COLUMBUS, Ind. — When representatives of the trucking industry attend a conference entitled “Market Values,” you can be sure the topic of freight is on everyone’s mind.
That was certainly true at the ACT Research OUTLOOK 69 conference held Aug. 22-24 in Columbus, Indiana.
Tim Denoyer, ACT vice president and senior analyst, teamed up with Amit Prasad, chief data science officer at Nolan Transportation Group, to present their combined vision of freight availability and rates in the coming year.
Denoyer addressed the current freight situation, with spot rates still bouncing along at the lowest levels in years and contract rates continuing their downward slide. Prasad referred to a recent study on operating costs published by the American Transportation Research Institute that placed the current marginal per-mile operating cost at $2.25.
That’s higher than many spot loads are currently paying.
With rates so low and operating costs rising, it’s no wonder revocations of carrier operating authority are outpacing new carrier starts by thousands each month. Some of the increase was attributable to fuel prices, but other categories of costs have also risen by double digits. The result is the loss of more than 2,000 carriers per month for the past few months — with more coming.
The cost of equipment has skyrocketed as new government requirements are debated and scheduled to take effect. The inability of OEMs to fill truck orders, and the resulting backlog, has pushed the prices of used trucks to astronomical levels. When owners can find affordable equipment, they’re facing difficulty finding financing due to tightening loan requirements, including higher down payments. If they do get a loan, the interest rate will be higher than it has been in years.
That’s the bad news.
The good news is that the expected economic recession has not materialized. Several presenters referred to the current state of the economy as a “soft landing.” Although it doesn’t help suffering truck drivers, the freight market is poised to turn, beginning an upward cycle and a return to profitability for many carriers.
According to Denoyer, the market is “getting close to finding supply and demand balance.” For more than a year, excess capacity in the market has pushed freight rates downward. Carriers that are trying to take advantage of high rates buy trucks so they can accept more loads. With more available trucks, however, competition for loads increases and rates decline.
Denoyer predicts spot rates will begin rising in the fourth quarter of 2023 and continue rising through 2024. Contract rates, typically slower to respond to market conditions, will continue falling temporarily, he said, but should follow spot rates within months.
One reason for optimism is the end of the “destocking” that has been an issue for months.
Retailers don’t want to keep huge inventories of products that aren’t selling well, so they stop ordering new stock to bring inventories down. With gains in personal income and other positive economic factors, those retailers will need to increase inventories and order restocks more often. Retail sales are already on the increase and are expected to continue their upward trajectory.
One potential contributor to the freight market could be the demise of Yellow Corp., as carriers vie to pick up pieces of the bankrupt carrier’s more than $5 billion in annual freight revenue. Although Yellow operated in the less-than-truckload (LTL) segment of the market, its customers may turn to the truckload market for help moving product.
Other LTL carriers, such as Dominion, Estes and Saia, will undoubtedly benefit from some of the shipments but may not have the equipment or drivers needed to move the increased freight. Because Yellow’s 22,000 drivers were unionized, many may not be willing to follow the freight to non-union jobs.
In the meantime, the secret to moving rates upward is removing trucks from the supply/demand equation and/or increasing the amount of freight. With carriers closing and turning in trucks and positive signs in the economic news, both could be happening.
Denoyer summarized with a prediction that 2025 will be a great year for carrier profitability. Getting past the current downcycle, which could last a few more months, will be the hardest part.
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.