Stormy weather: Falling load numbers and freight rates point to turbulent times ahead
The amount of freight available to haul is declining and so are rates. That’s the bad news. The good news is that both rates and freight levels are still way ahead of where they were two years ago. There is still money to be made in trucking, but it takes a smarter, leaner operation to keep it. The Cass Information Systems Freight Index for shipments shows a 1.7% decline in July from June freight levels. Compared with July of 2021, however, freight has increased modestly by 0.4%. Going back two years to July 2020, freight levels have increased 16.1%. Better news is reflected in the Cass Freight Index for Expenditures. It shows that money spent for shipping declined 3.6% in July from June levels but is still 28.2% ahead of July 2021 — and a whopping 83.5% ahead of July 2020 numbers. The Cass numbers come from invoice and accounting work the firm does for its customers, and the figures represent multiple forms of transportation. Trucking is the lion’s share, but shipments by ship, air, pipeline, barge and more are included in the data. On the trucking side, the report states, “The market balance has shifted, with capacity no growing briskly and demand falling slightly year to date.” According to DAT Trendlines, spot load posts on its load board have declined by 26% in July from June levels. Compared with July 2021, spot load posts have fallen 34%. While the number of loads offered has fallen, the number of trucks looking for loads on DAT boards has taken a more interesting course. Posted trucks fell 9.3% from June but are still 8.1% higher than July 2021, according to Trendlines. The year-over-year picture shows freight declining by just over a third, while available trucks increased more than 8%. That’s a growing overcapacity problem in a nutshell. The latest Spot Market Insights release from Truckstop.com and FTR Transportation Intelligence shows a steady decline of spot loads posted on the Truckstop.com board, with load numbers dropping over 50% in July from February levels six months ago. The report notes that the ratio of loads to trucks fell to its lowest level since early June 2020. That’s a recipe for falling rates, and the numbers show it’s happening. The report stated, “FTR estimates that excluding an imputed fuel surcharge, rates would be down nearly 20% year over year.” Trucking business owners who depend on the spot market already know about falling rates and lowered availability. They’re already dealing with high fuel costs and inflation levels at a 40-year high. Those who purchased equipment in the past year or so likely paid exorbitant prices, and those looking to replace equipment soon are looking at even higher prices — plus higher interest rates. They’re wondering what comes next. Recession. That’s the word being used by pundits who are either claiming we’re already in one or soon will be. The standard definition of a recession is two consecutive quarters of negative gross domestic product (GDP) growth, and by that definition the recession is here. However, recessions are typically accompanied by high unemployment numbers, and that isn’t happening now. ACT Research, an industry analyst and forecasting firm, provides information that helps some of the largest carriers plan for the future. On July 27, ACT released its Commercial Vehicle Dealer Digest in which they announced that they are calling for an official recession for 2023. “We have revised our economic forecasts and are now modeling a recession in the first half of 2023,” said Kenny Vieth, ACT’s president and senior analyst, in the release announcing the prediction. In an exclusive interview with The Trucker, however, Vieth noted that the recession is already here for trucking. “The freight economy is getting whacked a little bit harder than the overall economy,” Vieth said. “Our freight model is saying that freight is going to be down 3.2% next year. Our call was that we are in a freight recession now. It started in the second quarter.” ACT predicts a net GDP growth of 0% for 2023, predicting that negative growth in the first 6 months will be made up in the second half of the year. There is some good news in all of this. Larger carriers who operate mostly on contract freight will see an overall decline in rates, but “we have a pretty sharp decline in profitability expectations for the big guys next year,” Vieth said. “But it’s going to still be the fourth-best year in history for net profit margins. Freight rates are gonna fall hard, but they’re falling off the tallest cliff they’ve ever been on.” With more than 200,000 Class 8 trucks on order for the North American Market and virtually no cancellations over the past four months, the number of trucks available to haul decreasing amounts of freight will continue to grow. In addition, falling prices for used trucks will likely result in even more available trucks on the road. Small trucking business, especially those that incurred high debt levels to purchase expensive equipment in the past year or so, will be hit harder than larger carriers that have more contract freight in the coming months. Those that survive will do so with belt-tightening to control expense and with careful selection of loads that helps keep revenues at the highest possible levels. Owner-operators who are looking at financial difficulties may consider leasing to a carrier that has contract freight to haul as one way to maximize profit potential. The American Trucking Associations’ For-Hire Freight Index was not available at press time. Whatever the time line, the economy and the trucking industry are headed for turbulent times ahead.
