At this year’s Insight Tech Conference + Expo, Avery Vise, a leading trucking and transportation industry economist and vice president of trucking for FTR Transportation Intelligence, presented a fast-paced session filled with insights and analysis about the current state of the freight market and what lies ahead.
Overall, Vise believes the industry has almost reached the end of its tailspin, and will slowly rebound in the coming year. We explore his remarks about the near-term prospects of freight transportation in detail below.
Discussing Capacity & Deciphering the Trucking Conditions Index
Vise emphasized the leading role of capacity in trucking’s health. "Capacity really is the X Factor," he said. His analysis shows that overcapacity is the culprit for the current trough in rates, but that conditions will slowly improve over the next year.
Forecasts hinge on economic assumptions, Vise emphasized, but FTR’s assumptions are holding up remarkably well. They show that freight rates have likely bottomed out but storm clouds appear on the horizon from higher costs of capital, fuel price volatility, customer-related hurdles and regulatory policies that can further tighten the bottom lines of carriers.
To monitor the industry's health, Vise displayed the FTR Trucking Conditions Index. This comprehensive metric takes into account factors like freight volume, freight rates, capacity utilization, fuel prices, and more. In essence, it provides a multi-dimensional snapshot of the industry's overall conditions and prospects.
Based on the current trend, FTR’s Trucking Conditions Index shows the overall state of the industry is down at present, but is on the mend. A slow recovery should hold through next year. Truckload spot market rates in particular seem to have bottomed out.
“I don’t think there is any more room to go down,” he said. “We are in a stable market at this point. It is not likely to get weaker, but there is no expectation it will get stronger soon.”
Fuel prices are a perennial concern in the industry and a key variable in FTR’s Index. Prices experienced a prolonged period of decline before a sudden reversal. Russia’s banning of oil exports and countries placing their own bans on Russian oil imports are combining to add pressure on US exports, driving up global prices, Vise said.
Where is Peak Season?
Vise expressed optimism that conditions will become more favorable for trucking companies in 2024. This year’s peak retail season is not shaping up to be the impetus for a positive shift in momentum, however. Intermodal volumes are a leading indicator for the peak season. Historically, July and August have an increase in loads, but the number of intermodal loads declined this year. The week of September 16 has been the strongest month for the industry in 2023.
Despite the market being saturated with capacity, motor carriers have not had to lay off drivers. Employment numbers have remained strong. Seasonally adjusted payroll in August was the third largest on record, he noted. Payrolls decreased by 36,700 employees that month, but 30,000 of this came from the bankruptcy of Yellow.
Consumer Spending and Housing: Twin Pillars of Demand
Consumer spending takes center stage in the trucking industry. Demand for durable and non-durable goods has been pretty strong recently. Vise noted his outlook is based on a relatively strong continuation of consumer spending and the labor market holding steady.
Inflation is sitting at four percent and is chipping away at consumer spending, however. People are spending more of their disposable income than before and the personal savings rate is below five percent, he noted. Simultaneously, the housing market is closely linked to trucking and plays a pivotal role. Housing starts and existing home sales dictate the demand for construction materials, creating a symbiotic relationship.
On the housing front, interest rate hikes by the Federal Reserve has mortgage rates the highest they have been in 22 years. It would take an economic depression for the Fed to bring interest rates down to three percent again, Vise said.
Challenges and Opportunities
In the realm of capacity, Vise highlighted a crucial distinction between larger carriers and smaller ones. Larger carriers tend to weather economic fluctuations more effectively, while smaller carriers, who do more business in the spot market, face greater volatility.
In the current environment of low rates and high costs, single truck owner-operators would be financially better off driving for a fleet as employees versus contractors, Vise noted. With a sharp eye on economic trends and industry dynamics, Vise reminded attendees of the critical importance of managing capacity, adapting to economic challenges, and staying attuned to broader trends and market volatility.
In an industry where profitability is measured on pennies per mile, the industry update shows that the road ahead will be flat and winding, but it should at least be stable. Knowing things aren’t likely to get worse is an opportunity for motor carriers to retool and reshape their businesses during a slow rebound to be prepared for greater success over the long haul.
We will continue sharing valuable insights and key takeaways from Insight 2023 over the coming weeks – keep your eyes on our blog for the latest updates! View all of our Insight 2023 coverage here.