FREIGHT RECESSION

The primary explanation for why the truckload demand slumps is typically the result of an age-old economic concept: Supply and Demand. Trucking, like every other commodity doesn’t necessarily need to take a dramatic move to change the balance of supply/demand and cause price swings. Larger economic activity trends push the demand or lack thereof. When demand is high relative to supply, transportation providers buy and hire in expectation of significant profits. The returns on these investments become strained as the supply begins to catch up with demand.

Thinking of the “2019 Trucking Bloodbath”, more than 800 trucking companies filed bankruptcy in the first half of the year. New fleets flooded the market chasing the strongest truckload market since deregulation. in response to 2018s ELD Mandate the market as rates fell. Then there was the trade war with China.

Demand

The economic challenges are apparent in the economy. We have record-low consumer confidence, declining construction and industrial activity, surging inflation, and a Federal Reserve that is determined to slow the economy down to tame inflation, even if it means putting the economy into a recession. Freight market headwinds are very likely.

Trucking demand is “near freight recession levels,” according to Bank of America. Shippers’ outlook on rates, capacity and inventory levels are matching attitudes not seen since May and June 2020, when pandemic sent freight volumes into a decline like no other.

Capacity

Of course, trucking is a two-sided market. Demand is only one part of the equation; capacity also matters. Capacity is really just a function of how much dispatch-able capacity is in the market. Like 2019

, the trucking industry has seen a record number of new carriers enter the trucking market chasing what were strong market conditions and record high spot rates. The number of new entrants into the trucking industry nearly doubled the 2019 monthly record average. Since 2020, the monthly average of new fleets entering trucking has increased to 13,370 per month, up from 7,200. In April, the number hit 23,479.

Summer Blues

July and August are usually slower than June. Supply chains typically slow and get ready for retail surges that follow Labor Day.

Carrier’s freight calendars highlight this time of year as it presents tons of volume and some pretty high spot rate opportunities. Surges in Q1 and Q2 are led by activity surrounding construction, fresh produce, and beverages.

The second half of the year, supply chain volumes increase as retailers prep inventories for the holiday shopping season. Will it happen this year? Doesn’t seem likely at the moment as retail inventories are rising as sales slow in fear of a recession. Why add inventory when product is sitting on shelves? Liquidation may be a more realistic expectation.

Spot rates

The excess capacity is holding down spot spots. The industry will need to seem a significant amount of capacity exit the market before we see an increase. As long as the market has excess capacity, freight rates will remain depressed. It will take a substantial purge of capacity before spot market carriers can expect relief. Experts predict that is freight recession could be a lot worse than the 2019.