Truckload market anticipates spot rate surge in Q1 2024, says Coyote Logistics

Spot rates in the truckload market are expected to start rising again in the first quarter of 2024 from the same period in 2023, according to Coyote Logistics. Spot rates might increase in December from the same month in 2022.

In a recent Coyote Logistics webinar, logistics executives provided a freight market outlook that shows short-term softness and a slow recovery from an imbalance between capacity and demand. Coyote Logistics is a UPS company.

“The economy’s been surprisingly strong overall, but that doesn’t mean there aren’t sectors that are still suffering,” said Paul Bingham, director of global intelligence and analytics at S&P Global Market Intelligence. “We’re still in a freight recession. Manufacturing’s still been suffering this year. Yet, the consumers have been resilient, the labor markets are strong, and unfortunately, we still have persistent inflation at a level that’s not really where the Federal Reserve Board wants it to be.”

Bingham said the Fed is expected to increase rates one more time and won’t be quick to start reducing them because inflation remains higher than the 2% target rate. Higher fuel prices have worsened inflation recently.

He noted some freight market headwinds include the continued shift to services from goods and high mortgage rates affecting home construction. He expects housing sector weakness far into 2024. Bingham added that industrial production is expected to be down through the first quarter of 2024.

“The good news is we’re not forecasting a recession,” Bingham said. “Our baseline forecast now is that the U.S. has managed to escape. We’re going to have even slower growth next year than we’ve had this year, but we’re not going to be in a recession.”

He said shippers can find available capacity to deliver their goods, but rates are still being affected by high fuel prices.

Michael Sinkovitz, senior vice president of sales and operations at Coyote Logistics, said shippers are adding more logistics providers to reduce cost and looking to lock in pricing with key providers.

Corey Klujsza, vice president of pricing and procurement strategy at Coyote Logistics, said spot rates in the truckload market are rising but remain down about 16% this year from the same time last year. Fuel price volatility has affected rates in the third quarter. He noted that U.S. diesel prices have risen to an eight-month high. The prices are up 22% from the start of the third quarter.

Klujsza said truckload contract rates are down 12.1% this year from the same time last year. He noted that spot rates look to exceed contract rates at some point in the fourth quarter.

In August, the American Trucking Associations’ For-Hire Truck Tonnage Index fell by 2.3% from the same month in 2022. It was the sixth consecutive year-over-year decline.

“The evidence is growing that tonnage hit bottom in April and continues its slow climb upwards,” said ATA Chief Economist Bob Costello. “However, year-over-year comparisons remain difficult as tonnage peaked in September of last year. As a result, it is unlikely that tonnage turns positive compared with a year earlier for at least a month or two longer. Most recently, freight continues to be mixed, with consumer spending and factory output flat to down.”

According to the Cass Transportation Index Report for August, the shipments component of the Cass Freight Index declined by 10.6% in August from the same month in 2022. The report attributed the decline to private fleet growth, and this could affect how capacity will tighten across the broader industry.

Sinkovitz said some private fleets are expanding their brokerage operations to handle freight other than their own.

“Private fleet growth is evident as Class 8 tractor retail sales are on pace to set a record this year, yet for-hire fleets are by and large demonstrating capital discipline,” according to the report. “Thus, we think a substantial part of the decline in shipments is due to private fleets insourcing freight from the for-hire market.”

In the intermodal market, Sinkovitz said rail service is improving, but many shippers have converted their shipments back to truckload for higher pace delivery, especially as the cost difference isn’t as great as it was in years past. Also, some shippers have reduced emphasis on environmental concerns because of the importance of cost. Still, intermodal can provide savings compared to truckload.

Sinkovitz said the number of containers moving through U.S. ports is down 10% this year from the same time last year. Bingham said Mexico has replaced China to become the No. 1 trade partner with the United States.

Logistics executives also said they don’t expect the extreme highs and lows in spot market cycles to become the norm. Still, one dramatic cycle with more extreme highs and lows is expected every five or six cycles, just not back-to-back cycles. Another topic was whether a tight labor market would contribute to freight market volatility.

“We haven’t said driver shortage in over 18 months,” Sinkovitz said. “Is it that time again?”

Bingham said the labor force participation rate has not recovered to pre-pandemic levels. He expects unemployment to rise eventually, and this is expected to lead the Fed to reduce interest rates.

“This record low level in the economy is not sustainable from the perspective of the wage-price spiral to get inflation to where the Federal Reserve Board will come off of these higher interest rates,” he said.