which makes for a good environment for shippers with high tender/accept ratios and lower exposure to spot markets,” says Amunategui. “Even the traditional peak seasons didn’t affect the market much.”
Amunategui expects 2025 will likely be an inflationary year for the freight market due to higher demand, which will push rates up. This probably isn’t enough to put a stress on available capacity—with the exception of specialized equipment—or driver availability.
Also, warehousing is becoming more available with vacancy rates going up after an overall inventory reduction across industries. “I would expect this to continue, allowing shippers to take strategic inventory positions for key components and materials,” says Amunategui.
From a more general supply chain standpoint, after peak volatility during the pandemic, supply chain risk was the buzz term. However, it was quickly forgotten during 2023 and 2024 and companies went to a cost reduction mode to protect profitability.
“With the recent disruptions [International Longshoremen’s Association, geopolitical conflicts, weather] I would expect, or maybe hope, that companies were reminded of the exposure of global supply chain and will use 2025 to implement longer-term risk mitigation approaches in terms of their footprint and supply strategies—nearshoring, redundant sources and alternative transportation modes,” adds Amunategui.
Trucking
CNBC research saw soft pricing continuing in 2024, which could linger into 2025, as capacity in the logistics sector continues to outstrip weaker demand. The trucking sector, already facing extreme financial stress, expects lower revenue from the holiday season. This comports with the general theme of the people we’ve interviewed.
A recent report from third-party services provider Coyote Logistics shows that trucking has barely returned to where it was in 2017 after the pandemic spike. Expectations are that 2025 will not see much radical change, so expect some adjustments, but mainly more of the same.
The Coyote report means that carriers are currently getting similar spot rates to nine years ago, though their operating costs—diesel, insurance, labor—have increased substantially. Simply put, there’s little or no room for rates to drop, as many carriers have been running at unsustainable levels.
According to the Wall Street Journal: “Big truckers say that they may be turning the corner on the sector’s weak pricing. Both less-than-truckload operator XPO and truckload heavyweight Werner Enterprises are projecting higher rates in the coming months as supply and demand balance on the road shifts.”
The report also points out that “LTL carriers are getting the benefit of business that’s dispersed across the sector from the demise of Yellow last year, but companies including XPO, Old Dominion Freight Line and Saia are holding the line on pricing and say they will continue to do that.” XPO chief strategy officer Ali Faghri told the Journal that “we would expect that momentum to continue here into the fourth quarter and into 2025 as well.”
The truckload business has deeper price problems, with spot rates and contract rates both down this year. Still, Werner CEO Derek Leathers says “capacity is getting tighter,” and the carrier is looking for prices and freight volumes to turn upward to close out the year.
Long-time industry analyst John Larkin says that 2024 has been, in a word, a “disappointment” to carriers and third-party logistics (3PL) providers alike. “The end to the freight recession never arrived despite industry pundits suggesting—a year ago—that supply and demand would tighten in the second quarter of 2024,” he says.
According to Larkin, that didn’t happen because demand was hampered by bloated inventories, limited consumer buying power, and a penchant for eschewing “stuff” for “services” that they were unable to buy during the pandemic.
“Keep in mind that consumers loaded up with goods during the pandemic, thanks to government largesse and most services being shuttered,” says Larkin. “Those outboard motors—and other goods—purchased during that buying binge still have a decade or two of useful life remaining and likely won’t be replaced for many years.”
In the meantime, capacity has not been shed as quickly as in past freight recessions, as financiers have cut truck owners a lot of slack. The financiers have had no interest in repossessing their collateral given the depressed valuations for used truck tractors. And the combination of broker quick-pay, inexpensive used trucks, declining diesel fuel prices, and the inability to shed excess equipment in traditional foreign markets made it tough to shed capacity.
Barring a disruptive event like a lengthy port strike or a serious hurricane, there appears to be no catalyst to tighten supply and demand before the second quarter of 2025. With the Fed finally lowering interest rates, interest rate-sensitive sectors should perk up in 2025.
According to Brian Anderson at ShipMatrix, a logistics consulting and analytics firm, the LTL market behaves differently for a variety of reasons. Yellow’s demise also played a key role in the changes to the LTL market and landscape—for example, 147 terminals closed in 2023. As a repercussion of these closings, the capacity for LTL terminal dock doors decreased. According to SJ Consulting, one of the leading trucking analyst firms, LTL is the best segment across trucking industry.
So, what does all this portend for 2025? Probably some inflation in pricing, but nothing like we saw during the pandemic. If you have any faith in economic indicators, things look reasonably positive, but don’t suggest a seachange in volumes during 2025.
