Closing out 2022, the December Cass Freight Index for Shipments, published monthly by Cass Information Systems, indicated a decline of 3.9% in total shipments over December 2021. In the same report, shipping expenditures declined by 4.3% from December 2021, and by 4.2% from the previous month of November.
The report noted that holiday shipping volumes were “flattish” compared to 2021.
The Cass Indexes use data from Cass customers to report shipments from trucking, ship, rail, pipeline and other modes of transport. While trucking makes up a substantial share of the shipping data, other modes can impact the results.
The issue for most truckers is what will happen with freight availability and rates. For the most part, it depends on what the economy does. Inflation had impacted budgets everywhere, from trucking business operations to the purchase of groceries back at home.
In its December Commercial Vehicle Dealer Digest, ACT reported, “the longer inflation remains elevated, the more aggressively the Fed will respond with higher interest rates. This increases the chances of a sharper decline in economic activity, and 1) results in fewer commercial vehicles required to facilitate this subdued activity and 2) will likely exacerbate downward pressure on spot and contract rates, adversely impacting carrier profitability.”
Alan Greenspan, who served as Federal Reserve Chairman under four U.S. presidents and who headed the U.S. Central Bank for almost 20 years, believes there is a recession coming. In an investment commentary released by his current employer, Advisors Capital Management, Greenspan said, “a recession does appear to be the most likely outcome at this time.”
Anyone paying attention to the news knows post-pandemic inflation has raised consumer prices accordingly. In December, the annualized rate of inflation actually dropped to 6.5% after reaching a high of nearly 9% earlier in the year. To counteract the effects of inflation and slow the economy, the Federal Reserve raised its target interest rate from near 0% at the start of the year to the current 4.25% to 4.5%. Further increases are expected.
The Cass report containing the indexes said, “After a long downtrend in 2022, the recent bounce in spot rates and tightening in the spot/contract spread suggest a bottoming truckload rate cycle.”
The Cass Truckload Linehaul Index, based on the $37 billion in freight bills the firm handles annually, measures fluctuations in per-mile truckload linehaul rates. It does not factor fuel and accessorial costs. The report uses January 2005 as a baseline score of 100. The Cass Truck Linehaul Index for December was 150.5, indicating that freight rates were 50.5% higher than they were in January 2005.
While that number seems positive, note that the index reached 168.6 back in May but has steadily fallen in the seven consecutive months since that high point. The good news for trucking businesses that depend on the spot market is that spot rates are holding steady — it’s contract rates that are expected to continue falling for the first half of 2023. As carrier-shipper contracts reach expiration dates, new contracts are being negotiated, many at rates closer to current spot rates.
The storm cloud on the horizon is the looming recession. When the economy contracts, there is less freight to haul — and, thanks to a record-setting December for new Class 8 truck sales — more trucks to haul it. The law of supply and demand dictates that rates must fall. How far they’ll fall is a matter for debate.
Spot rates, according to data received from DAT Freight and Analysis, have rebounded slightly. Average dry van rates that sank to $1.69 the second week of November ended the year at $1.94. Refrigerated rates followed a similar path, from a low of $2.02 in October to $2.34 at year-end. Flatbed rates hit $1.99 as December started but rose to $2.11 as the new year dawned.
One factor in the spot rate increase was undoubtedly the holidays, when many truckers took time off, leaving fewer trucks for available shipments. During Christmas week, DAT reported the number of loads posted on their load board for every truck posted was 5.57 for van, 12.9 for reefer and 14.21 for flatbed.
Another DAT report that sheds light on the subject is the DAT Aggregate Truckload Spot/Contract Rate Spread. The graph highlights a simple premise: The gap between average spot rates and contract rates often indicates the direction of the market as a whole. For example, when spot rates began falling in June, average contract rates were still climbing. Prior to the fall, spot rates had actually exceeded contract rates since the first quarter of 2000. As 2022 came to a close, that situation reversed, with contract rates jumping to more than 60 cents per mile higher. That gap shrank to about 45 cents at the end of the year.
The DAT report calls this “a key signpost of this new stage of the cycle, even green shoots of a new rate cycle.” That could be welcome news for owners of small trucking businesses. As contract freight rates continue to fall and sales of new Class 8 trucks hit the expected decline, spot rates should begin strengthening.
When asked about recession, Eric Crawford, vice president and senior analyst for ACT Research, says his firm is predicting a mild one.
“For 2023 the key theme is going to be rebalancing, and rebalancing is going to come thanks to a recession,” he said. “We’re in the mild camp, given some of the good news that we’re seeing on inflation.”
Those who may be wondering about trucking profits in 2023 might be cheered by another Crawford comment.
“We’re still forecasting profitability to go down, year over year, by a wide by a wide margin,” he said, “but to contextualize where we’re going to be is still maybe the fourth best year on record, from a profitability perspective.”
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.