Freight market update, 5 June 2023

Retailers are scaling back their freight demand

Major retailers, including Big Lots and Walmart, are streamlining their logistics networks and reducing warehouse space as supply chain disruptions caused by the Covid-19 pandemic subside and consumer spending patterns shift towards services. The once red-hot market for warehousing demand is cooling down, leading to closures of distribution centers and layoffs of logistics workers.

Big Lots recently closed four forward distribution centers, which were opened during the pandemic to handle bulk products like furniture. However, declining sales and a changing economic landscape rendered the additional capacity unnecessary. The company reported a reduction of $100 million in annual costs in the first quarter, primarily achieved through the closure of these facilities.

Consumer expectations for fast shipping have waned, prompting retailers to reevaluate their logistics operations and inventory levels. With reduced inventory needs, the demand for distribution centers has diminished. The surge in e-commerce during the pandemic fueled a rush for distribution space, but as the economy changes, companies are adjusting their leasing decisions and downsizing.

Amazon, which significantly expanded its fulfillment network during the pandemic, has started scaling back its expansion plans due to slowing sales. Over the past year, the company has closed, canceled, or delayed work on 115 warehouses in the United States. This contraction in the market has also impacted warehouse employment, with job numbers declining.

Walmart is among the retailers making staffing adjustments at its fulfillment centers, laying off over 2,200 workers across the country. The company aims to optimize its network of stores and fulfillment centers to meet the evolving needs of online customers. While Walmart's comparable sales experienced growth, sales slowed during the first quarter as consumers opted for smaller package sizes and store brands to manage their spending.

The shift in consumer preferences away from goods and towards services has influenced the decisions of retailers like Ashley Furniture Industries, which closed a distribution center opened during the pandemic. Home decor and furniture sales surged during lockdowns but have since declined as people redirect their spending towards travel and experiences.

As the industrial real estate vacancy rate starts to increase after a prolonged period of decline, the landscape of warehousing and logistics operations is undergoing transformation. Retailers are adapting to the changing economic environment by reassessing their needs and making strategic adjustments to their supply chains.

Positive drug tests are rising among US drivers

The trucking industry is facing a problem as more truck drivers are testing positive for marijuana use. In the first quarter of 2023, there was a 9.2% increase in positive tests. What's even more concerning is that many of these drivers are not participating in the return-to-work program, making the situation worse. This is leading to a shortage of qualified drivers and affecting the supply chain.

The trucking industry plays a vital role in transporting almost 75% of the goods in the US economy, including products found in grocery stores. However, there is currently a shortage of 80,000 drivers, which is adding to the challenges. As of March, 129,100 drivers are not allowed to drive due to failed drug tests. Out of them, 97,833 have not started the return-to-work program, and 19,413 are eligible for retesting.

The American Trucking Associations' Controlled Substances, Driver Health & Wellness Subcommittee is taking steps to address these issues. They aim to correct misconceptions about drug use, provide education to drivers, and tackle the underlying reasons for substance abuse.

The problem goes beyond marijuana, as a recent report showed that drug positivity rates in the US workforce are at a 20-year high. Marijuana and amphetamines are among the contributing factors.

The driver shortage is an ongoing challenge. Currently at around 80,000, it is expected to reach 160,000 by 2030, which will further strain the supply chain.

To overcome these challenges, collaboration is essential. It is important to dispel misconceptions, educate drivers effectively, and address the root causes of substance abuse. Attracting and retaining qualified drivers through proactive measures is also crucial.

The trucking industry needs to tackle the increasing drug test failures and driver shortage with determination. It requires the cooperation of stakeholders, policymakers, and industry associations to ensure a reliable supply chain and the smooth transportation of goods, which are vital to the nation's economy.