LITTLE ROCK, Ark. — According to most analysts, freight rates are due for a rebound.
The problem is that nobody can agree on when it will happen.
In the meantime, January happened.
It’s typically a slow month after the rush of the holiday season, but this year the spot market received a boost from a spell of unusually cold weather. As retailers were restocking shelves and dealing with returns, cold weather closed some roads, creating a short-term shortage of available trucks and driving spot rates upward. Unfortunately, the effect was only temporary.
The freight market is poised to get better, according to industry experts.
DAT Freight and Analytics reported that rates rose for dry van, flatbed and refrigerated freight. The average rate for dry van loads reached just shy of $1.72 during the third week of January but by mid-February had declined to $1.60 per mile. Refrigerated rates rose as high as $2.13 on the average but dropped by 12 cents per mile a month later. Flatbed rates also fell, reaching $1.97 in January’s third week and falling to $1.60 in February.
Truckstop.com reported that spot rates declined for all equipment types in the final week of January, ending up about where they were just before the Christmas rush last year. Total load activity declined 5.7% in the final week of the month, while total volume was down 10% compared with the same week of 2023.
The cold January weather impacted some key economic indicators, according to Truckstop.com and FTR Intel. The Federal Reserve cited weather as a factor in declining industrial production. Housing starts fell 14.8% in January, the lowest level they have been at since August. Compared with December 2023 starts were down 0.7%. Multiple family starts suffered the most.
The Cass Freight report summarize the market conditions perfectly with a headline of “Frozen Freight.” Compared to December, the January Cass Freight Index for Shipments declined 3.5%, about normal for the first month of the year. Compared with January 2023 however, the Index declined 7.6%.
The Cass Freight Index for Expenditures fell even further, down 24.3% from January 2023 and down 4% from December.
Over the full year of 2023, the Cass Shipments index fell 5.5% after rising 0.6% in 2022.
Tim Denoyer, vice president and senior analyst at ACT Research, who writes the Cass report, said things could be improving soon.
“It’s been over two years since the first year-over-year decline of this freight recession and with destocking playing out and goods consumption rising, the downturn is likely nearing its end,” he said.
Denoyer pointed to increases in real disposable incomes and a strong labor market as positive signs indicating freight demand could improve in 2024.
Cass reported that overall spending for shipping fell 19% in 2023 from 2022 levels. That’s a huge drop, but it’s important to note that spending rose 38% in 2021 and another 23% in 2022. FTR predicts that freight spending will decline another 16% in the first half of 2024, if normal seasonal patterns hold.
As many trucking business owners can attest, operating costs have grown substantially in the past year. The U.S. Department of Labor reported that inflation rose by 7% in 2021 and another 6.5% in 2022. In 2023, while rates were falling inflation grew another 3.4%. Currently, freight rates sit about where they were in March 2020, before the impact of the COVID-19 pandemic began.
Unfortunately, operating costs have not returned to 2020 levels and aren’t likely to ever do so.
The federal funds rate that stood at 0.25% through 2021 has been raised to its current 5.5%. The cost of credit has risen dramatically for truckers. Financing costs for new or used equipment have risen, and credit card interest has gone up dramatically. More of each payment is going to satisfy interest charges and less to reducing the principal.
Cass reports on multiple modes of shipping, including trucking, rail, pipeline, ship and air, using billing statistics compiled from its customer base. Trucking comprises about 75% of the shipping they report.
The news at the fuel pump wasn’t good either, as average U.S. diesel prices began rising near the end of January, topping $4 per gallon the first week of February.
The monthly Motive Economic Report is compiled using GPS data from in-truck devices and shows how often trucks equipped with Motive equipment visit retail warehouse locations for the top 50 retailers in the U.S. Motive reports that grocery and superstore retailers saw a 14.8% increase in visits in January compared to January 2023. Home improvement retailers experienced a 14% increase for the same period.
The Motive report attributes the additional visits to “the return of more steady re-stocking patterns” compared with 2023, when many retailers were “destocking” to bring inventories in line with consumer demand.
Motive also commented on the number of carrier registrations and revocations at the Department of Transportation. 3,707 carriers left the market in January, 20% fewer than in December. One reason for the decline might be that business owners who planned to close up shop may have wanted to do so before year end to avoid 2024 tax reporting requirements.
New carrier registrations were up 22% in January over December 2023 numbers. Again, this may have been due to the changing of the year with owners waiting for the new year to start before registering.
At any rate, the decline in carriers is good news for freight rates. As carriers exit the market, the supply of available trucks decreases. With the demand for trucks expected to grow, rates will begin rising again as trucking enters the positive side of the cycle.
It’s looking like 2024 will be a better year for trucking, although conditions aren’t expected to improve quickly or by a large margin. Controlling costs and being selective about loads is still very much the tactic for survival.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.
a new truck
To me this is pretty misleading because numbers used on employment rate and inflation is wrong. The economy is in a recession and the biden admin is doing nothing to improve the economy.
By pushing out false hope and monkey numbers. Look at labor participating numbers.