News & Publications

2014 Logistics Outlook

Every year we receive several publications that provide insights into industry forecasts from several angles regarding various transport modes.  Similarly, every year we get approached by customers seeking information into what is expected to happen with the transportation industry in the new year.    To this end, this year we decided to compile notes from several sources with the intention to create a brief summary for you about what experts predict to be the trends in transportation for 2014.

Global Economy
Overall, Trade is expected to pick up in the coming months, although not at a staggering pace.  
•    Economic growth should return to Europe in 2014, although it is expected to remain tamed due to the recent financial crisis and remedial austerity measures. 
•    The slowdown of the BRICS countries – Brazil, Russia, India, China and South Africa- is expected to continue as these economies are impacted by the reduction in external markets in the US and Europe.  Growth in these developing economies will remain elevated relative to the advanced economies but will not be as aggressive as predicted few years back.
•    China remains one of the main catalysts for changes in the economic landscape and the key player in Asia’s logistics activity.  Its economy is still expected to grow, but some predict a bit of a slow down due to changes in spending, political tension with is neighbors, and again, the impact of the decelerated growth in the world leading economies. 
•    For Latin America, pressure for development on logistics infrastructure continues mounting.  With the expansion of the Panama Canal, the introduction of larger vessels, and wider aircraft bodies,  the region has to get up to speed in regards of port, airport and roads infrastructure.  The US trade with Latin America is posed to expand in the coming years, but unless Latin American economies find the way to obtain a more efficient transportation landscape, exports from these countries will remain complicated and transportation alone will continue undermining low commodities cost.
•    Regarding the US, hinging upon the assumption that the economy will continue its recovery and the Government will not cause more self-inflicted damage with another shot-down; the expectation is that the country’s manufacturing sectors and labor markets will continue to improve.  This will be fueled in part with the development of new chemical and petrochemical plants along the Gulf area, major energy projects mainly in the Midwest region, and steel plants in the South from International investors.  Needless to say, one of the expected outcomes of these changes is the continuous recovery of the housing market.

Sea Transport
2014 is expected to witness the most significant changes in the structure of the container shipping industry.  Shippers are likely to benefit from increased competition as Liners try to preserve market share in the face of the new P3 mega-alliance.

If approved by regulators, the P3 Network among Maersk Line, Mediterranean Shipping Co., and CMA-CGM will begin operations in the spring.  The alliance of the world there largest container lines will amass an estimated 42% of the capacity in the Asia-Europe and Trans-Atlantic trades, and 24% of the capacity in the Trans-Pacific.  The P3 Network, will actually reduce the number of ships they position, but will also deploy their largest and most fuel efficient ships, which will increase capacity and reduce costs, enabling them to offer lower freight rates.   Competition will therefore intensify, forcing other existing alliances to expand their cooperation while introducing new routes and improve their offerings.

For the US, cargo growth in 2014 is expected to increase modestly as the US economy continues its slow climbing.  Improvement in housing, manufacturing, and auto markets should drive the main increase in container trade.

Something to keep an eye for US sea transport is that contract negotiations between the International Longshore and Warehouse Union and waterfront employers will be at center stage. The current contract does not expire but until July 1st and should not affect overall containers volumes, but shippers utilizing the West Coast likely will ship early this year or divert freight to other ports in Canada, Mexico, and the US East Coast.  

Global economy growth should result in modest growth in demand, but when combined with this expected growth in capacity, the result in more pressure on rates.  Carriers will be forced to deal with only small rate increases.

For the break bulk industry, the picture appears to be more optimistic.  The market for break bulk and heavy lift ocean cargo is expected to start growing again.  The excitement in the project cargo business in the US comes from the number of chemicals, petrochemical, refining and other projects being planned for constructions along the Gulf Coast.   Another major driver is the energy related projects being built in Montana and the Dakotas to handle the boom of natural gas fields being developed by hydraulic fracturing.   And, heavy lift carriers are also benefiting from investments by foreign steel makers in the country.
Beyond the US the outlook for the global project cargo market also appears to be picking up.  Offshore oil fields are being developed in Africa, and new projects are under way in Southeast Asia and South Americas.  Luckily for shippers, the timing for the construction of all these projects comes as the break-bulk and heavy lift carriers receive the multipurpose vessels orders the carriers placed few years ago during the boom of the wind farms and other heavy lift industries.  Supply and demand is expected to balance in the second half of 2014; and after this vessel space may not be enough to meet demand and that will result in rate increases.

Air Transport
With the expected slow, but continuous recovery of the global economy, forwarders carriers and industry analysts expect demand to grow in the year ahead.  At the same time, the air freight industry is expected to continue dealing with overcapacity issues.  