According to Satish Jindel at SJ Consulting, the LTL business will continue to benefit from the reduction in number of carriers. And starting 2025, there will finally be some changes to 50+ year old National Motor Freight Classification (NMFC) pricing system whereby dimensional pricing will be embraced.
This will provide a tailwind for pricing for carriers resulting from many more shipments being priced in relation to their true cost. In addition, ILA union success in getting a 62% wage increase over six years, coupled with total resistance to automation at ports, will encourage more near-shoring to Mexico or back to the U.S. for production and assembly, which will also be positive for LTL industry.
Where are fuel prices headed in 2025?
We rely on Matt Muenster, chief economist at Breakthrough Fuel, for key insights into what’s happening in the fuel market. He says the 2024 diesel market was driven by a few key factors.
First, international economic headwinds slowed crude oil demand growth and limited diesel demand. Second, crude oil supply remained abundant—OPEC’s decision to maintain its crude oil production cuts until later in the year is evidence.
Finally, geopolitical risk, while present throughout the year, failed to disrupt energy market supplies in a way that sustained higher prices.
These dynamics contained West Texas Intermediate oil prices in a range of about $20 per barrel, or approximately between $65 and $85 per barrel, while also pushing diesel prices lower. Crude oil prices recently spent time beneath $70 per barrel while the diesel refining premium decreased from about $37 during the first quarter to just $22 per barrel during the third quarter.
This downward price pressure helped diesel prices fall into a range last experienced prior to the 2022 energy crisis set off by Russia’s invasion of Ukraine. The month of September’s national average wholesale truckload diesel price fell beneath $3.00 per gallon for the first time since September of 2021.
What does all this mean? According to Muenster, the 2025 forecast suggests crude oil prices will be contained by the opposing market forces discussed above and have an average price of about $75 per barrel.
“We also expect international economic experiences to continue to offer headwinds to higher diesel prices,” says Muenster. “This includes our expectation for U.S. freight market volumes to gradually improve over 2025. On average, we expect diesel prices will be about 3% to 5% lower during 2025 than 2024. We expect diesel prices to decrease into the beginning of 2025 before rebounding in the
second half of the year.”
Ocean
We like to consult with Phil Damas, managing director and head of Drewry Supply Chain Advisors for his take on development in the maritime arena. He says that 2024 has been the year of “serial disruptions” in international ocean transportation, less than a year after the normalization of ship operations (2023), which followed the acute port congestion and capacity shortages of 2021 and 2022.
The bad news is that it’s expected that some of the existing or recent disruptions (port strikes, attacks on ships in the Red Sea, water shortages in the Panama Canal, congestion at some ports in Asia) could continue into 2025 or be replaced by new shocks, including war in the Middle East, new trade wars or other “black swan” events.
The year 2024 was also a period of record deliveries of containerships, with over 3 million TEU of capacity added over the past 12 months. “However, the supply/demand balance has tightened, not softened,” says Damas. “The multiple disruptions and resulting capacity bottlenecks continue to offset the over-capacity which would otherwise been present.”
For exporters and importers, the disruptions mean not only longer transit times, delays and more inventory in transit, but also higher direct freight costs and surcharges. For calendar 2024 as a whole, Drewry’s World Container Index is expected to exceed $4,000 per 40-foot container for the third time in 10 years.
The previous occasions were 2021 and 2022, during the pandemic disruptions. For multinationals handling million-dollar ocean transportation budgets, 2024 has been another year when it has become hard to set budgets and meet the budget targets, given all the uncertainty and disruptions of the shipping sector.
According to Damas, Drewry expects ocean contract rates on routes to the U.S. to rise in 2025, despite the addition of substantial new ship capacity. “The container shipping market is in the middle of huge volatility in pricing,” he says. “Average freight rates, including both contract and spot rate on the major East-West routes decreased by about 60% in 2023 and are expected to have risen by about 20% in 2024 year-on-year, according to our Container Forecaster.”
Drewry’s rate data from forwarders and shippers shows that ocean spot rates are falling—although they remain elevated—and ocean contract rates are rising. These two types of rates are converging.
“We expect that spot rates on East-West routes will continue to decline in 2025, but forecast that overall freight rates, particularly contract rates, will actually increase next year, if there are continued disruptions such as another ILA port strike,” says Damas.
In other words, the additional ship capacity of 3 million TEU that will join the market in 2025 will be more than offset by other factors, such as ships slowing down, port strikes, and carriers controlling their capacity more tightly.
