Thank you so much for taking the time to read the March Truckload Market Update! This is a monthly newsletter, released the first or second week of every month, be sure to subscribe to be notified when the updates are released!
What a strange time to be covering economics and freight markets. I feel we are going through a period of time right now where sentiment is dictating decisions. What do I mean by that? Everything I have read concerning the rebound of freight volumes and prices has included phrases like “we feel good about”, “we are hopeful that”, “sentiment is strong”. I tend to be a pretty optimistic person overall, but I also like to feel good about concrete evidence, data and facts.
So where I am torn as we consider the direction of the freight market and the overall economy as we end H1 of 2024 in the next couple of months is whether or not we have reason to expect any significant changes in 2024. I don’t believe there is much disagreement that natural seasonality will lend to increased volumes and some increased rates in the spot market over the summer into peak season, but what I feel much less confident about is some type of surge in demand that is significant enough to disrupt the supply and demand balance before the end of 2024 and really see the start of a high market cycle.
Now, I am not saying that isn’t possible. But when I think of the areas of our economy that drive the most freight volumes, I am seeing more signs that point to a very slow recovery, more than a quick demand recovery stimulus. We clearly have ample carrier capacity still in the market, if volumes start to slowly increase even just a little each month, is it possible carriers are able to continue to stay in the market longer? Essentially drawing out the recovery period by delaying the supply and demand imbalance from happening sooner? To me, it seems possible that 2024 could feel just “blah” as we see some modest signs of strengthening in the market but nothing to significantly change conditions rapidly.
Be sure to subscribe to this newsletter as, thankfully, this work allows me to update my stance each month as new data and information presents itself! Time will tell soon if my concerns are valid, or if new areas of strengthening start to present themselves. For the time being, here are some things that have shaped my current stances.
Edward Jones had a very interesting likening of the 2024 economy to the economy of the mid 90s, when the Fed tamed inflation through rapid interest rate hikes, and stuck a rare soft landing by avoiding a recession and keeping a strong labor market while stimulating economic growth. They explained the current economic market condition like this:
Now: In this tightening cycle, the Fed hiked rates by 5.25% from March 2022 through July 2023 to tame inflation. While the hikes were more severe than in 1995, the destination was similar, with the fed funds rates peaking at 5.5% (absent a surprise resumption of rate hikes). And like 1995, as the Fed is looking to start letting off the brakes, financial conditions are supportive, giving credence to the soft-landing scenario. In fact, the Chicago Fed and Bloomberg financial-condition indexes both indicate that conditions are now easier than they were when the Fed started raising rates two years ago. In the past, it is when financial conditions were tight that recessions have occurred, which is not the case today1. Stocks are making fresh record highs, creating a wealth effect; the U.S. dollar is off its peak; volatility is subdued; and credit spreads are near historic lows.
The Fed is expected to start cutting rates this year, maybe very soon. I think if anything has a chance to drive economic stimulus it will be interest rate cuts. The primary thing that might stop this from happening as fast as some would hope? Sticky Inflation. Inflation was mentioned in this month’s ISM PMI commentary release as well.
Tim Fiore, Chair of the ISM's Manufacturing Business Survey Committee, said in an interview:
“It wouldn't concern you that we had a 56 on prices but with the Fed is wanting to get down to the 2% rate in the next couple of years, this does not support that,” he said. “As long as they don't increase, we're fine. Higher for longer is OK. We don't have a problem with that; we were we were prepared to go all through this year with higher rates anyway, because our forecast was done before the Fed announced that we've capped out on rates and then we'll probably see three cuts. If Chairman Powell delays the first cut beyond June, it's not going to impact manufacturing. In June, if he ups the interest rate by half a point. You might see something happen here, but I don't see him doing that. I just see him holding the current rates higher for longer.”
If a “higher for longer” scenario becomes reality that could slow the rate of freight market strengthening throughout 2024.
The Institute for Supply Management released the March PMI data:
“The U.S. manufacturing sector expanded in March, as the Manufacturing PMI® registered 50.3 percent, up 2.5 percentage points compared to February’s reading of 47.8 percent. This is first instance of expansion in 16 months. Two out of five subindexes that directly factor into the Manufacturing PMI® are in expansion territory, up from one in February. The New Orders Index moved into expansion territory after one month of contraction.”
However, Jason Miller cautioned against getting too excited about the results of March’s PMI just yet, citing that manufacturing activity through February per the Federal Reserve Board's data remains muted, and new orders for nondefense capital goods excluding aircraft remain flat.
We will continue to monitor domestic manufacturing activity as it is by far the single largest contributor to trucking ton miles.
The new construction housing market is also a key driver of trucking ton miles. Joseph Politano did an excellent job of covering the latest stats on construction and housing. (seriously, you will not regret paying to subscribe to his work) In the past I have covered the strength of multi-family construction markets throughout 2021-2023 that seemed to really carry us through the decline of single family housing construction after 2020-2021.
