Too many trucks for available freight keeps rates at unprofitable levels

It was “more of the same” for freight markets in April, according to industry sources. The amount of freight that’s available to haul declined once again, and the rates shippers are paying to haul available loads declined too.

The “freight recession” has entered record territory for longevity.

Dean Croke, principal analyst at DAT IQ, explained it this way: “The typical U.S. three freight recessions were in the 17- to 23-month range. We’re at 24 to 25 months already, and there’s a sense that this could go on for quite a few months more. “

As with any industry, the law of supply and demand rules. In trucking, the supply of available trucks outweighs the amount of freight to haul, the demand.

“We still have way too many trucks on the road as a result of the massive influx during the (COVID-19) pandemic,” Croke noted.

The good news is that the number of surplus available trucks is shrinking.

Unfortunately, it’s not shrinking fast enough to start pushing rates upward. Opinions as to when we’ll reach that point differ between analysts, with some saying rates should begin slowly improving during the second half of 2024 and others warning not to expect improvement until next year.

Freight volumes fell again in April. ACT Research reported freight volumes falling in nine of the last 12 months, with April representing the largest drop. ACT’s Pricing Index showed a decline, too, falling 4.2 points in the month.

It was all negative in the Cass Freight Index for both shipment and expenditure numbers. The April report fell 1.6% in seasonally adjusted terms, reaching a point last seen before the onset of the COVID-19 pandemic in 2020. The current Index reading of 1.098 indicates freight levels are only about 0.1% higher than they were when the Index was begun in 1990, more than three decades ago.

The difference in freight expenditures was more stark.

Cass reported that total shipping expenditures remained stable from March until April — but when seasonality is considered, they actually fell 1.6%. Compared to April 2023, however, expenditures were 16.8% lower.

“Goldilocks economic conditions of strong growth and disinflation are largely holding, a rising tide which eventually should lift all boats,” noted Tim Denoyer, vice president and senior analyst at ACT Research, who writes the Cass report. “But at the moment, the freight growth being generated is being handled by railroads and private fleets.”

Cass statistics are determined by billing on behalf of their customers, so the Cass numbers represent a fairly small segment of the market; but they are generally thought to be representative of the whole market. Cass figures also include shipments from the rail, ship and barge, air and pipeline segments but the majority of their data comes from trucking.

The private fleets mentioned by Denoyer are, rightly or wrongly, taking the blame for the current overcapacity situation in trucking.

Companies that haul their own products were hit hard when spot rates skyrocketed in 2021 and 2022. Carriers found spot market rates more attractive and reduced the number of loads hauled in their dedicated operations. The loads manufacturers placed in the spot market were much more expensive, and carriers to haul them were more difficult to find. As a result, transportation spend shot upward for shippers.

To prevent a recurrence, many private fleets are buying trucks and expanding their fleets. The impact on the trucking market as a whole is negative because these companies aren’t putting as many loads of their products on the spot market — and, in some cases, they’re taking other loads from the market to keep their trucks running.

The American Trucking Associations (ATA), which reports trucking volumes reported by its membership, reported that its seasonally adjusted For-Hire Truck Tonnage Index declined 1.2% in April, following a 2.2% decline in March.

“The truck freight market remained soft in April as seasonally adjusted volumes fell for the second straight month,” Bob Costello, chief economist for ATA, wrote in the report. “With a rebound in freight remaining elusive, it is likely that additional capacity will leave the industry in the face of continued softness in the market.”

The ATA Index is primarily based on contract freight, but its members haul some spot freight as well.

With freight levels falling, spot freight rates naturally followed, according to DAT Freight and Analytics. Average spot rates for dry van loads fell to $1.99 per mile in April, a couple of cents beneath March’s $2.01. Refrigerated rates also declined, from March’s $2.36 to April’s $2.33. Flatbed experienced an increase but only by a penny, from $2.51 in March to $2.52 in April.

Compared to 2023, dry van spot rates fell by 4.0%, refrigerated by 3.4% and flatbed rates by 6.3%.

What’s the solution?

Of course, having fewer available trucks isn’t the only way to improve rates. Having more freight to haul could (obviously) have a positive impact on the market — and the U.S. economy is still growing at a pace good enough to keep the Federal Reserve from cutting interest rates.

Dr. Jason Miller, professor of supply chain management and interim chair for the Eli Broad College of Business at Michigan State University, says growth isn’t happening. He points to production levels in the Top 4 U.S. production sectors, which include food, chemicals, nonmetallic minerals (concrete and aggregate) and paper.

“We are not seeing good signs,” he said. “I’m not encouraged for the second half of 2024.”

Miller notes the decline in sales of single-family homes, lower commodity pricing and even the weak European economy as headwinds to economic growth in the U.S. Using U.S. data from 41 North American Industrial Classification System (NAICS) codes, his team puts together a Ton-Mile Index representing more than 700,000 individual shippers in the most productive industries in the country.

“I look at certain industries, like food manufacturing,” he explained. “And food manufacturing is down a couple of percent from where it was in 2023 and 2022. That’s tens of thousands of fewer loads that are getting moved. The demand side right now is quite weak for those key industries.”

In short, capacity is still leaving the industry, but not at a fast enough rate to move freight rates upward in the near future.

Cliff Abbott

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.