In early November we asked over 500 shippers to provide insight into their outlook for 2024 via a questionnaire. Parsing through all of the data we collected, our team was able to create some key takeaways- our best effort to bring clarity for all our stakeholders.
The content we are sharing here is for informational purposes only. Please don’t use this data for any legal, business, or financial decisions, but please do feel free to share to anyone that may find this useful.
Optimal Inventory Levels as Anticipated for 2024
Recent conversations with our customers have indicated that, while sales have not substantially diminished inventory reserves, there is confidence regarding their inventory status.
This Confidence is Data-supported
The evidence gathered through our survey supports this confidence. As you can see, there is a a predominant satisfaction with current inventory levels, with a significant majority (50%) considering their inventory “Spot On”.
2024 Volume Growth?
It is anticipated that there will be a modest contraction in volume growth as major market segments proceed with the gradual normalization of their inventory levels. When you add social and political uncertainty to the 2024 equation, it is hard to see much growth on the horizon.
Corroborative Economic Indicators from FRED
Interpreting the Inventory-to-Sales Ratio
The Total Business: Inventories to Sales Ratio, as indicated by FRED, demonstrates a notable trend towards stabilization. The gradual decline in the ratio may suggest an alignment of inventory levels with sales, suggesting better inventory management and improved demand forecasting post pandemic.
Retailers’ Inventory Trajectory
FRED’s data on Retailers’ Inventories shows a steady climb, which is normally indicative of a rebounding economy and retailers’ anticipation of increased consumer spending during the year-end holidays. This uptrend underscores the strategic importance of maintaining optimal inventory levels to meet consumer demand without overextending resources.
Supply Chain Threats to Only Get Worse
Clearly, you can see that this survey closed two-weeks prior to when tensions in the red sea started to occur. The widely reported shift away from the Suez is a significant move, and when combined with the issues facing the Panama Canal would likely move these two to the top.
The issues in the Panama canal don’t look to be improving in a quick manner, and we will likely still be dealing with them this time next year.
If ocean carriers do not find a price equilibrium that is palatable to them, they will continue to remove capacity to put upward pressure on the market. In a commodity environment, supply vs. demand always prevails.
East Coast Labor
The giant elephant in the room. No one is really wanting to talk about it yet, but the sentiment in the industry is that a strike is almost imminent if the ILA doesn’t get their demands met. Couple this with an election year, and it makes the situation very contentious. If a strike occurs, congestion will surely be the hot topic on the West Coast.
Supply-Demand Imbalance Only Makes the Threats Worse
In a recent release by Sea-Intelligence, the industry continues to face the impacts of overcapacity – with an increase as new ships are delivered in 2023 and 2024.
The analysis suggests that the earliest year by which the shipping industry could achieve a balance between the number of available ships and the demand for cargo transport (absorption of overcapacity) would be 2028. This is under a positive scenario where cargo volume grows by 3.8% annually from 2024, which matches historical growth rates from the past decade, and the supply of new ships slows after 2026.
The worst excess of available shipping capacity is predicted to occur in 2024.
In simple terms for global shippers, if cargo volume doesn’t grow as expected, or if too many new ships enter the market, the time it takes for the shipping industry to balance out could extend to 2030, affecting shipping rates and availability.
Shippers need to be prepared for fluctuations in costs in 2024.
Strategic Imperatives for 2024
A strategy that is dynamic allowing for seamless switching between these service paradigms will be critical in 2024.
Stakeholders should be looking towards a procurement model that maximizes “value” by integrating a spectrum of service providers offering varying cost and service levels. This holistic approach would allocate business volumes across:
- Economically viable carriers and NVOCCs that provide competitive rates for less critical shipments; and,
- Premium, service-oriented carriers and NVOCCs that deliver superior care thus warranting higher expenditure, justifiable for more critical SKUs and shipments.
The Search for Transparency
The quest for comprehensive supply chain visibility remains a formidable challenge. If you follow the commentary on Supply Chain Visibility on LinkedIn you know what I am talking about. If you don’t, you are smarter than me.
Key considerations voiced by survey participants in the “other” response:
- Accurate volume forecasting from internal departmental teams to fine-tune supply chain readiness,
- Dependability and consistency of carrier operations to ensure timely and dependable delivery, and,
- Stringent adherence to trade compliance and regulatory mandates to mitigate legal and financial risks.
Looking Ahead to 2024
As we approach 2024, it looks like the aggregate sentiment amongst our customer base suggests a cautiously optimistic forecast for trade volumes.
While 33% of shippers surveyed anticipate maintaining the status quo with consistent volumes; an equal proportion (27% respectively) predicts either an incremental rise or a modest downturn in trade activities.
A smaller, yet noteworthy segment (13%) forecasts a substantial surge in volumes, signaling modest confidence in market expansion and economic vigor.
This diversity in expectations underscores the need for agility in operational strategies to accommodate the varying demands that 2024 will bring.
Should shippers be looking to bring cargo in earlier in advance of potential labor disruptions? We think shippers should. If this were to happen, it could artificially bolster predicted volume trends – creating a mini-peak – and as a result a scenario where ocean carriers could drive rates up.
Routing away from the Suez
As widely reported, carriers are injecting capacity to transit around Cape of Good Hope to avoid the current environment in the region. This could result in a reduction of the predicted 2024 overcapacity ratio – albeit temporarily.
Our Team’s Take
Diversification will be the name of the game in 2024. The market is unstable, with many disparate variables having an outsized impact compared to historical norms- play it safe and diversify for best results.