The freight market is experiencing a decline in capacity after the rapid growth seen during the COVID-19 pandemic. The surge in consumer spending, which drove up the demand for freight, has tapered off due to economic factors such as rising interest rates, inflation, and a drop in personal savings rates. This, combined with sluggish growth in the services sector, weak manufacturing, a challenging housing market, and limited spending on goods, has contributed to an overall sluggish freight market.

There is hope on the horizon, though. Avery Vise, vice president of trucking at FTR Transportation Intelligence, shared that a rebound, albeit slow, is on its way. Speaking at a recent Transportation Intermediaries Association regional meeting, Vise indicated that the market is expected to pick up starting in the first quarter of next year.

According to forecasts, GDP in the goods transport sector, which is directly linked to freight transportation, decreased by 3% in the second quarter of 2023. It is predicted to show growth in the third and fourth quarters, with only a 0.6% and 0.7% decline respectively. This upward trend is anticipated to continue throughout 2024, with projected growth rates of 1.6% (Q1), 2.8% (Q2), 3.4% (Q3), and 2.9% (Q4).

As we look to the future, cautious optimism surrounds the freight market, hinting at a gradual recovery.

“GDP goods transport sector, that’s pretty ugly. It’s getting less ugly, I guess, is the best spin to put on it,” Vise said. “For the last five quarters, it has been negative on an annualized basis – the worst one being the second quarter of last year, but the second quarter of this year was nothing to write home about either. (GDP) is really flat. That’s what we’re looking at for the next couple of quarters. Then we start to see growth … but it’s going to take a long time to get there.”

Vise doesn’t view this as robust growth. In fact, he describes it as “modest” and “stagnant.” According to him, the market would require significant freight growth or experience a substantial decrease in capacity or drivers (which he believes is the most probable outcome) to witness a faster upturn.

“We’re losing capacity, but so far, the larger carriers have been picking that capacity up because the overall freight market has not collapsed; it is still pretty stagnant,” he said. “So, we’re not losing enough capacity to change that dynamic yet.”

Vise disputes the claim that the Bureau of Labor Statistics data indicates a decline in capacity. The data includes all employees in the sector, not just drivers, and there are many carriers who are not employees but sole proprietors. Additionally, the data does not consider smaller carriers, who are a significant part of the industry.

In the first seven months of 2021 and 2022, approximately 20 carriers with 101 or more trucks went out of business, while the industry lost a total of 49 carriers during the same period this year.

Although many carriers going out of business are small operations with only one or two trucks, larger carriers are also being affected. This is not just a problem for small carriers.

According to Vise, the industry has experienced a significant loss of drivers. In the first seven months of this year, 138,000 drivers left the industry, and from July 2022 to July 2023. approximately 280,000 drivers were lost. The larger carriers have not yet fully recovered their driver population from before the pandemic, and the long-distance specialized sector, particularly flatbed, has still not reached pre-pandemic levels. The local general freight sector is growing, however, thanks to increased demand for final mile delivery and e-commerce.

“So, we are still seeing a disrupted market although it is getting less and less disrupted, which is one reason why in the last more than a year, spot has been weaker and contract has been stronger,” he said.

Spot rates have hit their lowest point but are projected to slowly improve. While contract rates have not hit rock bottom yet, they are approaching that point. According to FTR’s forecast, rates will increase, but the growth will be moderate and not overly dramatic until 2025.

“We’re still well above the levels in 2018, which was the highest we’ve ever seen before. That’s good for carriers,” Vise said. “On the other hand, this is nominal data; this is not inflation adjusted. Carrier costs have gone way up. Their equipment costs are a lot higher. Driver pay is higher.”

The local general freight sector is experiencing growth, but overall volume is lacking, according to industry experts. This shortage in volume is affecting various sectors, including flatbed, short-haul, dump, and bulk, resulting in lower rates across the industry. Furthermore, dry van and refrigerated sectors are currently experiencing weak volume and rates compared to earlier this year, although the situation is not as dire as in 2019.

“Our outlook right now is really pretty flat, not just for this year but for next year as well,” he said. “Our overall outlook is that we will be just under flat this year in total loadings versus last year. Next year, we’ll be up two-tenths of a percent, and that’s for the entire truck market.”

Source: CCJ Digital