Typically, as one approaches the end of a year, it’s always interesting to look ahead and ponder what the new year may bring. For 2020, we believe one word will best describe it – volatile. We’ve seen how global trade policies are decided with just one tweets and their immediate impact throughout the supply chain. We’ve also seen student demonstrations bring major freight hub Hong Kong to its knees and climate change activists throughout the world demand changes that will have huge impacts on supply chains.
So, for 2020, expect the same volatility that we, as a market, experienced in 2019. The ripple effects will impact capacity, rates and customer demand no matter what mode of transportation is used.
Inventory restocking and tariffs prompted a big demand for imported goods in 2017 and 2018. This led to space shortages in warehouses, congestion at various ports, rising rates for ocean, road, rail and air freight and capacity constraints in trucking in particular. A number of trucking firms placed orders for new trucks to not only to help with the additional capacity but also to replace older fleets. Many trucking firms had delayed upgrading their fleets because of lingering effects from the 2010 recession. We also saw air cargo providers ordering new airplanes as air volumes climbed.
However, by mid-2018 demand started to ease as many shippers began to work down inventories stockpiled in warehouses ahead of each announced tariff increase. Since then and as a result in 2019, we’ve witnessed year-over-year declines in overall volumes in air, road and rail.
But, perhaps one of the shining lights in the supply chain has been small parcel. Volumes continue to increase as customers order more and more online. E-commerce is a growth opportunity for small parcel providers and as a result post offices, FedEx, UPS and regional small parcel providers have seen tremendous growth in volumes. Translating the volumes however into profits varies for each carrier. UPS and FedEx have invested heavily in their respective networks and facilities to address this mostly business-to-consumer (B2C) phenomena as well as introduce and/or increase various surcharges such as large package and additional handling to offset the increased time and cost incurred by carriers when managing packages outside a set size, shape and weight.
Against the volatility we expect in 2020, in which global trade will be tested yet again, we anticipate that small parcel volumes will continue its upwards climb. But we also expect more focus on business-to-business (B2B) as well as converting B2C volumes into B2B volumes.
Forrester forecasts that US B2B e-commerce will reach $1.8 trillion and account for 17% of all B2B sales in the US by 2023.1 Along with this growth, we expect Amazon to take the lead much like they have with B2C e-commerce. Amazon’s B2B marketplace already serves a variety of customers as well as includes numerous offerings as customer options range from specific industrial products to as broad as office supplies.
Amazon’s B2B marketplace, Amazon Business, launched in 2015 and in just one year, it recorded $1 billion in sales. RBC Capital estimates Amazon’s business will see revenue reach $31 billion by 2023, as sales quintuple to $52 billion over the same period.2
UPS and FedEx are already working on transitioning B2C small parcel volumes to B2B. Residential deliveries are expensive for these carriers and as such each have developed alternative drop off and pick up locations at select retailer partner locations and other locations. This will continue in 2020 as carriers are likely to introduce incentives for customers to utilize such options. It is also possible that the carriers could impose another surcharge increase on residential deliveries later in the year or perhaps introduce a new one to discourage these types of deliveries.
For the rest of the supply chain in 2020, expect modest increases in volumes across all transportation modes as demand remains subdued. This expectation is due to global trade forecasts from World Bank, IMF and World Trade Organizations being revised downward. As such, we do expect demand will be greatest on a regional basis.
Rates will also likely be on the lower side as carriers compete for volumes. However, we will see spot rates jump based on certain events throughout 2020 with the first event being IMO 2020 and which will be implemented January 1, 2020. Other events will center around specific holidays as well as retailer-specific shopping days such as Amazon Prime Day and China’s annual 11.11 event and of course, there will be the unknown events that could potentially wreak havoc on supply chains if they are not prepared.
2020 will probably be a continuation of what we’ve witnessed in 2019 but there will be events in which we’ll see bursts of demand, higher spot rates and perhaps even capacity constraints. In addition, global risks will continue to be a concern. The United Kingdom is due to leave the European Union on January 31, 2020, the fourth deadline since the 2016 referendum. Climate change remains a major concern and of course the U.S. presidential election will occur later in 2020. Uncertainty breeds anxiety but supply chains need to be prepared to react and adapt quickly with not only these expected changes but also the unknown changes.
By Brian Broadhurst, Vice President, Transportation Solutions, Spend Management Experts
Brian has more than a decade of experience leading large-scale global transportation cost reduction initiatives. As vice president of transportation solutions for Spend Management Experts, he is responsible for account delivery services, internal process improvements and strategic data modeling initiatives. He previously served as manager at Accenture and logistics engineer and project manager at UPS Supply Chain Solutions.