Cliff Abbott

The title of the press release said it all: “For-hire rate recession is over.” That’s good news for carriers who have been struggling to hold on until freight rates improve. The Nov. 22 press release from ACT Research included comments from ACT’s vice President and senior analyst, Tim Denoyer. “Currently, with a significant capacity contraction by for-hire fleets and private fleet insourcing slowing, capacity has finally rebalanced enough for rates to start moving higher,” he noted. Unfortunately, not everyone agrees that the freight market is currently entering a new phase. “My belief is that we are in what I’d term “freight cycle limbo” in that the down cycle that started in Q3 2022 has indeed bottomed out, but we aren’t yet in a true upcycle,” said Jason Miller, professor of supply chain management at the Michigan State University Eli Broad College of Business. “That upcycle will wait till late Q1 or early Q2 2025 to materialize.” So, who’s right? According to DAT Freight and Analytics’ Trendlines, dry van spot rates rose by a nickel per mile to a national average of $2.02 in October. Flatbed rates also rose, but at $2.41 per mile they still haven’t reached the August rate level. Refrigerated rates also rose in October to $2.39 per mile on the average — but that’s still a penny beneath the August average. Perhaps the most telling DAT statistic is the load-to-truck ratio for each category. After all, more loads per truck means more competition for trucks, pushing rates upward. In October, there were 4.13 loads posted on the DAT load board for every truck posted. In October 2023 that number was 3.01, so the numbers show a 37% increase in loads. In the refrigerated segment, 5.85 loads were posted for each truck, a 30% increase from October 2023. For flatbed, 14.31 loads were posted for each truck posted, an increase of nearly 63% over October a year ago. When average spot rates are compared, however, there hasn’t been much progress. Van spot rates increased just 0.5% year over year, refrigerated rates actually declined by 2.1%, and flatbed rates climbed 3.2% over October 2023. The price of diesel fuel also plays a role in freight rates. Fuel is cheaper today than it was a year ago, so excluding fuel costs, the rates look better. “With DAT spot rates net fuel tracking 7% higher than a year ago in Q4, contract rates are rising modestly but consistently across DAT data, Cass data, and fleets’ financial reports for the first time in three years,” said ACT’s Denoyer. “The market is very close to balance, and in 2025 the combination of normalizing equipment supply and a pre-tariff safety stock build are poised to drive higher for-hire freight demand and rates.” The Cass Freight Index for Shipments wasn’t as positive, showing a 1.9% decline from September and a tiny 0.1% decline from October 2023. The Cass Index for expenditures was also down, dropping 1.5% from September and 1.7% from last October. But keep in mind that the Cass report isn’t exclusive to trucking — it also includes data from rail, air, barge, ship and pipeline modes of freight transportation. A telling number comes from a chart included in the Cass report, which shows reported fleet sizes for 13 of the largest publicly traded carriers. For the first quarter of 2023, those fleets reported a total of 117,103 tractors. In the third quarter of 2024, that number had dropped to 107,191. That’s nearly 10,000 trucks removed from the freight hauling market, and the figure doesn’t count smaller carriers that have either downsized or closed up shop entirely. Other factors in play Looking at the broader picture of U.S. production, Miller’s view is less optimistic. He referenced two Reserve Economic Data (FRED) charts in his opinion. One showed the seasonally adjusted industrial production of fabricated metal products. “The past few months have seen sharp declines in production,” he wrote in a LinkedIn post. “Drawdowns in fabricated metal production in 2015 and the especially steep drop in 2019 corresponded to freight recessions.” Miller notes that production has been trending down since mid-2022. A second chart shows that wood product production is still beneath 2017 levels. “You will note how production started falling in Q4 2018, which was the same time the FOMC had started raising interest rates,” he wrote. Those two areas of production are vital to the manufacturer of automobiles, appliances and machinery as well as products for home building, which are subdued by the current higher interest rates Miller wrote, “As November and especially December exhibit seasonal tightening, we won’t truly know if the freight recession is over until mid-January (and that assumes no extreme weather events like