According to Peter Keller, industry veteran of the container wars: “The year 2024 has seen a dramatic increase in new ship construction orders, especially in the container and pure car and truck carrier [PCTC] sectors. Carriers and shipowners are spending their pandemic profits with an eye to the future by ordering tonnage with alternative fuel capabilities.”
As a result of many maritime disruptions in the past few years, including the global pandemic, Suez and Panama Canal issues and attacks perpetrated by the Houthi’s in Yemen, ships were at a premium and rates were dramatically increased in almost all the world’s trades. This has led to aging vessels not being retired and profits reaching extraordinary levels.
Enter decarbonization efforts and the quest for alternative clean fuels for maritime. The greening of the planet is now a major concern and is being addressed politically at all levels. Even hard-to-abate sectors like maritime and aviation are moving to develop technologies to make transportation cleaner.
With all these new ships, about 95% or more of PCTCs and over 50% of container new builds are alternative fuel, led significantly by LNG and its pathway to “new zero” which includes bio products and eventually synthetic methane (e-LNG). It does abate carbon from current heavy fuels, so it provides
a path forward.
Intermodal
Larry Gross, president of Gross Transportation Consulting and arguably the guru of intermodal, observes that the major theme during the past year has been the impressive strength of the international intermodal market.
“By international, I’m referring to IPI, or the movement of ISO containers,” says Gross. “For North America, these shipments are up 15.8% year to date through August, and the U.S. alone is even stronger, up 21.6% year to date. This strength is a combination of factors, including strong retail demand, shipments moving earlier than normal, both to beat potential tariff actions and to avoid getting hung up in the ILA strike, and higher West Coast import share than normal.”
According to Gross, this is due to both the Red Sea Houthi rebels making transits from Asia to the U.S. East Coast more expensive as well as a fear of the ILA strike. “There’s an intermodal tailwind, as intermodal share off the U.S. West Coast is now much higher than off the U.S. East Coast.”
In the meantime, domestic intermodal has not been nearly as strong, up 2.9% year to date for North America and 2.5% for the U.S. The domestic intermodal share has remained stuck at 6% for the past six calendar quarters, down from roughly 7% in 2018.
“The hoped-for share recovery for domestic has not yet been in evidence,” adds Gross. “While industry executives cite tough market conditions as the reason, the problem is deeper than that. The railroads’ PSR-dominated intermodal strategy has not been shown to be capable of growing the business. This is a combination of service,
network coverage, and pricing.”
Rail
According to Jason Kuehn, vice president at Oliver Wyman, 2024 was a fairly positive year compared to 2023, which was overshadowed by East Palestine, or 2022, which was dominated by service problems and labor issues.
“There’s an appearance that the railroads might really be making a much-needed pivot toward growth versus the continuing drive to cut costs,” says Kuehn. “While not a peak year for intermodal certainly, U.S. volumes are up 9.6% year-over-year, and this is even better than what we’ve seen from the large trucking companies. Even the carload business is up this year, if you back out the continuing structural decline in coal volumes. And in terms of total units, even with declining coal volumes, U.S. railroads are up 3.3% versus 2023 for the first 38 weeks of the year.”
According to Kuehn, rail service has generally improved year over year. “The railroads have continued to add employees to alleviate the shortages that contributed to many of the service issues last year,” he says. “Another focus in the industry has been working jointly with the unions. This was manifested by the early agreements many of the U.S. Class-1s managed to secure with the unions prior to the start of official negotiations. This reinforces the notion that improved service, employee retention, and growth are getting more attention and gaining positive traction.”
Another key change this year has been the impact of the CP-KCS merger, which has increasingly caused the rail industry to look south to Mexico, adding new services and increasing interline collaboration to deliver more competitive offerings. “These new offerings have led to a 4.4% rise in Mexican volumes so far this year, and Mexico looks to be
a likely area of continuing opportunity for rail,” says Kuehn.
So, according to Kuehn, there are some kudos all round, yet much remains to be done. “Rail volume levels are still below the 2014 peak, and we still aren’t hearing shippers say they prefer the customer experience of working with railroads over truck. And, if allowed to go forward, California’s proposed new emissions regulations could be a big problem for rail operations.”
Indeed, the problem worsens if other states then follow suit. “Regulators need to clearly understand the adverse effects that would be incurred if rail faces a patchwork of varying state regulations,” adds Kuehn. “As the most fuel-efficient mode of surface transportation, rail has the potential to be a cornerstone of the green economy—but only if regulators and the rail industry can adopt shared goals.”
