The freight industry has been marked lately by volatility in fuel prices, inflation rates, and many other factors that can weigh on a carrier or shipper’s bottom line. Experts at recent conferences have warned of a looming long and protracted recession based on these factors. However, a future market outlook unveiled at the Women in Trucking (WIT) Accelerate! Conference in Dallas also suggested economic issues that may plague the freight industry in 2023 are more indicative of a market correction than an outright crash.
Red flags and silver linings
Although there are challenges on the horizon, there are some definite bright spots in the industry right now, says Dean Croke, principal market analyst at DAT Freight & Analysis. Due to a corresponding increase in fuel prices, the number of contract loads has increased 20 percent since last year, he explained, and the cost to deliver those loads has increased by 22 cents per mile year-over-year. “Diesel fuel prices are up … and shippers are paying those fuel surcharges,” says Croke. This has put a damper on spot rates, however: Although spot rates broke records last year, both the overall amount and average rates for those kinds of loads have dropped considerably since then.
Some might see an uptick in longer-term contract rates (and the influx of drivers that resulted) as an indicator of market stability – and most truckload carriers have enjoyed record profits over the past 18 months, says Croke – but red flags continue to fly over the industry as a whole.
Contract rates have fallen throughout the dry van and reefer spaces over the last year due to lulls in overall demand and overcapacity, says Croke. In fact, he says, last year’s record-setting spot rates were high enough to be considered statistical outliers; despite this year’s drop in rates, spot rates remain 13 percent higher than they were before the pandemic. That said, because spot rates lead contract rates by four to six months, Croke expects a similar drop in contract rates early next year.
As it turns out, this current drop in rates has been a boon so far for carriers who “played nicely” with shippers during the pandemic, who get first dibs on key delivery lanes in return for a discount on their services. Paired with an uptick in year-over-year total operating costs for large truckload carriers and further volatility in fuel prices, the next couple of years could be quite rough on the industry.
Can the logistics industry recover?
There are some signs of looming trouble in the industry beyond fuel prices and inflation. Lower lumber prices and diminished expectations for load volume this winter have led to the closure of several saw mills in top production areas. Experts expect a bounce-back in flatbed volume by next March, but the coming winter will be brutal for that sector until then.
That said, the supply and manufacturing sectors are continuing to trend upwards. Carriers are still ordering trucks in record numbers, which will almost certainly lead to a surplus in used trucks as companies start swapping out their old equipment. Despite expectations for drops in both load volume and revenue, the past 18 months have been so profitable for carriers, Croke believes, that they will likely weather this storm better than they did before the pandemic due in part to a major influx of freight volume on the east coast.
Manufacturing activity also continues to keep the trucking industry on track. Shipments for plants still account for 58 percent of all ton-miles hauled by the for-hire trucking sector, and volume for September 2022 was still up 4.6 percent from the same time last year. Despite all of these good signs for the overall health of the industry, this mixed bag of industry trends doesn’t bode particularly well for the health of the economy.
“Trucking is a really good barometer for the general economy,” Croke said. “It tells us a lot about the demand for the things we haul. Things are still pretty good, but we think there’s going to be a dip in the market.”