in January 2018 or January 2024).” Better days expected ahead Still, as Miller considers the manufacturing side and Denoyer looks toward the capacity side, it seems evident that the market is approaching an upturn, if it isn’t in one already. Denoyer thinks the reduction of capacity in trucking may be enough to overcome any slowed production, at least temporarily. “After a long downturn in freight rates, the difference between the 5.9% contraction in capacity and the 2.8% drop in shipments may help explain why TL (truckload) rates have started to rise, if only by a little,” he said. “The big private fleet expansion of the past two years will likely still leave anyone looking for a boom disappointed, but the for-hire rate recession is finally over.” Back at DAT, Ken Adamo, chief of analytics, says the numbers are looking positive. “October continued the pattern of year-over-year gains in spot truckload rates and volumes, while contract rates approached parity compared to October 2023,” Adamo said. “Five months into it, the contours of this freight cycle look conventional, like the 2013-2017 cycle, when monthly spot van rates averaged +5% year over year.” Whether the end to the freight recession is a few months away or has already started, light is finally visible at the end of the tunnel. Better days are ahead for the trucking industry.

For several months, there have been hints that the freight market is beginning to turn. Unfortunately, spot freight rates have been bouncing along the bottom for so long that smaller carriers — and some larger ones, too — weren’t able to hold on. Those that remain should see market improvement, but analysts say it may be excruciatingly slow. The Cass Freight Index showed a 1.7% decrease in shipments for September, following a 1.0% August increase. September shipments were down 5.2% from the same month of 2023. The Cass Freight Index for Expenditures, however, rose 2.4% in September from August levels. Shippers paid more for freight transportation, even though diesel fuel costs declined during the month. The Cass Inferred Freight Rates, calculated from the total expenditures and shipments, showed a 4.2% month-over-month increase. While the rates are averaged from multiple modes of transportation and not taken from actual published rates, the trend is encouraging. The Cass report, written by Tim Denoyer of ACT Research, points out that private fleets have helped prolong the down cycle in freight rates. Companies that were severely impacted by record high freight rates during the pandemic increased the size of their own fleets, putting less of their product on the spot market while taking loads that would have been hauled by for-hire carriers. Denoyer mentions another event that could impact freight rates: The Federal Motor Carrier Safety Administration’s mandated automatic downgrade of CDLs when a driver is in a “prohibited” status takes effect Nov. 18, 2024. Under the “Clearinghouse-II” rule, states are required to downgrade CDLs to non-CDL status when drivers fail a drug or alcohol screen, refuse to test or are otherwise disqualified. As of Nov. 18, all licensing agencies are required to be connected to the Clearinghouse database. As a result, states that were not previously connected could find drivers who are currently in a prohibited status but still driving. There’s no way to estimate how many drivers might lose their CDL privileges as a result, but the number could be significant enough to push freight rates upward — at least temporarily. DAT Freight & Analytics, which operates the largest U.S. load board, began its October report by saying that September freight volumes and rates “signaled that the usual cyclical demand for truckload capacity is on the upswing.” DAT reports that its Truckload Volume Index (TVI) declined for dry van, refrigerated and flatbed segments in September — but the declines were seasonal. They happen every September. The good news is that all three equipment types saw increases over September 2023. Van volumes increased by 6% and refrigerated by 12%, while flatbed volumes rose a more modest 2%. “September showed we’re firmly into a new freight cycle after nearly 22 months of rather extreme expansion and 27 months of contraction,” said Ken Adamo, DAT’s chief of analytics. “We expect seasonality to provide some tailwinds over the next few months, and hopefully modest improvements in rates coupled with retail freight volumes and stable fuel prices can get the motor carrier base on more solid footing.” The American Trucking Associations’ (ATA) Truck Tonnage Index fell 2.1% in September. Like the DAT information, the results were due more to the season than trends. “Freight has been very choppy this