Uber Freight forecasts shipper service impacts in tighter market

According to a recent report, as supply and demand in the freight market become balanced, shippers can expect freight costs to rise and fewer tendered loads to be accepted. However, the timing of when the market will recover remains unclear, possibly coming in 2025.

An Uber Freight report shows shippers have started to prepare for when the freight market shifts. Shippers are preparing for how a tighter market will increase costs and affect service levels.

According to the report, industry forecasters expect spot rates to rise in the second half of 2024. Still, one forecaster projected spot rates to fall by 2% in 2024 from 2023. Yet another expects the rates to rise by 13%, reflecting a 30% increase in the fourth quarter of 2024 from existing levels.

Recently, Uber Freight used its historical data to show how shippers’ service levels would be affected in a tightening market. Uber Freight used the data to create a model to predict whether a carrier would accept a load tendered by a shipper. The model was used to forecast the acceptance rate under multiple scenarios and for various types of shippers and carriers.

The report shows how a tightening market will affect shippers’ networks, including on the lane level. It also provides insights into improving tender acceptance rates and maintaining better service levels.

According to the report, most forecasters projected a tightening in the market to come as a result of a “capacity correction rather than an increase in freight volumes.” However, as of March, spot rates had yet to improve from a low. According to DAT Freight & Analytics, dry van spot rates were down 2.1% in May from the same month in 2023. However, rates were up by 1.5% in May from April.

In 2022, most carriers experienced record revenue. Revenues were weaker in 2023 but still historically strong. In 2021, 2022 and 2023, carriers’ revenues were 21%, 43% and 27% higher, respectively, than 2019 levels. According to the report, carriers accumulated enough profits in 2021 and 2022 to allow them to “weather the storm and make it this far.”

According to equity research published Tuesday (June 4) by equity analyst Stephanie Moore and equity associate Joseph Hafling, both of Jefferies, the market remains oversupplied as trucking capacity continues to exit the market. They expect the second half of this year to “look better” than the first half, but “we think expectations on the slope of the recovery should be tempered.”

In 2023, trucking bankruptcies accelerated throughout the year. In the first half of the year, they increased by 46% year over year, rising to 56% in the second half. Between January and April 2024, the bankruptcies were up 60% year over year. In April, the filings increased by 68% from the same month in 2023. Most of the bankruptcies can be attributed to small trucking companies with less than $1 million in annual revenues.

According to the equity research, for-hire fleets continue to see soft demand following a significant rise in private fleet capacity over the past few years. Private fleets are more actively competing for spot freight to fill empty backhauls.

“As we look ahead, although the data continues to trend in the right direction as capacity continues to tighten, demand remains OK, and rates have started to improve, a full, robust recovery in the (second half) looks less and less likely with each passing month,” Moore and Hafling said. “As we think about the timing of a (second half) recovery, we continue to push the narrative that this is likely a late 2024/early 2025 event.”

The Uber Freight report highlighted some of the signs that show the market could tighten. The first is that carriers’ revenues have declined. Carriers’ revenues are significant to capacity. When contract rates fall, carriers typically reduce staff, with an average lag of about 10 months.

In the third quarter of 2023, contract rates were down 18% year-over-year. If the historical correlation between the rates and staff remains, carriers are expected to cut staff by about 2% to 5%. According to the report, this “could have substantial effects on the spot market.”

Spot and contract rates fell in the first half of 2023 and remained flat through the first quarter of 2024. Meanwhile, carriers’ operating expenses remained high. The report shows that as a result, carriers’ margins “almost evaporated” because they are paying more to run their fleets while making less on each load. “It seems likely that more carriers will continue to exit the market until supply and demand come into balance. For shippers, this could mean higher costs in the spot market and lower tender acceptance rates in the coming months.”

Uber Freight data shows tender acceptance “is highly correlated with spot rates, as both are indicators of how tight the market is at any point in time.” Carriers accept fewer loads when rates are high “because they can find better opportunities elsewhere, especially given their limited capacity.”

The data also shows carriers are more likely to accept shorter haul loads and longer ones “because long hauls, which can keep a truck occupied for days, are associated with higher opportunity costs, especially during tight markets.”

According to the report, carriers are more likely to accept loads from contracts that have been in place for a longer time and offer more loads. Tender acceptance is typically more than 90% for a rate that remains in place for more than six months. Carriers also are more likely to accept loads when the rate is higher than the average spot rate on a lane.

Uber Freight’s model provided varied tender acceptance rates based on whether spot rates rose, fell or remained flat. If flat, the acceptance rate would remain at about 90% for the next 12 months. If rates rise by 4% this year from 2023, the acceptance rate will fall to 87%. If the rates rise by 12% this year from 2023, the acceptance rate would fall to 79% or about 12 percentage points lower than its current average.

The model also predicted that small or niche carriers are least sensitive to market changes. As a result, “shippers should expect the performance of traditional brokers to deteriorate significantly in case the market tightens, compared to other carrier types,” the report shows. “If the market tightens, medium and long hauls will be impacted more than short ones, as their tender acceptance rates will fall at a sharper pace.”