Single family housing construction reacted to rising interest rates and new starts decreased quickly. However, a desperate need for housing driven by a housing shortage and need for more rental opportunities across the nation drove a significant expansion in the multi-family housing space. As costs to rent climbed in 2020 through 2022 developers clamored to capitalize on opportunities and needs to supply the rental properties. As inflation started to climb out of control, many economists were stripping out shelter costs from inflation to see what the progress was at controlling inflation, knowing that housing costs were a primary contributor to inflation.
The good news? Rental disinflation has been coming down rapidly throughout 2023 and 2024 as record numbers of completed multi-family units are coming on the market.
However, banks began tightening their lending policies for these multi-family projects in 2022, and 2023 saw a very significant drop in new projects due to stricter lending policies.
“Tighter credit and slowing rent growth significantly reduced multifamily starts and permitting activity throughout the US last year {2023}... the overall trend is one where apartment permitting has declined all the way back to pre-COVID levels. There is still a pipeline of nearly 1M apartment units currently under construction that should keep completions high for the time being, but absent a pickup in starts soon new apartment supply could fall significantly next year.”
So, as multi-family units wind down over 2024, we turn our attention to the single family housing space to see if it will have a moment of rebound to help keep trucking ton volumes in the construction and building materials spaces neutral or expanding.
“In many ways, the current dynamics of the multifamily housing market echo what happened earlier in the single-family space. The pandemic housing demand surge combined with loose monetary policy to drive a significant increase in single-family starts, but supply-chain snarls extended construction times and decoupled completions from starts. Then rising interest rates slashed the number of new single-family housing projects, but the large backlog of units under construction turned the collapse in starts into only a slowdown in completions. Now, the number of single-family starts has recovered and is once again running ahead of completions.”
Interest rate cuts this year might be just the ticket for even stronger growth in single family starts for 2024-2025, and a potential return of lending for multi-family that would push project starts into 2025.
Alright, that’s what is going on in the economy, but where are we at in the freight markets? What should we pay attention to? I can definitely think of one thing that is now playing out right in front of us that I have been waiting to see happen: Freight brokerage closures.
“Freight brokerages closures accelerated again YoY in March 2024 at (10.6%). There are now 27,450 freight brokerages with active MC numbers compared to 27,864 one month ago.”
Carriers have been leaving the market by the thousands, and I have said for months now that some people think this is all about the carriers, but it’s more now going to be on the brokers who were running contractual freight on spot market rates in spot market coverage models. Uber Freight released some data they have seen in their internal data that I found VERY timely and unsurprising as it seems to correlate with Kevin’s data set.
“Uber Freight’s data show that the downward pressure on spot rates has been driven by brokers rather than carriers, unlike early 2023, when large carriers were bidding lower. This could be another sign that current spot rates are not sustainable.”
Not sustainable for carriers, but also for the brokers exiting because of their unsustainable strategies.
Uber is a Managed Transportation company that runs bids for hundreds of shippers in the US, so they see and can aggregate the RFP submissions of carriers and brokers into strong visuals.
Some topics around this worth consideration:
I could keep going. Am I saying all of this to say all brokers are bad? ABSOLUTELY not. However, the brokers who are creating models that are not sustainable for themselves, are the ones who are exiting and will be exiting the market this year. We see a cleansing of over capacity in the carrier side every market cycle, and this might be the first time a true cleansing of brokerage “capacity” was needed as well. And, while unfortunate, the spot market pressure will also help to exit more carriers to help reach “equilibrium” for lack of a better term. As much as we may dislike the behavior of some players in the market, it is typically that behavior that can lead to the inevitable start of the next market cycle that benefits the strong and deserving participants in the space.
In a recent post, Ken Adamo wrote:
“For the trucking markets to begin recovering and enter the new cycle, the supply of carriers must reach equilibrium. We've net lost nearly 36k interstate motor carrier authorities since October of 2022 and that number is still growing. Those anxiously awaiting a boost in spot rates should see some optimism in the slowing rate of attrition as the market approaches balance. If the March trend holds, it'll be the first month with under 1k net losses since the start of the downturn.”
The pressure on revenue for trucking companies persists, Jason Miller wrote:
•Top chart shows the primary service PPI for general freight trucking, long-distance, truckload sector (data https://lnkd.in/d3EQCWH), set as an index where 100 = Feb 2020. Including fuel, rates are about 12% above where they were back then, after having fallen sharply in January and staying flat in February. My guess is that this decline was heavily driven by new contract rates taking effect. Year-over-year, rates are down 11%.
•Bottom chart shows the primary service PPI for general freight trucking, long-distance, less-than-truckload sector (data https://lnkd.in/ebhPuGZ), set as an index where 100 = Feb 2020. Here we have a very different pattern, with rates hovering 26% above pre-COVID levels and up 3.4% year-over-year.
•Moving forward, I see little chance that rates for either sector will decline as we move into 2024. Given capacity exit in the over-the-road truckload space coupled with demand appearing to be in a trough, it will be hard for additional downward pressure to be applied. On the LTL side, with Yellow out of the picture, pricing discipline will continue to hold.