year, but despite the latest drop, tonnage is up 1.8% since hitting a low in January,” explained Bob Costello, ATA’s chief economist. “No doubt, the climb up has been slow and difficult as manufacturing activity remains flat, but the trend is up, not down.” Low freight rates are only one of the problems facing carriers. Inflation has hit everyone hard, and small trucking businesses are no exception. The cost of trucks, parts, repairs and just about everything else has risen in the past few years. The exception is diesel fuel, which has declined in price. While the rate of inflation has slowed, the cost increases brought about by higher inflation remain. Without a recession to “reset” the economy, prices won’t be going down; they just won’t be going up as fast as they were. Financial services provider Deloitte, in its economic forecast for the third quarter of 2024, said that “robust consumer spending, high business investment and lower interest rates” have created optimism about the U.S. economy. The firm predicts that federal adjustments to interest rates will succeed in keeping inflation around 2.2% toward the end of the year. For 2025, an inflation rate of 1.5% is forecast. The Fed’s Open Market committee meets again in early November and is expected to reduce interest rates another .25%. Deloitte predicts total cuts for 2024 of 1%, with another 1% through 2025. The economic wild card for trucking could be the cost of diesel fuel. Military conflicts are ongoing in both the Middle East and in Ukraine — and both are regions that produce petroleum. Should either conflict escalate, crude oil prices could rise quickly. Another potential issue could come as a result of the presidential election in the U.S. Both major candidates — former President Donald Trump and current Vice President Kamala Harris — have discussed the possibility of imposing or increasing tariffs on foreign goods. When tariffs are involved, imports and exports are impacted. The result can be changes in the amount of available freight, pushing rates up or down. The short-lived labor stoppage at U.S. East Coast ports has been settled, for now. The International Longshoremen’s Association and the U.S. Maritime Alliance agreed to a tentative deal, extending their current contract to January 15, less than a week prior to the inauguration of the next U.S. president. Expected freight shortages throughout this year’s holiday season have been averted. The agreement calls for a 61.5% pay increase for workers with other issues to be ironed out in negotiations by the January 15 deadline. Perhaps the largest issue to resolve is that of automation. The U.S. lags behind other countries in the degree of automation used. The 85,000-member union seeks to preserve jobs, while port operators look to increase efficiency and reduce costs. The months ahead should see trucking conditions improve, but slowly.

DAT’s Truckload Volume Index (TVI) for August rose month over month for the dry van, refrigerated and flatbed segments tracked. DAT reported an increase of 2.8% from July for dry van, 4.3% for refrigerated and 0.3% for flatbed. Also in August, however, national average spot freight rates fell for all three segments, with dry van falling by a nickel a mile, refrigerated by four cents and flatbed by seven cents. The news wasn’t all bad, though. DAT’s TVI showed a 6.3% improvement over August 2023, and the refrigerated TVI was up 17.6%. “Linehaul rates were year-over-year positive for the first time since March 2022, a trend that should continue into the fall shipping season,” said Ken Adamo, chief of analytics at DAT. “However, year-over-year comparisons are little consolation for truckers looking for better pricing now.” Increasing Costs Because of inflation, truckers are already contending with higher prices for everything they purchase — with the exception of fuel — but fuel is often covered by a surcharge and isn’t included in the DAT rate calculations. The recent half-percent rate cut by the Federal Reserve isn’t likely to show up on credit card interest for months, if at all, and existing truck loans with fixed interest rates won’t be impacted anyway. A 2024 update on the Operational Costs of Trucking, published in June by the American Transportation Research Institute (ATRI), reported that trucking costs, minus fuel, rose by 6.6% in 2023 compared to 2022 costs. Insurance premiums and truck and trailer payments are growing at the fastest rates: From 2022 to 2023, insurance costs rose 12.5%, while truck and trailer payments rose 8.8%. It’s important to note that those increases added to even higher increases the year before. In 2022, for example, truck and trailer payments rose 18.6% and then rose another 