COLUMBUS, Ind. — Soft freight demand will likely linger for a while, but emerging capacity removal will be key to rebalancing, according to ACT Research.
ACT points to slower declines and wider spreads between specialized and dry van rates this year and notes that a lot of rebalancing must take place to turn the proverbial ship, according to the latest release of the Freight Forecast, U.S. Rate and Volume OUTLOOK report.
“Spot rates are now about 17% below truckload fleet operating costs in Q2, worse than the 15% operating loss in Q1, by our estimates,” said Tim Denoyer, ACT Research’s vice president and senior analyst.
“Failures started to pick up when the loss reached 10% in Q4’22,” he continued. “This was a record at the time, and we see Newton’s third law of motion at work as the rebalancing requires a string of record losses following record pandemic profits. Q2 is the fourth straight quarter of significant losses, and both the time and magnitude of the losses should send a strong enough signal to tighten capacity.”
Denoyer said that the pendulum of pricing power has been firmly with shippers for some time and that lower rates are starting to impact capacity.
“Though new equipment production remains elevated, hiring and fleet exit trends tell us capacity is slowing at the margin,” Denoyer said. “With marginal fleets scrambling for miles with busted budgets, spot rates have gone far below costs, but this can only go on so long.”
Denoyer added that “the symbiotic relationship between truckload and less-than-truckload is informative for understanding the freight cycle: in tight markets, freight flows from truckload to less-than-truckload and in loose markets from less-than-truckload to truckload. The trend changes so far this year suggests the industry has passed peak looseness, and a rebalancing has begun. The bottom of the spot rate cycle can’t be far now.”
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