After one of the worst slumps in the history of the US transportation industry, the first signs of life are emerging: demand is picking up, even if prices remain depressed due to excess fleet capacity, rising fixed costs and increased competition for limited freight volumes.
In the second quarter of 2024, requests for shipments in the U.S. increased by an average of 9 percent compared to the same period last year. Refusals, a measure of carriers’ willingness to accept cargo, increased by 1.3 percent compared to the same period last year. This means that truckload capacity is slowly becoming tighter, according to data from logistics information firm FreightWaves.
“I think the worst is behind us,” said Bob Costello, chief economist at the American Trucking Associations.
After a boom in consumer goods during the pandemic that led to one of the sharpest increases in trucking demand, the industry was hit by a “freight recession” in 2022 as inflationary pressures led to a decline in consumer spending and forced a reduction in freight volumes and rates.
“Prices went into free fall in 2022,” Michael Castagnetto, president of North American ground transportation at logistics company CH Robinson, said in an email. “We are experiencing a prolonged trough.”
The surplus of trucks left over from the pandemic boom was not met by sufficient demand, resulting in a capacity overhang that companies are still feeling today. And corporate results have yet to show any significant recovery.
The US transport company JB Hunt, one of the largest providers in the industry, missed profit expectations for the fifth time in a row on July 15. Operating profit fell by 24 percent compared to the same period last year. The company cited underutilization of facilities and stagnating prices as the main reasons for the low sales.
“We still see oversupply across all transportation modes, with shippers having choice in both mode and provider to move their cargo,” said Spencer Frazier, EVP of Sales and Marketing at JB Hunt, on the earnings call. “While capacity is not a major issue right now, they recognize that this will change at some point.”
However, as consumer demand continues to rise steadily, the transportation industry is optimistic about rate increase momentum in 2025, especially if interest rates fall, said Avery Vise, vice president of trucking at FTR Transportation Intelligence.
“We could, say, be back at a level that is very comfortable for the airlines by the middle or end of next year,” Vise said.
However, freight forwarders continue to face structural problems, particularly in terms of costs and competition.
According to an analysis by the American Transportation Research Institute, the industry’s marginal costs without fuel surcharges will have increased by more than six percent by 2023.
Insurance and maintenance costs have risen by a third, said Tony Mulvey, senior analyst at FreightWaves, mainly due to high interest rates, the use of new technologies and an increase in the number of truck-related accidents, which are increasing cost pressures on owners of small and medium-sized fleets.
“That’s the killer for the trucking companies,” Costello explained. “Their cost inflation is still rising significantly.”
Despite rising costs, cash reserves from the freight boom during the pandemic have largely helped smaller carriers survive the difficult market. However, according to Vise, more than 25,000 carriers have already left the market.
The smallest players, those with fewer than five trucks, account for more than 85 percent of the market, Castagnetto noted.
The growth of small transportation companies is largely due to the increasing availability of commercial driver’s licenses and technologies that have enabled the “Uberization” of freight transportation.
Instead of relying on brokers and existing relationships with freight owners, drivers can use digital platforms to see where cargo is available and accept freight on their own.
As a result, the number of transport companies on the market remains at a high level, freight volumes are distributed among a larger number of companies and price competition increases.
Vise pointed out that shipping companies are currently “playing with fire”: the larger players are avoiding their own capacity reductions by waiting for smaller companies to exit the market, thereby bearing the cost increases and slowing the reduction of oversupply in the industry.
“Many of these companies are very hesitant to reduce production because they are hoping for a recovery,” he said. “But I think most people were already expecting a recovery.”
But as supply declines and demand increases, forecasters predict that interest rate improvements are imminent.
“There are exits,” Mulvey said. “From the perspective of the freight forwarders, that time is largely over when it comes to cost savings.”