8.8% in 2023. Respondents to another ATRI survey reported that those costs continued to rise in the early months of 2024. ATRI reported that driver wages rose by 7.6% in the same period, but truck owners are finding it difficult to increase their take-home cash after paying the increased business costs. Those that are leased to carriers may be seeing a higher per-mile compensation. The Seasonal Factor A part of the rate problem in August is seasonal. Harvests of vegetables and early fruits have mostly been completed and shipped, leaving refrigerated trucks to compete for dry van loads. Grain harvests are beginning, but these products are mostly handled by hopper-bottom or dump equipment. In short, August is typically a slow shipping month, which translates to lower shipping rates. The Cass Freight Index for Shipments reported a 1.0% increase in shipments, but a decrease from last August of 1.9% following a 1.1% decline in July. “These were the smallest declines in 18 months as goods demand continues to grow slowly — and slowing capacity additions reduce the pressure on for-hire shipments,” wrote Tim Denoyer, vice president and senior analyst for ACT Research, who administers the Cass report. The Cass report is compiled using billing data from its clients and includes data from trucking, rail, ship, air and pipeline transportation segments, with about 75% coming from trucking. The data skews towards contract freight rates rather than the spot market. Politics Play a Role There’s no denying that this year’s presidential election, along with numerous other races at both the federal and state levels, have created uncertainty in the trucking industry. “We generally strive to base our outlook on industry economics, rather than politics … but no strategy worth its salt can avoid election implications right now,” Denoyer wrote. Those implications, according to Denoyer, include elevated near-term uncertainty and slowing industrial activity as normal short-term features of presidential elections. “Almost regardless of the outcome, some combination of near-term softness and post-election relief recovery in freight demand is thus likely,” he said. Available Freight The American Trucking Associations (ATA) weighed in with its Truck Tonnage Index, which showed an increase of 1.8% in available freight in August. The ATA index is comprised of survey data received from its membership and leans heavily to contract freight. “August tonnage levels rose to the highest level since February 2023,” said Bob Costello, chief economist for ATA. “Not only does the latest robust gain show freight levels are coming off the bottom, but so does the sequential pattern over the last eight months,” he said. “Starting earlier this year, every time tonnage falls, it is higher than the previous low. For me, this month-to-month pattern is more important than looking at the year-over-year percent changes since we are at an inflection point in the freight market.” Possible Port Strike The Motive Monthly Report for September showed a 7.7% increase during August in truck visits to warehouses of the top 50 U.S. retailers. The report noted an increase in inventory-to sales ratios, indicating that retailers are increasing their stocks ahead of the holiday season. There’s another reason, however. A labor agreement between the International Longshoremen Association (ILA) and port owners is due to expire, and a deadline of Oct. 1 has been set to reach a new agreement. The ILA handles 43% of all U.S. imports, moving through ports on the East Coast and the Gulf of Mexico. A strike could impact consumer goods, causing shortages and price increases. Shipping costs, already on the rise, will be pushed further upward, both by shortages caused by a strike and by higher labor costs once agreement is reached. With the election so close, President Biden isn’t likely to become involved in the negotiations unless conditions become severe. A strong holiday retail season would be a badly needed boon to the trucking industry, but potential strikes at Eastern ports could remove a lot of freight from the market. In the meantime, both presidential candidates have discussed import tariffs that could dampen trade. Per Diem Boost In other news, per diem rates are increasing from $69 to $80 per day, effective Oct. 1. This 16% increase in per diem amounts to another $21 per day on the road to deduct from the income tax bill. This is especially important for owner-operators who pay self-employment tax, as it can increase tax deductions as much as $3,000 to $4,000 per year. That’s not much difference to struggling trucking businesses … but every little bit helps. In the meantime, truckers are still waiting for conditions to get better.