2014 will see airlines increase the use of passenger wide-body aircraft.  This will add cargo capacity and eat away market from the companies focused on freighter service.   Freighters are not going to disappear any time soon because “unknown” cargo still cannot fly on passenger planes, and many other commodities remain bounded to freighter aircraft.  Overall, supply will continue to surpass demand in this business sector.   The air transport rates are expected to somehow remain flat. 

US Trucking
Demand for trucking services has been growing at a moderate pace and this trend is expected to continue through 2014.  Since the economy downsized in 2008, overall carriers have not been adding capacity, instead only buying to replenish their fleets.  This, combined with reduction in the pool of drivers due to increase regulation, has result in a somehow balanced market.   Still, as US economy slowly improves, pressure is beginning to build and modest rate increases are expected to continue in 2014.

It is expected that the biggest constrain in the industry will be drivers.  Drivers supply was already tight in 2013 due to increasing regulation and the implementation of the new hours of service rules in July.  In 2014 we expect still more rules to better control who gets behind the wheels in US highways, and this will more likely result in further reduction of drivers.  If drivers supply continues to diminish the negative effects on capacity and consequent impact on pricing would be a lot more noticeable.   Note a final rule on an electronic logging device mandate is expected in the second half of 2014, but with implementation in 2016 any effects for this would more likely start to be seen in 2015.   

Bottom line, we expect TL and LTL capacity to tighten over the next 12 months.   If the economy accelerates more rapidly than expected then the more likely outcome will be an unbalance in between trucking supply and demand resulting in increased rates and possible service failures as the trucking industry will struggle to keep up.

US Rail Intermodal
Despite the economic uncertainty, domestic intermodal traffic in North America has continued growing.  This increase in activity has been steadily fueled by:  1) Shippers looking for additional supply chain savings, 2) improved intermodal rail service and lines, 3) increase in carbon emissions reductions efforts, 4) concerns about truck capacity and cost increases, and 5) increase trends in near-sourcing.    For 2014, the expectation is a continuous trend in moderate intermodal price increases.

In addition, it is expected that security will continue to get a lot of attention after the tragic rail incidents in 2013.  And the trade with Mexico will continue to be seeing as major area of opportunity.  It is estimated that about 9,000 trucks cross the border in between Mexico and US, and this There is general recognition in the industry that major growth opportunities for the intermodal transportation into and out of Mexico, The fact that more than 9,000 trucks cross the border between Mexico and the US can give anyone a very good idea of the potential savings in switching some of this freight to rail.  Several new intermodal services have emerged in the US-Mexico traffic the past months and rail companies continue working on plans for additional service offerings.   Still, keep in mind this is not a flow expected to boom overnight as we are still dealing with the complexities of international cross border traffic and needs for development of infrastructure in Mexico (a lot of it expected to happen in the years to come).

Conclusion
For 2014 industry analysis forecast modest growth in the US and Europe, less accelerated but still significant grow in the Asia-Pacific market, continues strengthening of the Latin America region, and further of emerging African markets.    Overall rates are not expected to bring a lot of surprises but capacity will more likely change.   

This summary is just a prediction on how different organizations and analysts expect the global economy and transportation industry to behave during the months to come.  Any significant changes to the economic or political landscape in the US and the world, will have an impact in the ultimate outcome.  At the end, still the best plan for the future is to have as close of a forecast as possible for your individual business, and have a solid transportation and sourcing strategy, strong enough to carry your organization through majority of the unknowns that 2014 may bring.   

 

Contributor:  Amparo Elizondo, Allyn Logistics, Ft. Myers Fl.

Sources:  
- Banker, Steve. " Supply Chain And Logistics Predictions For 2014” Forbes 10 Jan. 2014. Web. <http://www.forbes.com/sites/stevebanker/2014/01/10/supply-chain-and-logistics-predictions-for-2014/>.
- Ferulli, Gary. "2014’s Choppy Seas” The Journal of Commerce, 9 Dec. 2013: V.14 N.25. Print.
- Leach, Peter T. "The More Things Change…” The Journal of Commerce, 9 Dec. 2013: V.14 N.25. Print.
- Alan M. Field, "NAFTA at 20” The Journal of Commerce, 20 Jan. 2014: V.15 N.2. Print.
- "2014 Annual Review and Outlook” The Journal of Commerce, 6 Jan. 2014: V.15 N.1. Print.

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About Allyn International
Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Our core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management, and global trade compliance.  Our clients range from small local businesses to Fortune 500 firms. Allyn conducts business in over fifteen different languages and has extensive experience in both developed and emerging markets. Our highly trained experts are located throughout North America, Europe and Asia.  Allyn has regional headquarters in Fort Myers FL USA, Shanghai P.R. CHINA and Prague CZECH REPUBLIC.

 

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