As we approach the mid-point in 2024, here are a few observations on the current state of the freight transportation industry in North America.
The Economy
The consumer and media focus on the inflationary pressures on costs has masked the positive performance of the economy. Advance estimates of U.S. retail and food services sales for March 2024 were $709.6 billion, up 0.7% from the previous month, and up 4.0% above March 2023. Fifteen million jobs have been created by the Biden administration. Unemployment is at 3.8%, near record lows.
Manufacturing output has been stable this year, down slightly on a year/year basis in some months and up slightly in others. Consumers are still spending, albeit at a modest but sustained level. Real GDP is projected to be up about 2 percent as compared to last year. The Conference Board economic index points to a fragile, even if not recessionary economy. Rising consumer debt, elevated interest rates and persistent inflation pressures continue to pose risks to economic activity in 2024.
Trucking Company Activity
The For-Hire Truck Tonnage Index declined 2% in March 2024 after increasing 4% in February. In March, the index equaled 113.4 compared with 115.7 in February. Per the American Trucking Associations, “Tonnage in March suggests that truck freight volumes remain lackluster, and it is clear the truck freight recession continued through the first quarter.”
Trucking volumes have been in line with the modest growth in the economy. The net change in the number of carriers has been down slightly during the first five months of the year. Truckload carrier employment dropped slightly while LTL carrier employment dipped by about 25,000 employees after the closure of Yellow Freight. The share of class 8 trucks actively engaged in hauling freight, seasonally adjusted, was in the range of 88 to 90 percent, down significantly from the much more substantial levels in 2021 and 2022.
Many have applied the Freight Recession label to the shipping environment of the past year. This label must be linked to the Overcapacity label that is in evidence from the freight hauling engagement statistics. During the first half of this year, there has been too much capacity chasing too little freight. Capacity is coming out of the market.
Freight Rates
Freight rates are a good barometer of the supply/demand dynamic. Dry van and refrigerated spot rates remained at or slightly below 2023 levels and significantly below 2021 and 2022. Truckload contract rates remained below 2023 levels but are moving toward last year’s levels. The gap between spot and contract rates narrowed reflecting a move toward symmetry. This positive movement is being offset by rising operating costs which compress carrier margins.
Carrier Earnings
Truckers reported weak Quarter 1 earnings as soft demand, rising operating and insurance costs took their toll. CH Robinson, Schneider National, J.B. Hunt, and Landstar all reported year/year earnings declines. The market is looking for the Fed to reduce interest rates over the next six months. There is also a shift in industry mood as of the second quarter of 2024. Looking at the results of a FreightWaves Research Survey conducted in April 2024, shipper sentiment has declined but carrier sentiment has improved.
The Road Ahead
Trucking Conditions Index for February 2024 fell to -5.31 from January’s reading of -1.41. A sharp increase in diesel prices was the principal factor in the deterioration in market conditions for carriers. With the recent increase in crude prices, fuel costs could remain a drag on the TCI in the near term, but freight market dynamics likely will move gradually toward a less challenging environment for carriers. Says FTR Transportation Intelligence, “Trucking companies should see more favorable conditions in the fourth quarter and in 2025, although risks to a recovery are still significant. The biggest issue remains the imbalance between capacity and demand, which continues to depress utilization. Diesel prices are a wild card as an escalation might push out more operations that are struggling financially.” The recent rise in stock prices may signal that investors see interest rate and inflation rate declines; this could portend improving economic conditions.
Market experts are calling for a tepid recovery starting in the third quarter and a slightly more robust recovery in 2025. The Logistics Manager’s Index reads in at 58.3 for March 2024. This is up 1.8 from February’s reading of 56.5. This is the fastest rate of expansion in the overall index since the reading of 61.2 from 18 months ago in September 2022. The logistics industry is at a healthier place than it was then.
Freight rates are projected to move in an upward trajectory as capacity comes out of the market. As the shipper/carrier pendulum begins to move in favor of carriers, shippers should lock in their core carriers under multi-year contracts. This is good time to conduct an RFP to secure attractive contract rates before they escalate. Carriers need to maintain tight cost control as they gradually add drivers and trucks to take advantage of improving market conditions.
To stay up to date on Best Practices in Freight Management, follow me on X (formerly Twitter) @DanGoodwill and join the Freight Management Best Practices group on LinkedIn. If you are looking for ways to improve the effectiveness of your freight management processes or to save money on freight, contact me at dan@dantranscon.com.
