Shippers that have budgeted flat transportation spending for the coming year are about to face a painful reckoning, according to Ryan Martin, president of distribution and fulfillment at ITS Logistics. In an interview with FreightWaves, Martin detailed how tightening capacity, rising costs, and lingering inventory issues are converging to create a market shock for large retailers and brands.
The Capacity Reckoning Ahead
Martin stated, "Pain is ahead on the transportation side. We’ve been seeing the signs building for months. Shippers don’t typically believe it until they start to feel the pain." The signs include driver exits, carrier closures, increased regulatory scrutiny on non-domiciled operators, and surging fuel costs. Any sudden spike in freight demand will not draw the same carrier response as in years past, leaving shippers with budgets that assume flat market conditions vulnerable.
The Great Inventory Cleanup
The post-pandemic inventory overhang is finally clearing, but with consequences. Martin observed that brands are wrestling with higher product costs – items that once cost $1 now run $1.52, turning excess inventory into a cash-flow drain. He explained that "every customer is pushing for better inventory turns due to the cost of inventory increasing, whether that be through tariffs, transportation rates, etc."
Retailers have been reluctant to heavily discount items (upwards of 50%-75%) to move inventory, because the goods sit on their balance sheets as a cash equivalent. Instead, they sit on it, mothball it, and it typically moves only when a new buyer or General Merchandise Manager gets the grace to liquidate that distressed inventory. One brand ITS works with is cutting 50% of its product catalog after calculating true carrying costs.
"The water level lowers. You can see the rocks in the stream. Right now, we’ve been so focused on that, that’s why warehouse capacity increased over the past couple of years." – Ryan Martin, ITS Logistics
SKU Rationalization and Wholesaler Winners
Martin described the lean-manufacturing metaphor of water lowering to reveal rocks, indicating that operational inefficiencies are being exposed. The winners in this environment are wholesalers such as TJX Companies, Ross, and Dollar General, which buy distressed inventory when brands finally pull the trigger on markdowns. "Those that go out and buy this distressed inventory, they do very well in these markets," Martin said.
The Cheerios vs. Gas Theory
Consumer behavior remains a wildcard. Martin theorizes that consumers are more aware of gas prices than grocery prices. "No one could ever tell you what the box of Cheerios cost yesterday at the grocery store was even though it went up 50%," he said. This theory suggests that while inflation hits food staples, consumers prioritize fuel costs, affecting overall spending patterns and freight demand.
Implications for Shippers and Carriers
Martin emphasized that shippers budgeting for a flat year in transportation spend need to urgently reassess. With capacity tightening and costs rising, those who assume market conditions will remain static risk being caught off guard. Carriers, meanwhile, are exiting the market or limiting capacity, reducing the buffer that helped keep rates low during the recent downturn.
| Factor | Impact |
|---|---|
| Driver exits | Reduced capacity, higher rates |
| Carrier closures | Fewer options for shippers |
| Fuel costs | Increased operational costs |
| Regulatory scrutiny | Barrier to non-domiciled carriers |
Watch List
- Inventory liquidation cycles: When major retailers finally mark down distressed goods, it could spark a sudden surge in freight demand.
- Fuel price trends: Continued fuel cost increases will pressure carrier margins and rates.
- Regulatory enforcement: Crackdown on non-domiciled carriers could further tighten capacity.
- Consumer spending shifts: The Cheerios vs. Gas theory suggests that changes in gas prices may disproportionately affect freight volumes.
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