In November, it was just more of the same as far as the truck freight market is concerned. Perhaps Tim Denoyer, vice president and senior analyst at ACT Research said it best.
“Capacity expansion continues to pressure the for-hire market, as the industry still collectively ignores the first rule of getting out of a hole: to stop digging,” he said in an ACT Research release entitled “Long bottom to persist as industry buckles in for harsh winter.”
The “digging” he referred to is the adding of trucks to a freight market that already has too many. In November, another 19,027 new Class 8 trucks were sold in the U.S., according to data received from Wards Intelligence. Many, if not most, of these trucks were replacements for older equipment, but not all of them.
Also in November, the U.S. Department of Transportation granted operating authority to about 8,000 brand-new carriers. Another 2,200 or so carriers were reinstated, something that can occur in instances when, for example, carriers allow their liability insurance to lapse while not operating.
Revocations were over 10,000, so truck numbers seem to be on the decline, but it’s happening too slowly to have an impact on rates — for now.
The current situation isn’t new. It’s part of the truck-freight cycle that continues to churn.
Three years ago, there weren’t enough available trucks to haul all the available freight. Rates skyrocketed. Now, however, the pendulum has swung the other way, with too many trucks competing for too little freight. Worse, the pendulum seems to have gotten stuck, as the current tough trucking situation continues.
As stimulus cash, handed out to combat the economic impact of the COVID-19 pandemic, is exhausted, the retail market has responded by “destocking,” or lowering inventory levels, to reflect current demand. Lower inventories mean fewer truckloads of reordered product, reducing the demand for capacity.
The November Cass Freight Index for Shipments indicates that shipments reported by their clientele declined in November by 8.9% compared to November 2022. At the same time, the Expenditures Index fell 25.6%. This is indicative of overall freight rates. When seasonally adjusted, expenditures actually increased by 0.9% over a “normal” November.
Denoyer, who authors the Cass release, wrote, “U.S. freight volumes, as measured by the Cass Freight Index, have fallen for most of the past two years, similar to prior downcycles in both length and magnitude, except for the pandemic downturn.”
He points out that rising real disposable incomes and a strong labor market are good indicators that demand for shipping will be better in 2024.
“And as the industry right-sizes, tighter capacity should eventually start to push truckload spot rates higher,” he predicts.
However, “eventually” is not a word struggling truckers want to hear. The title of the Cass release, “Painful peak season proceeds,” accurately describes how owner-operators and small fleets are feeling.
It isn’t just the small fleets, either. The American Trucking Associations (ATA) reported the organizations For-Hire Truck Tonnage Index decreased a full percentage point in November. Many of the larger carriers are ATA reporting members that deal primarily in contract freight rates.
“We continued to see a choppy 2023 for truck tonnage into November,” said ATA Chief Economist Bob Costello. “It seems like every time freight improves, it takes a step back the following month.”
Costello echoed the sentiments of other analysts, saying, “While year-over-year comparisons are improving, unfortunately, the freight market remains in a recession. Looking ahead, with retail inventories falling, we should see less of a headwind for retail freight, but I’m also not expecting a surge in freight levels in the coming months.”
At DAT Freight & Analytics, spot freight rates have been “bouncing along the bottom” for months. Van rates that averaged $2.12 per mile in September declined in the next two months but regained a part of the decline to average $2.10 the week before Christmas. Part of the increase, however, is likely due to the holiday itself. As trucks are shut down for the holidays, capacity tightens, providing a temporary rate burst that quickly fades as the new year arrives.
Refrigerated freight is currently averaging $2.41 per mile, eleven cents lower than three months ago. Flatbed spot rates have declined a dime per mile, from an average of $2.51 per mile to $2.41 as Christmas approaches.
If there’s positive news, it’s that the load-to-truck ratio has increased for both van and refrigerated freight, although both are still significantly behind last year’s levels.
As always, careful monitoring of freight trends and lane pricing can help truckers take advantage of the best available rates.
DAT’s 2024 Freight Focus report looks at the current economic picture, as well as freight volumes and rates for the coming year. DAT predicts that current market conditions will continue into the second quarter of the year and possibly longer.
As if the current freight situation isn’t enough, costs continue to rise. Inflation has slowed, in part due to the efforts of the Federal Reserve, but costs have not yet dropped to pre-pandemic levels — and are not likely to do so.
Diesel fuel pricing is another potential problem. At the start of the conflict between Russia and Ukraine, diesel prices rose sharply but they have since leveled off and declined.
In addition, the conflict in the Middle East threatens to escalate into a regional problem. Houthi rebels in Yemen have attempted to disrupt commercial shipping in the Bab-el-Mandeb (Gate of Grief) strait at the southern end of the Red Sea, a critical link to the Suez Canal. The U.S. has sent a carrier task force to protect shipping, but any disruption or escalation could disrupt global shipping and create a spike in crude oil prices.
Even if fuel prices remain at current levels, however, many carriers will find it difficult to simply hang on until times get better. Controlling expenditures while seeking better paying lanes and providing the best possible service levels are sound strategies for dealing with the state of freight today. Unfortunately, those actions may not be enough to save some carriers, especially the smaller ones.
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.
