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Trucking companies may not have to wait until next year for relief from the widespread drop in freight rates.
Carriers are beginning to signal improving market trends and this may mean higher costs in the future for supply chain managers to transport goods. Already, stocks are showing signs of normalization and executives at some major trucking companies have said a return to normalcy may be just around the corner.
“While customers are still in a heightened state of uncertainty heading into 2024, virtually no one believes that the current demand and capacity cycle is a new normal or even that it is sustainable,” said Mark Rourke, president and CEO of Schneider National. The company’s 4th quarter earnings call. “The constant question is, when does it change?”
Brokers say there is excess truck capacity
Freight brokers I agree that the trucking segment remains oversaturated and more carriers need to exit the market to bring balance back.
Trends suggest more trucking companies are exiting and fewer entering the market, said Jason Mansur, vice president of Enterprise Partnerships at Valley Companies, a Hudson, Wis.-based broker. However, the fare market starting to stabilize may slow capacity departures, which may translate into little or no change in fares.
“Our view is that interest rates bottomed out last fall,” he said. “We’ve seen some markets start to pick up, but interest rates are still near the bottom. We do not expect further downside going forward.”
The outlook for interest rate stability as well as profits made during the pandemic may be another factor allowing some trucking companies to hang on despite the reduced freight cycle, said Ronnie Davis, CH Robinson’s vice president of global client operations.
“In a typical buying cycle, 10-15% more capacity is added in the up cycle and a proportional amount leaves in the down cycle, that just hasn’t happened this time,” Davis said.
However, DAT Freight & Analytics head Ken Adamo said trends suggest the freight market is poised for recovery and that the end of the cycle has already passed.
His analysis shows that operating costs for smaller carriers run at a one time point. In addition, e-commerce and brick-and-mortar sales were better than expected in the fourth quarter, which meant retailers were flush with inventory.
“The inventory should be pretty depleted by this point,” Adamo said.
Even if this is the case, neither shippers nor carriers should expect dramatic price increases. It would take a dramatic event — such as another COVID-19 pandemic or an ELD mandate — to affect the market, he said.
“There’s a lot of, I will say, tailwinds out there,” Adamo said, adding that trends indicate “it’s going to be a milder recovery.”
Spot truck prices hit rock bottom last year
Flatbed, frame and dry truck prices from 2018
Prices won’t stay this low forever
DAT data shows spot rates at the end of 2023 fell 10-12% year-on-year, while contract rates fell between 12-14% year-on-year, Adamo said. As a result, shippers are trying to secure lower prices now in anticipation of third and fourth quarter needs.
Improving spot prices could become problematic for shippers — even those with signed contracts. When spot rates rose during the pandemic and continued into 2022, the market saw carriers abandon contracts to pursue high rates, said Jonathan Phares, assistant professor, department of supply chain management, Iowa State University.
While few experts are predicting a rate hike, several are suggesting shippers consider changes to their logistics management strategy as they prepare for a shift to a more carrier-friendly rate market.
Mansur, with Valley Companies, said shippers should plan now for the market to turn around. This may include budgeting appropriately or negotiating with carriers to strengthen relationships to ensure capacity needs are met.
In addition, Mansur said shippers should consider offering carriers more dedicated volume and adding flexibility to loading or unloading practices.
“There are many methods to still help carriers so that when things change, they remember the partnership you’ve built and it’s just a price shop,” he said.