Weekly Market Update for June 25th, 2024: The Truckload Market Faces Prolonged Oversupply

Weekly Market Update for June 25th, 2024: The Truckload Market Faces Prolonged Oversupply

The freight market has entered another unusual phase as it continues to hover at the bottom of a trough. This phase may last for some time. Truckload carriers are not only aggressively adjusting their truck counts to match the softening demand, but they are also placing orders for new trucks ahead of the 2027 EPA Clean Trucks Plan, which could increase the cost of new trucks by up to $30,000.

This influx of new trucks has resulted in more used trucks hitting the market, driving down prices and making it attractive for new capacity to enter an already oversupplied market. The 2027 pre-buy is a significant factor that is expected to keep a lid on any substantial improvements in spot and contract rates this year.

Capacity Insights from the Journal of Commerce

The Journal of Commerce Truckload Carrier Index provides insights into the current state of carrier capacity. Despite seven consecutive quarters of cutting truck counts, large fleets have not yet reached their collective target. Bill Cassidy of the Journal of Commerce notes, “Big carrier capacity cuts in the first quarter pulled the Truckload Capacity Index (TCI) down to levels last seen in mid-2017. The TCI dropped 2.4% from the fourth quarter to a first-quarter reading of 78.9. The index fell 7.7% from Q1 2023.”

TCI Trends

The TCI, which measures capacity at large publicly owned carriers based on end-of-quarter truck counts, has dropped significantly over the past two years after peaking at 93.2 in the second quarter of 2022. The last time the TCI was below 80 was in the third quarter of 2017, before the capacity crunch and trucking boom of 2018.

Since the TCI peaked in 2022, the publicly owned carriers in the index survey group have collectively reduced their truck count by 15.4%. The 14.3 percentage point drop from 2022 to 2024 is the largest since the 26.2% drop from 2007 to 2013.

Carrier Strategies and Market Impact

During an April first-quarter earnings call, David Parker, chairman and CEO of Covenant Logistics, emphasized the ongoing struggle, stating, “We just continue to bounce on the bottom. The million-dollar question is when will enough capacity exit (finally tighten the market and push up pricing).” Covenant Logistics was the only company in the Journal of Commerce TCI group to increase its truck count year-over-year by 99 trucks, though it cut ten trucks from its fleet sequentially from quarter to quarter.

Knight-Swift Transportation Holdings, which owns three of the largest US truckload carriers, reported to Wall Street analysts that they have lost contractual volumes due to their unwillingness to agree to unsustainable contractual rates. Brad Stewart, Knight-Swift’s treasurer and vice president of investor relations, mentioned, “This resulted in more of our capacity being allocated to the spot market, which creates further pressure on revenue per mile and utilization in the near term but positions capacity to react to changes in the market when the market does inflect.”

Market Outlook for 2024

Without any significant change in freight demand, 2024 is shaping up to resemble 2019 and last year, both of which were challenging for transport providers but beneficial for shippers.

Stay tuned for more updates and insights into the evolving freight market as we navigate these complex times.

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