Each of the experts in most industries has their method of interpreting the economic “tea leaves.” However, by the end of May a common theme was emerging: Nearly everyone was questioning whether the trucking market had hit bottom.
As early as May 16, analysts at ACT Research noted that capacity was beginning to tighten. That’s another way of saying the excessive number of trucks available for the reduced number of available loads was starting to shrink. There are two ways to reduce the excessive number of trucks: 1) Get trucks out of the market or 2) increase shipment numbers.
One way to tell trucks are leaving the market is by the number of orders for Class 8 trucks. For the past few months, new orders have trailed production by thousands each month. In May, for example, 14,000 to 15,000 trucks were ordered, while more than 24,000 were actually sold, bringing down the backlog of trucks on order but yet to be built. At the same time, used truck inventories increased, indicating some trucks are coming off the road.
Another way to monitor the number of trucks is by the number of interstate operating authorities granted by the DOT. That number fell rapidly in the first few months of the year and is still beneath record levels set last year. At the same time, authority revocations exceeded the number granted. This means there are fewer carriers — mostly businesses with one to five trucks — shutting down, which may also help explain the increase in available used trucks.
Yet another method is to note the number of truck drivers employed by the industry. According to reports from the U.S. Department of Labor, long-haul trucking jobs declined by 8,700 in the first quarter of 2023. That’s about 1% of the driving force.
The other part of the equation — increasing freight shipments — hasn’t happened yet. When it does, spot freight rates will begin rising. For now, however, an entire industry hopes they don’t go any lower.
The Cass Freight Index for Shipments grew 1.9% in May from April levels. Unfortunately, shipment levels almost always rise in May. When seasonally adjusted, the shipments index actually fell by 0.8%. The year-over-year change, May 2023 compared to May 2022, showed a 5.6% decline.
According to the Cass Freight Index for Expenditures, payments for those shipments fell 7.1% in May. If shipments fell slightly less than 1% while expenditures fell more than 7%, the culprit must be lower rates. The Cass release blamed declining retail sales and “destocking” for the drop. Destocking is the deliberate reduction of inventory to meet current customer demand.
As for expenditures, it’s important to note the Cass Freight Index for Expenditures rose by a record 38% in 2021 and followed that up with another 22% increase in 2022. The expected decline in 2023 is around 16%, so freight rates are still considerably higher than in 2020. Unfortunately, so are expenses due to inflation and EPA-mandated emissions requirements for new trucks.
The Cass Freight Index numbers are compiled from billing for Cass customers and represent transport by multiple modes, including truck, rail, pipeline, barge, ship and air.
For strictly truck numbers, DAT Freight and Analytics tracks weekly and monthly data from its load board, which is the largest in the industry. DAT’s “Trendlines” report showed a 29.4% increase in spot loads posted for May compared to April. However, much of that gain is due to the start of produce shipments, which begin around the same time each year. Compared with May 2022, this year’s May spot load postings declined by 61.2%.
Spot rates for van freight fell 0.3% in May from April numbers, while flatbed spot rates fell 0.9%. Temperature-controlled rates actually rose 2.1%. Those numbers, however, look dismal when compared to May 2022. Van rates fell 23.7%, flatbed 22.5% and refrigerated 20.3% year over year.
As of this writing, spot rates for both van and refrigerated freight have risen by two cents in June, while flatbed rates are holding steady at May levels. Early June results were undoubtedly buoyed by the Memorial Day weekend, when rates get a push due to the number of trucks shut down for the holiday.
The weekly FTR Transportation Update for June 12 indicated wholesale inventories are still highly elevated, which means more “destocking” is to be expected. Businesses that are reducing inventory aren’t ordering new product — and fewer orders means fewer truckloads.
On May 23, ACT Research released its revised Trucking Industry Forecast for 2023. In it, the firm states the industry is nearing the bottoming stage of its “classic truckload cycle.” During this part of the cycle, the decline in freight rates tends to slow or stop altogether as tractor ordering and sales slow. The cycle begins again when freight levels increase, and rates begin rising. How soon that happens is a matter of conjecture.
ACT’s report states “the economy has proven more resilient than initially envisioned.” Analysts still recommend caution, however, and are holding to their expectation for a shallow recession around mid-2023. As for freight rates, the firm projects the bottom was reached near the end of May. By the time this story comes out in print, the numbers will have begun rising … or not.
Those trucking businesses that have hung on through the downturn should be equipped to see better times beginning by the end of the year, if they can hang on that long. Good business decisions and cost avoidance are keys to surviving and being in position to profit when the market turns.
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.