Beginning in 2020, the COVID-19 pandemic brought global economic conditions that had not been seen for generations.
Four years later, the disease that started it has abated somewhat, but the impact of government efforts to stimulate a stalled economy, combat supply chain issues and modernize the nation’s infrastructure are still felt worldwide.
For the trucking industry, the impact was a brief slowdown followed by a sharp increase in rates, followed by the longest-known freight recession in history — one that continues today.
For 2023, public carriers mostly reported lower operating income or losses, higher operating ratios, and higher expenses. First quarter financial reports for 2024 showed little (if any) improvement. Spot freight rates remained stubbornly low, and contract rates continued their downward spiral.
The trucking industry wants to know: When will the freight market turn upward?”
According to most analysts, the answer is: Not soon enough.
“The typical U.S. three freight recessions were in the 17- to 23-month range. We’re at 24 to 25 months already,” noted Dean Croke, principal analyst at DAT IQ. “And there’s a sense that this could go on for quite a few months more.”
Avery Vise, vice president of trucking for FTR Transportation Intelligence, concurs.
“We think that it’s going to be next year before anyone really perceives a definite change in the market,” he said.
Jason Miller, PhD, professor of supply chain management at the Eli Broad College of Business at Michigan State University (MSU), says he’s not optimistic.
“It could improve a little bit, but I’m not going to get my hopes up too much,” he said. “We still have too much capacity relative to demand.”
It’s the same old story: Capacity remains the biggest driver of freight rates.
“We still have way too many trucks on the road as a result of the massive influx during the pandemic. That’s keeping a lid on for higher spot rates,” Croke explained.
To be sure, trucks are leaving the freight market, but the process has been slower than expected.
“We think U.S. tractor replacement is around 11,500 units to 12,000 units (monthly production of new trucks),” said Kenny Vieth, president and senior analyst at ACT Research.
“In two months, we’ve done 14,600 and 14,400. A year ago in March and April we did 19,800 and 18,300, so we are making progress,” he continued. “But we think the Class 8 US tractor population is going to continue to grow on strong sales before slowing production down.”
Vise believes the turnaround is on the horizon.
“Are we going to continue to lose enough capacity where that by the end of the year, things will have turned around? Our expectation is that we will basically be back to a sort of a normal balance between shippers and carriers,” he said.
“You hear people talking about the capacity over balance. The big question is: Why has that not corrected?” Vise said.
Croke echoes this question.
“When does capacity get to a point where we get to equilibrium? Because large truckload carriers on the contract market are still reducing truck capacity,” he said.
Analysts gave a couple of reasons for the delay in reducing capacity. The top culprit could be private fleets, according to Croke.
“If you’re a private carrier or a big manufacturer who saw double-digit rate increases during the pandemic that probably wiped out years of profitability on the transport spend side, you’d say, ‘What if we got more freight on our own trucks over a five year period?’” he noted.
During the COVID-19 pandemic, it wasn’t as easy to find available trucks to haul loads.
“You can recall back in 2021 and early 2022, (manufacturers) could not find someone to haul their freight, and it was $4 a mile on the spot market,” Vieth said. “And the Wall Street Journal would have a story where yet another CEO was explaining why their transportation costs exploded and that’s the reason why they missed their earnings goal.”
Any time corporations increase the size of their private fleets as a hedge against future freight rate increases, there is an impact on current rates. Some of these private fleets may be picking up loads from the spot market to keep their trucks running, but the bigger impact could be the product that manufacturers are no longer tendering to the freight market.
Another reason for the slowness of capacity removal may be the perception that “better days must be coming soon”; a hope that keeps some carriers hanging on.
“I think the reason that they we haven’t seen more attrition is that same expectation that we’re going to have a rebound,” Vise said. “They have that ‘any day now’ philosophy, which didn’t used to matter all that much.”
Of course, the other side of the supply/demand equation is freight availability — and that largely depends on the economy. Most analysts are calling for slow but steady economic growth for at least the rest of 2024.
Miller, however, isn’t so sure. While some analysts point to data compiled from banking operations, billing services or organizational members, MSU’s College of Business team compiles a Ton-Mile Index using data from the U.S. Census Bureau and other agencies.
“We have data that we pull for literally 41 North American Industrial Classification System (NAICS) codes,” he explained. “The Census Bureau has identified 700,000 locations in the U.S. that shipped something, that are not farms. So basically, we’re capturing 700,000 shipper locations.”
Miller looks at the NAICS responsible for the largest shares of shipping ton-miles, such as food manufacturing — the largest share at 14.5%.
“Food manufacturing is down a couple percent from where it was in 2023 and certainly 2022,” he said, adding, “That’s tens of thousands of fewer loads getting moved.”
Chemical manufacturing, mining (except oil and gas) and non-metallic mineral product manufacturing (cement and aggregate) round out the sectors responsible for the largest numbers of ton-miles, and all of them are down, according to MSU’s index.
“The big story is just that the demand side right now is quite weak for those key industries,” Miller explained. “And there’s not the type of encouraging economic news that would make me think there’s gonna be a spike in freight demand.”
If there’s good news, it’s that there’s no news that would indicate a collapse.
“I just see so many headwinds right now through the rest of this year, and the Feds not cutting rates anytime soon, so to me, I’m pretty much writing off this year,” Miller concluded.
While economic growth may continue at a slow and steady pace, production will not produce enough freight to overcome the excess capacity in the freight market.
There’s another factor, however, that could disrupt the market.
The National Oceanic and Atmospheric Administration (NOAA) is predicting an “above average” hurricane season with 17 to 25 named storms and four to seven hurricanes rated at Category 3 or higher. The agency cites warm ocean temperatures, reduced trade winds due to La Niña conditions, and other factors in its prediction.
Hurricanes can cause major disruption to the supply chain and can cause fuel price spikes due to refinery damage or shutdown.
As it stands, the trucking industry may be looking to weather the storm, both economically and literally.
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.
