Report: Freight recession persists amid recovery signs

A recent report says the U.S. freight market has remained challenging but has started to show “signs of recovery.”

FreightWaves and Trimble recently released the Q2 2024 Carrier Rate Report that attributed the change to “improving economic indicators and rate dynamics, suggesting a gradual move toward a more balanced market. But we’re not out of the woods yet.”

The report noted the freight industry has continued to face the challenges of the “great freight recession.” But, some of the developments comprised the “narrowing gap between dry van truckload spot and contract rates, reflecting a slow but steady movement toward supply-demand equilibrium.”

Reflecting this change, FreightWaves data shows a rise in tender rejections and contracted load accepted volumes. As of mid-April, contracted load accepted volumes have increased by 9% from the same time in 2023.

This rise in demand comes as the Federal Reserve Bank of Atlanta has projected 3% GDP growth year-over-year. This growth “typically correlates with an acceleration in freight demand,” the report shows. “But conditions are still fairly unfavorable as of now.”

According to the report, rising costs have put pressure on the industry. Diesel costs, a significant component of fleet operating expenses, have risen by 33% since April 2019. Over the same period, spot rates have disproportionately increased by 16%. This highlights the challenge carriers face to pass along operating costs, “leaving them in a weaker position compared to past years.”

Meanwhile, FreightWaves data shows capacity is falling amid a decline in trucking companies. This trend might lead to freight demand exceeding capacity. The result might be the freight recession would end as early as late 2024 or spring 2025.

“Strategic flexibility and planning will be essential for navigating the expected market shifts,” according to the report. “Companies should consider diversifying their carrier relationships, expanding private fleets and adopting dynamic pricing strategies to effectively manage the evolving market landscape.” The focus has been on the “strategic adjustments that companies are making in response to these shifts, which could redefine industry standards and operational strategies in the coming years.”

Some market changes are that traditional freight hubs, such as Atlanta and Ontario, Calif., have lost market share to cities becoming more significant to the U.S. freight network. In Dallas, outbound tender volumes have risen by 50% over the past five years. Nationally, the growth rate is 18% over the period.

The change can be attributed to “decisions to diversify supply chains and procurement strategies post-pandemic, with aims to reduce dependency on any single market or transport corridor,” the report shows. “The pandemic exposed vulnerabilities in concentrated networks, prompting companies to seek more robust alternatives that offer both resilience and cost efficiency.”

This freight market change might lead to tighter capacity in growing regions as demand rises. Meanwhile, traditional freight hubs might need to adjust amid excess capacity and lower rates.

The report also showed the challenging first-quarter financial results of multiple carriers, including Lowell-based carrier J.B. Hunt Transport Services Inc. and Tontitown-based carrier P.A.M. Transportation Services Inc. Earnings were impacted by rising operational expenses and insurance costs and softer demand. Still, many executives are optimistic about an industry recovery and expect improvements as market conditions become stable in 2024.

On April 16, J.B. Hunt reported earnings declined by 35.5% to $127.49 million, or $1.22 per share, in the first quarter from $197.76 million, or $1.89 per share, in the same period last year. J.B. Hunt missed earnings expectations of $1.52 per share, based on a consensus of 18 analysts. Revenue fell by 8.8% to $2.94 billion from $3.22 billion. The company also missed revenue expectations of $3.12 billion.

On April 18, P.A.M. posted earnings fell by 94.6% to $281,000, or 1 cent per share, in the first quarter from $5.23 million, or 23 cents per share, in the same period last year. Revenue decreased by 17.6% to $182.59 million from $221.72 million.

According to a FreightWaves survey, carriers have mixed expectations for the second quarter. 39.8% of respondents expect freight volumes to rise, but 39.2% expect them to be flat. 45.5% of respondents expect rates to be flat, and 53.8% expect diesel prices to rise.

Over the past year, 41.7% of respondents have maintained their fleet sizes. Meanwhile, 22.1% of respondents have decreased their fleet sizes. Only 1.9% of respondents increased their fleet sizes between 21% and 49%. And, 1.2% of respondents expanded their fleet sizes by more than 50%.

Over the next year, 48.7% of respondents plan to maintain their fleet sizes, and 40.5% plan to increase their fleet sizes by 1% to 20%.

Over the next six months, 51.2% of respondents expect driver recruiting and hiring to be about the same. Over the period, 28.4% of respondents expect the difficulty to increase. Meanwhile, 20.2% of respondents expect this to become easier.

In the second half of 2024, consumer goods demand is expected to be the most influential factor driving trucking capacity. It’s followed by interest rates, inflation and industrial sector activity. Still, 21.5% of respondents don’t believe trucking capacity will change in the second half of 2024.

The report also highlighted a recent trend of rising imports from China to Mexico that’s outpaced the growth of imports from China to the United States. Imports from China to Mexico have doubled over the past year.

According to a recent analysis, this increase might be attributed, in part, to strategies to circumvent U.S. tariffs. A rule allows for tariff-free entry for shipments valued at less than $800. The report shows that this “has been leveraged extensively to enhance cost efficiency in transporting goods in the U.S. market.” To streamline cross-border freight transportation, new warehouses are being built near large commercial ports and the U.S. border.

According to the report, the import growth to Mexico is also being bolstered by local manufacturing investments by China firms. The changes suggest a rise in Mexico’s role in the North American supply chain. This could lead to a rise in freight in border areas such as Laredo, Texas, and Tucson, Ariz., “which have seen some of the fastest growth rates in the U.S. over the past five years.”