The freight cycle remains clearly weak, according to the latest release of the ACT freight & transportation forecast report, but there are rays of light at the end of the tunnel. ACT sees the tightly intertwined supply and demand dynamics in the freight market beginning to recover with demand fundamentals improving and capacity starting to tighten.
“With produce season arriving late this year and the freight market likely passing the peak of the destock, freight demand is near the bottom,” shared Tim Denoyer, ACT Research’s Vice President and Senior Analyst. “With inflation easing, improving real income trends will allow for a bit more holiday spending this year, when even less destocking will mean more freight volume.”
Regarding fleet capacity, Denoyer added, “Interstate operating authorities are contracting at a record rate, with about 11,000 net revocations since last October, including about 1,600 net revocations in April. Total revocations were about 10,800 in April, near record levels, though grants and reinstatements are also elevated. This is beginning to tighten capacity, which will also help spot rates find the bottom and begin to rise.”
He continued, “Long-distance trucking employment is also contracting, as long-haul trucking jobs declined by 8,700 jobs in Q1’23, or 1.0%. While still up 3.0% y/y in that latest March data point, the series will be down on a y/y basis by June on its current level. Since trends in employment follow trends in freight rates, long-haul jobs are set to decline this year.”
Denoyer concluded, “The intersection of additional volume and tightening capacity underpins our forecast for a near-term bottom in spot truckload rates. We’ve been expecting the bottom roughly around this month since we introduced 2023 spot rate forecasts 16 months ago, and we still think Roadcheck this week will help usher in a new freight cycle.”
The monthly 58-page ACT freight forecast provides analysis and forecasts for a broad range of U.S. freight measures, including the Cass Freight Index, Cass Truckload Linehaul Index, and DAT spot and contract rates by trailer type. The service provides monthly, quarterly, and annual predictions for the TL, LTL, and intermodal markets over a two- to three-year time horizon, including capacity, volumes, and rates. The Freight Forecast provides unmatched detail on the freight rate outlook, helping companies across the supply chain plan with greater visibility and less uncertainty.
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Freight demand is likely to be soft for some time, but nascent capacity removal will be key to rebalancing. ACT points to slower declines and wider spreads between specialized and dry van rates this year and note that a lot of rebalancing must take place to turn the proverbial ship, according to the April release of the ACT freight and transportation forecast.
“Spot rates are now about 17% below truckload fleet operating costs in Q2, worse than the 15% operating loss in Q1, by our estimates,” shared Tim Denoyer, ACT Research’s Vice President and Senior Analyst.
“Failures started to pick up when the loss reached 10% in Q4’22. This was a record at the time, and we see Newton’s third law of motion at work as the rebalancing requires a string of record losses following record pandemic profits. Q2 is the fourth straight quarter of significant losses, and both the time and magnitude of the losses should send a strong enough signal to tighten capacity.”
He continued, “The pendulum of pricing power has been firmly with shippers for some time, and the cudgel of lower rates is starting to impact capacity. Though new equipment production remains elevated, hiring and fleet exit trends tell us capacity is slowing at the margin. With marginal fleets scrambling for miles with busted budgets, spot rates have gone far below costs, but this can only go on so long.”
Denoyer concluded, “The symbiotic relationship between TL and LTL is informative for understanding the freight cycle: in tight markets, freight flows from TL to LTL, and in loose markets from LTL to TL. The trend change so far this year suggests the industry has passed peak looseness, and a rebalancing has begun. The bottom of the spot rate cycle can’t be far now.”
Interstate operating authorities are contracting at a record rate, with about 11,000 net revocations since last October, including about 1,600 net revocations in April. Total revocations were about 10,800 in April, near record levels, though grants and reinstatements are also elevated.
Long-distance trucking employment is also contracting, as long-haul trucking jobs declined by 8,700 jobs in Q1’23, or 1.0%. While still up 3.0% y/y in that latest March data point, the series will be down on a y/y basis by June on its current level. Since trends in employment follow trends in freight rates, long-haul jobs are set to decline this year.
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