I don't believe we need to be concerned about rates decreasing much further, but we need to understand what the implications of increases will be. Which again, for brokers bidding 12 month rates dependent on the spot market, or brokers with wildly off base operational costs and continually slimming margins, explains the exits we are seeing of brokerage authorities. If “higher for longer” in the economy were translated to the freight markets right now it would be “lower for longer”. Where volumes and rates remain flat or experience minimal gains but make no significant progress for some time.
Arrive Logistics mentioned the recent weakening of the truckload market throughout Jan-March that we will also see in our pricing charts here shortly.
“The Morgan Stanley Dry Van Freight Index is another measure of relative supply; the higher the index, the tighter the market conditions. The black line with triangle markers on the chart provides a great view of what directional trends would be in line with normal seasonality based on historical data dating back to 2007. The market was loose heading into 2024 but tightened quickly in early January, causing the index to rise above 2023 levels and land close to the 10-year average. However, the index indicates soft conditions have returned over the past six weeks, with five straight readings showing loosening and levels falling close to where they were during the same period last year. Truckload Supply - Morgan Stanley via Arrive”
Thank you to DAT as always for providing April’s updated charts so that we can take a comprehensive look at what spot and contractual rates did during March:
For March dry van we can see that both spot rates and contract rates showed further weakness following January and February:
For March Reefer rates we saw decreases as well in both spot and contract rates:
Some exciting things are happening over at Greenscreens.ai as they have started to release data visuals that break out spot market rates by region and mode based on data aggregated by over 150 brokers utilizing their platform.
How to Read Them:
Rate trends reflect the comparison of all shipments to a machine learning baseline rate derived from the latest baseline period (2023H2). Each shipment is rated with a 2023H2 estimate. Each month summarizes the difference to this baseline.
All trends are derived using rates that include fuel and reflect spot market buy rates from +150 brokers within the Greenscreens.ai network.
Rows reflect major truckload equipment types: VAN, REEFER, FLATBED
Takeaways:
March Carrier Spot Rate trends showing Dry (-3.2%) and Reefer (-3.9%) on downward trajectory compared to 2023H2 national baselines. Midwest and Southwest markets are leading this trend for Van and Reefer.
Flatbed showing better signs of recovery at +2.1% compared to 2023H2 national baselines. With the Southeast showing greatest inflationary increases at +4.5%.
If you are interested in understanding how Greenscreens could help you make better pricing decisions, create pricing models that match your unique organization’s cost model, win more shipments, increase margins per load, and increase your internal operational efficiencies, you can connect with them here. You can also catch them at the TIA Capital Ideas conference in Phoenix April 10-13th!
I felt a short recap of some of our contributors’ thoughts on the direction of the market would be helpful to close this report out:
Ari Ashe on Meet Me For Coffee with Samantha Jones: “From the conversations I’ve had {around Q1 RFP results} LTL has come in at low to mid single digits, the truckload rate has pretty much not moved whatsoever, there’s pretty much no increase at all, maybe 1-3%, and intermodal space flat frankly was the best case scenario, in many cases I saw shippers get -2% to -4%... and so the conclusion here is the carriers simply didn’t get what they probably wanted through this rate cycle because there is just not an economic catalyst to support it and the shippers budgeted for something that fortunately for them, unfortunately for the carriers didn’t happen, and at this point I’m not really seeing any evidence to suggest that that’s going to change anytime soon… I’m just not seeing it in the data yet.”
Arrive Logistics- via their latest market reports: "Overall, low rates are still driving the soft freight market. We continue to monitor the geopolitical conflicts in Ukraine, the Middle East and Taiwan. If any of these escalate further, they could become “Black Swan” events capable of disrupting the U.S. domestic freight market. However, we do not anticipate any significant disruptions to domestic over-the road trucking in the near term."
Jason Miller - via a recent LinkedIn post: "Implication: for shippers, it appears we are at the bottom of the pricing cycle in the over-the-road truckload sector, whereas we passed the nadir in the LTL sector. As there is more chance of rates increasing in 2024 than decreasing, budget accordingly."
Ken Adamo - via a recent LinkedIn post: "There are many factors to consider in this volatile and difficult to predict market, but the most fundamental is the balance of supply and demand. Spring should bring a boost in demand for trucking and, combined with capacity approaching balance, higher spot rates should follow. I wouldn't anticipate skyrocketing rates anytime soon. Most brokers and carriers that I talk to on a weekly basis would be happy to see any positive trend. This seems like the most likely scenario for the rest of H1 this year."
Greenscreens.ai: via their recent data release to this Newsletter: "Outlook: Second quarter of 2024 will likely set the stage for the rest of the year. As supply continues to edge closer to equilibrium with stable economic demand, VAN and REEFER rates should stabilize and perhaps show signs of inflation as we near mid-year. If the second quarter continues the current downward rate trajectory, it will likely be a long 2024 for trucking."
Episode 32 with guest Gereon Hempel - 21 Consulting and formerly Procurement at Volkswagen
Episode 33 with guest Ari Ashe:
That’s all for April's update, be sure to connect with Samantha at the TIA2024 Capital Ideas conference in Phoenix April 10-13th if you will be attending!