FreightWaves• Jul 10, 2023• 1:01:53Interview

The State of Freight Webinar - Live at The Future Of Supply Chain

From FreightWaves

Craig Fuller, Zach Strickland

Executive Summary

The US freight market is in a deep recession, with spot rates (net of fuel) at 2019 levels while carrier operating costs have risen by up to 30 cents per mile, creating severe margin pressure.
A significant oversupply of trucking capacity, with over 25% more registered carriers since 2019, has driven tender rejection rates to historic lows (3.35%), giving shippers immense pricing power.
A bearish outlook for the second half of the year is driven by consumer headwinds, particularly the resumption of student loan payments for 25 million Americans, which will remove an average of $385/month from discretionary spending.
While the overall goods economy is weak, nearshoring is creating a robust freight market in Laredo, Texas, which has become the largest port in the U.S.
by freight volume.

12 quotes

Concerns Raised

The resumption of student loan payments will significantly reduce consumer discretionary spending on goods.
A 25% increase in trucking capacity since 2019 has created a severe supply/demand imbalance, suppressing rates.
Carrier operating costs are significantly higher than in 2019, but spot rates have returned to 2019 levels, crushing margins.
Low tender rejection rates (3.35%) indicate carriers have no pricing power and a recovery is not imminent.
Retailers are opting to risk stock-outs rather than carry excess inventory, signaling a weak peak season.

Opportunities Identified

Nearshoring is driving significant and sustained freight volume growth through Laredo, Texas.
Shippers can capitalize on the 78-cent per mile spread between high contract rates and low spot rates to achieve significant cost savings.
With West Coast port labor issues resolved, it may become a more attractive import gateway for shippers again.

Key Themes

Freight Market Recession

The freight market is experiencing a severe downturn, characterized by spot rates returning to the lows of 2019, a period known as a 'bloodbath' for carriers. This is compounded by a significant increase in carrier operating costs since then, leading to a major profitability crisis for trucking companies.

This environment creates significant financial distress for carriers, likely leading to an acceleration of bankruptcies, while providing shippers with substantial leverage to lower their transportation costs.

Consumer Spending Headwinds

The impending resumption of student loan payments is a major concern for the goods-based economy. This will pull an average of $385 per month from the budgets of 25 million consumers, the very demographic that drives significant freight demand through purchases of furniture, housing goods, and other products.

This reduction in discretionary income is expected to dampen consumer demand for goods, suggesting a weak or non-existent peak shipping season and extending the freight recession.

Massive Capacity Oversupply

The number of registered trucking companies has surged by over 25% since 2019, creating a glut of available capacity. This is reflected in the national tender rejection rate of just 3.35%, indicating carriers are accepting nearly every load offered to them, which prevents any upward pressure on rates.

The persistent oversupply means the market is firmly in shippers' favor. Until a significant amount of capacity exits the market, likely through bankruptcies, freight rates will remain depressed.

Geopolitical Shifts in Freight Flows

Nearshoring of manufacturing to Mexico is having a tangible impact on North American freight networks. Laredo, Texas has solidified its position as the nation's largest freight port, seeing significant growth in northbound truck activity, while other border crossings and traditional coastal ports see less activity.

This long-term trend requires a strategic re-evaluation of supply chain networks, warehousing, and transportation lanes, creating opportunities in cross-border logistics and the U.S. Southeast and Midwest.

Divergent Economic Signals

There is a stark contrast between the health of the 'Main Street' goods economy, which is clearly in a recession, and the 'Wall Street' view, which sees a bull market and strong employment. This makes the overall economic environment opaque and difficult to forecast.

This divergence creates uncertainty for businesses. Relying on broad economic indicators like the stock market can be misleading for those in the physical goods and transportation sectors, who are experiencing very different conditions.

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Topics

Freight Market Trucking Industry Spot Rates Contract Rates Capacity Oversupply Tender Rejection Index Carrier Bankruptcies Consumer Spending Student Loans Economic Outlook Goods Economy Nearshoring Laredo LTL Freight Diesel Prices

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