Parcel
Brian Anderson of ShipMatrix recounts that in comparison to 2019, total revenues in the parcel market is up 37.5%. For two years during the pandemic, the parcel market experienced explosive growth, with people unable to go to stores and having received thousands of dollars from the U.S. government.
More notably, starting in 2023, the parcel carriers finally recognized the huge presence of private fleets for parcel deliveries, like those of Amazon and Walmart. Total annual revenue for the domestic parcel business in 2024 is estimated at $176 billion, down from $197.7 billion in 2023, the first decline in 7 years.
According to industry reports, Amazon nearly tripled its volume from 2019 to 2023, from 2 billion parcels to 5.9 billion parcels, generating $28.6 billion in revenue versus UPS’s $68.9 billion and FedEx at $63.2 billion. UPS has a market share of 35%, FedEx 32%, USPS 16% and Amazon 14%.
Looking ahead to 2025, Satish Jindel, president of SJ Consulting, says that the parcel industry will continue to face unprecedented challenges driven by rapid growth of alternative last-mile delivery solutions by mega retailers like Amazon, Wal-Mart, Target, and Costco by slowing down on growth of online retail.
“More consumers are opting to return to physical stores for better shopping experience,” says Jindel. “And with foreign online retailers using local courier companies for delivery of parcels coming to us at major airport gateways, it will avoid the need for the national networks of FedEx and UPS.”
In part because of all this, UPS has tempered their forecast for the end of 2024. According to the Wall Street Journal: UPS trimmed its outlook, saying it now expects $91.1 billion in annual revenue, down from earlier estimates for $93 billion. The company has also been trimming its operations, however, selling off its Coyote Logistics freight brokerage and cutting 45 operating sites, including shuttering nine full buildings, as part of what it calls its ‘Fit to Serve’ initiative.”
Brian Sternberg, a more than 40-year veteran of the “parcel wars,” says that from mid-2023 up through 2024, the balance of power has changed, switching from a seller’s market to more of a buyer’s market.
According to Sternberg, rate increases have remained consistent for 36 straight years, and will soon add the 37th year in a row come this December and January. “Both stated 5.9% ‘average’ increase on base rates and many high single-digit increases on accessorials exceeding 5.9%,” he says. “There will also be double-digit accessorial increases that they don’t talk about or advertise. Many shippers can have accessorial cost that is half of their annual parcel spend.”
Some of the other creative strategies are increases throughout the year, with peak and demand surcharges, fuel index adjustments, late payment fees, accessorial term expirations and other “revenue drivers.”
According to our sources, shippers are well-positioned for taking advantage of the way the parcel market is shaping up for 2025. With all the changes that the carriers are aiming at your parcel spend, 2025 is a good time to challenge them.
For many shippers, parcel economics are something of a mystery. Obtaining advice and counsel from an industry professional is something to consider, as you would with a lawyer, accountant or financial planner. It’s also prudent to vet three or four professional third-party companies before engaging assistance.
Air
Chuck Clowdis, managing director at Trans-Logistics Group, is one of our regular contributors to our Annual Rate Outlook. In his view, 2024 was an excellent year for airfreight, with volumes surpassing pre-COVID levels.
“E-commerce is already claiming 20% of the airfreight sector and is expected to exceed 30% in just a few years,” says Clowdis. “Global unrest, like the attacks on ships in the Red Sea, will push more shippers to air cargo for safer deliveries and reliability. As we’ve seen in the Middle east, unrest can spring up at any time.”
According to Clowdis, Asia and Europe are volatile from labor strife and port strikes that can send cargo to the air. E-commerce, pharmaceuticals, along with fresh foods and other commodities led to a fine capacity/rate leveling over the course of 2024.
“Consumer confidence is shifting into the ‘caution zone,’ and consumer spending drives air cargo,” says Clowdis. “The Port Strike threat is calmed, for now, but a contract must be ratified in early 2025 so another worrisome touch point looms. Then there remains lingering inflation that saps disposable income. And finally, global unrest from Ukraine to the Middle East, to Taiwan, North Korea, and China all add worry to what would be conventional forecasting principles.”
According to Clowdis, after facing major unknowns almost every year, it’s his firm’s prediction that service providers will raise rates, prompted by the heightened uncertainty or world events.
“Will consumer demand regain the robust levels we’ve seen the last few years? We expect so, but not in the first half of 2025,” adds Clowdis. “We’re projecting 5% to 15% increases in rates with capacity and service levels remaining steady. This won’t help inflation wars, but the die-hard consumer will still find reasonable choices on the shelves.”
