Freight market recovery might come in 2025, analysts say

Analysts said the freight market could improve in 2025 if more capacity leaves. Still, the market might be approaching an inflection point. In a recent conference call, Jefferies analysts highlighted freight market challenges and the road to recovery.

Stephanie Moore, equity research analyst of business services and transports for Jefferies, said freight rates remain low while excess capacity from small freight businesses persists. She said many smaller companies have been operating at “breakeven to a loss.” This has contributed to the slight increase in bankruptcies since the fourth quarter of 2023. More capacity must exit the market before rates recover while freight demand continues.

“We are still bouncing along on what has now become the worst freight recession since ’08–’09, and at this point, probably even exceeding those levels,” Moore said. “We had a little bit of maybe false hopes or false positives to start the summer season as we got into produce season. But as we have … exited the June/July months, we’ve seen … a bit of a step down into August.”

In August, dry van spot rates declined by 3.5% from the same month in 2023, according to DAT Freight & Analytics. The August rates fell by 2.6% from July 2024. As of Sept. 22, the rates were down 0.9% from the previous week.

“The spot market continued to lose steam, but the threat of labor strikes at major ports could cause these seasonal trends to reverse course in the coming weeks,” according to DAT. “Ratios and rates continued to decline for reefers and vans last week, though the volatile flatbed segment saw an uptick nationally.”

’AN INFLECTION POINT’
Also in August, the American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index rose by 1.8% from July. It also rose by 0.4% in July from June. ATA Chief Economist Bob Costello said tonnage rose to the highest level since February 2023.

“Not only does the latest robust gain show freight levels are coming off the bottom, but so does the sequential pattern over the last eight months,” Costello said. “Starting earlier this year, every time tonnage falls, it is higher than the previous lows. For me, this month-to-month pattern is more important than looking at the year-over-year percent changes since we are at an inflection point in the freight market.”

Tonnage rose 0.7% in August compared to the same month last year, the second year-over-year increase in the past 18 months. The previous year-over-year increase was in May 2024. In July, tonnage fell by 0.9% from the same month in 2023.

In recent market research, analysts Garrett Holland and Joseph Higgins, both of Baird, said,

“Still-sluggish [second half of 2024] fundamentals are not the worst outcome as a few more tough quarters should rid the market of the lingering capacity overhang and give way to a more definitive recovery during 2025.”

They noted that orders of class 8 trucks, the largest truck class, “held up longer than expected given acute pressure on carrier profitability.” Preliminary August numbers show order levels “are now below replacement levels and down to levels consistent with outright U.S. recession.”

NORMAL CONDITIONS EMERGING
Public carriers, including Lowell-based J.B. Hunt Transport Services, are reducing truck fleets. U.S. trucking employment is down 2.8% from the 2022 peak but 0.6% above the cyclical peak in 2019.

The analysts said, “The lack of a spot market pricing inflection is the ultimate indicator more capacity needs to leave the market relative to existing demand.” The rate of decline and its duration “suggest we are close to the end of this cycle.”

In recent research on J.B. Hunt, analyst Daniel Imbro, senior associates Joe Enderlin and Brady Lierz, and associate Reed Seay, all of Little Rock-based Stephens Inc., said, “We believe we are approaching a trough in intermodal results, and we are encouraged by signs of relatively normal market conditions through the third quarter.”

J.B. Hunt’s intermodal segment comprised 48% of the company’s operating income and revenue in the second quarter. Analysts said its estimates on J.B. Hunt “remain below the Street due to the lagging effect of intermodal price, but looking forward, we expect bid season to improve next year, which should support more meaningful margin expansion in [the second half of 2025].”