Analysts say sluggish demand and economic uncertainty will keep trucking rates stagnant for Q4, with hopes for growth delayed until next spring.
Despite a few signs of economic recovery, trucking rates are expected to remain lackluster through the rest of 2023. The TD Cowen/AFS Freight Index predicts flat pricing in the fourth quarter for both less-than-truckload (LTL) and truckload (TL) sectors, as demand continues to drag and broader economic uncertainties loom over the market.
Demand Struggles Keep Rates Low
The two-year freight recession has left trucking demand subdued, and the LTL market shows no signs of a dramatic upturn this year. According to a recent report from TD Cowen/AFS, LTL and TL rates have been “bouncing along a trough,” with the TL rate per mile index peaking in early 2022 and hitting its lowest in mid-2023. Amar Mehta, partner at EY, pointed out that both consumer and business sectors are facing economic uncertainties, from tax policies to election outcomes, which has slowed merger and acquisition (M&A) activity across North American freight companies by half compared to 2023.
While retail spending in September provided some optimism, carriers continue to rely on retail freight to maintain volume, as the critical manufacturing sector shows minimal growth. Residential construction completions rose, but new builds haven’t gained enough momentum to impact the trucking industry significantly.
Hopes Pinned on a Spring 2024 Turnaround
U.S. Bank’s Rob Haworth noted that while consumer spending is steady, it won’t be enough to drive a major surge in freight. Analysts, including Michigan State’s Jason Miller, have pointed to domestic manufacturing’s central role in future demand. Though containerized imports rose by 10% over last year, this year’s freight market remains firmly in the shippers’ favor, with no strong peak season in sight.
A trucking ton-mile index developed by Miller and Yemisi Bolumole from the University of Tennessee reflects horizontal freight volumes across 40 sectors, signaling weak overall demand. Inflationary pressure in the transportation sector continues to weigh on growth prospects, according to Bolumole. Looking ahead, Miller suggested that a few interest rate cuts could spark a genuine increase in demand by March or April, potentially leading to improved freight dynamics.
For now, trucking companies will need to weather the current flat market, focusing on efficiency and cost management as they prepare for a possible rebound next spring.
