Freight Market Woes: Excess Trucks and Declining Rates Prolong Recession

The freight market faced continued challenges in April, with both freight availability and shipping rates experiencing declines. Industry analysts have termed this period a “freight recession,” which has now reached unprecedented lengths.

Dean Croke, principal analyst at DAT IQ, explained that typical U.S. freight recessions last between 17 to 23 months. “We’re at 24 to 25 months already, and there’s a sense that this could go on for quite a few months more,” Croke noted.

The fundamental issue is an imbalance between supply and demand. The supply of trucks far exceeds the current demand for freight. “We still have way too many trucks on the road as a result of the massive influx during the COVID-19 pandemic,” Croke added. While the surplus of trucks is gradually decreasing, it is not happening quickly enough to drive rates up.

Analysts have varying opinions on when rates might improve. Some predict a gradual increase in the second half of 2024, while others believe recovery might not occur until the following year.

In April, freight volumes continued their decline. ACT Research reported a drop in freight volumes for nine of the last twelve months, with April experiencing the largest decrease. ACT’s Pricing Index also fell by 4.2 points in April. The Cass Freight Index echoed this negative trend, showing a 1.6% drop in shipment and expenditure numbers, reaching levels last seen before the COVID-19 pandemic.

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

The Cass Freight Index data, primarily sourced from trucking but including rail, ship, barge, air, and pipeline segments, highlighted the issue of overcapacity, particularly due to private fleets. Companies expanding their own fleets to avoid the high spot rates of 2021 and 2022 have inadvertently contributed to the current market saturation.

The American Trucking Associations (ATA) reported a 1.2% decline in its For-Hire Truck Tonnage Index for April, following a 2.2% drop in March. Bob Costello, ATA’s chief economist, stated, “The truck freight market remained soft in April as seasonally adjusted volumes fell for the second straight month. 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.”

Spot freight rates have also dropped. DAT Freight and Analytics reported that the average spot rate for dry van loads fell to $1.99 per mile in April, down from $2.01 in March. Refrigerated rates decreased from $2.36 to $2.33, while flatbed rates saw a minimal increase from $2.51 to $2.52. Compared to 2023, dry van spot rates fell by 4.0%, refrigerated by 3.4%, and flatbed by 6.3%.

Dr. Jason Miller, professor of supply chain management at Michigan State University, highlighted that growth in key U.S. production sectors is not occurring. He cited declines in food manufacturing, lower commodity prices, and a weak European economy as factors hampering economic growth.

In summary, the trucking industry continues to grapple with excess capacity and insufficient demand, delaying any significant improvement in freight rates. While some capacity is leaving the market, it is not enough to boost rates in the near term.