Freight market update: Q3 – September 2023

September 12 / US

September 2023 freight market update: Key insights for shippers

Our September 2023 Freight Economist provides the most pertinent data and analysis to help shippers understand what’s impacting their business, both now and in the months ahead. Here’s a quick look at the findings:

Consumers continue to save less in order to buy more. Despites signs of cracks in the labor market, spending on goods and services hit a new all-time high in July. As consumers’ real disposable income fell, strong spending came at the expense of savings.

In August, spot rates fell below their April lows due to a sudden rise in diesel prices, which went up by almost 60 cents/gallon in the last month. As spot rates remain weak and contract rates decline, additional capacity reductions are expected in the coming months.

Current market conditions require robust planning and optimization to stay ahead of fluctuations and volatility. Many shippers are establishing stronger carrier relationships based on loyalty despite the soft spot market in preparation for eventual market recovery.

Explore the full September 2023 Freight Economist and learn more about:

Analysis of current economic conditions and market trends
Predictions for Q4 and beyond
What shippers and carriers can do to prepare for market shifts

US economy’s impact on freight demand and supply

Supply / demand indices

Truckload demand rose for the third consecutive month in July, on a seasonally adjusted basis. The magnitudes of these increases were 0.3%, 0.4%, and 0.6% respectively. Although it remains 1% below its peak observed in January 2022,
demand turned positive y/y (+0.1%) for the first time in 9 months. The increase in demand was attributed to higher wholesale sales in the past three months, and robust consumer spending on goods.

Truckload supply fell by 0.3% for the second consecutive month as employment slowed down, but was still 3% higher y/y. The gap between our supply and demand indices, which is highly correlated with dry van spot rates, has fallen to its lowest level since February.

Spot rates

Dry van spot rates remained flat in July, but fell significantly in August. While all-in spot rates (including fuel) rose by 1 cent/mile, linehaul rates (excluding fuel) plummeted, due to a sharp increase in diesel prices, which rose by about 60 cents per gallon since mid-July. In August, rates fell by about 7 cents per mile (-4% m/m), or 3% on a seasonally adjusted basis, and were 17% lower y/y.

August’s national average spot rates set a new cycle bottom (tied with April at $1.67/mi, and only 6 cents per mile above the 2019 levels. National average contract rates also fell by 6 cents/mile in August, and were 17% lower than a year ago.

Freight demand

Freight demand indicators were generally positive in July, with increases across the board in consumer spending, manufacturing, housing starts, and wholesale sales (in select truckload-specific sectors).

Freight supply

Trucking authority revocations fell sharply in June, but still outpaced new authorities, indicating the seventh net reduction in the carrier population in the last 8 months. However, despite a record number of carrier authority revocations observed in the last three quarters, the market remains oversupplied and capacity is loose.

Many of the failing carriers have enrolled with larger fleets, as truckload employment remained elevated especially in the long-distance truckload sector. However, these fleets are likely hitting their hiring capacity. In June, long-distance truckload employment fell by 0.3%, and was only 1.5% higher than a year earlier.

However, large carriers will not be able to absorb all the failing carriers over the coming months, especially as their contract margins turn negative. Historically truckload employment has lagged contract rates by about 10 months. If the trend holds, we expect truckload employment to contract by about 4% – 5% over the next year, which could boost spot rates by 15% – 20%.

(1) Retail trade and food services (excluding gasoline), adjusted for inflation using the CPI indices of durable and nondurable goods (July, 2023)
(2) Federal Reserve’s Industrial Production: Manufacturing Index (July, 2023)
(3) US Census Bureau data on Housing Starts and Building Permits (July, 2023)
(4) US Census Bureau data on wholesalers’ sales, excluding petroleum, lumber, metals, and farm products (June, 2023), adjusted for inflation using the PPI: Final demand goods
(5) US Bureau of Economic Analysis Personal Income and Outlays data (July, 2023)
(6) US Census Bureau data on manufacturing orders: nondefense capital goods excluding aircraft (July, 2023), adjusted using the Producer Price Index: Final Demand – Private Capital Equipment
(7) Descartes (July, 2023, seasonally adjusted using Uber Freight’s data)

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Q3 market update: Key insights and recommendations for shippers and carriers

Published on August 9, 2023

Following several months of decreased demand, the tides have begun to turn as consumer spending increases and imports follow suit. Though carrier supply remains elevated despite trucking employment flattening out, we anticipate reductions in the near future. The manufacturing sector, meanwhile, continues to contract and is expected to remain in contraction territory in the coming months.

As the market shifts, shippers and carriers must optimize their strategy to stay ahead of demand. Our Uber Freight quarterly market update analyzes the most pressing trends across the industry to inform key decisions for the road ahead. Here are the top takeaways as we head into Q3:

Truckload demand appears to have hit the bottom, at least temporarily

In the second quarter 2023, truckload demand was 2.3% lower year-over-year, seemingly bottoming out in March before rising throughout April and May. This increase in demand is likely a result of rising containerized imports and consumer spending, with real spending on goods up 0.2% in Q2 and 1.5% year-over-year. Durable goods, specifically, appear to be responsible for a majority of this increase, where spending rose by 1.7% quarter-over-quarter.

On the supply side, overall trucking employment remained relatively flat and was only 0.4% higher year-over-year in July. At the same time, long-distance truckload employment fell slightly in June, but was still 1.5% higher year-over-year. Though the total number of carriers fell by 15k over the last several months, struggling carriers are opting to enroll with larger fleets rather than exit the market entirely.

The spot market remains soft across the board

Despite increasing in June and July, spot rates underperformed seasonally, and current supply levels point to ongoing weakness in the coming months. However, many rates are significantly below operating costs, so current levels are unsustainable for the long-term. Intermodal spot rates, in particular, remain at the lowest levels since 2016 and we expect this will persist through the remainder of the year. We anticipate competitive balance will be restored in 2024 when pricing power and pressure increase.

In US bulk, overall utilization remains down amid the continued soft market, with carriers focused on regional and short haul freight to meet costs. As a result of safety, health, and environmental concerns, shippers are remaining with incumbent carriers, putting upward pressure on contract rates. This is also keeping spot usage low, despite soft capacity.

LTL absorbs the shock of the Yellow shutdown

When Yellow ceased operations in July, it had represented 9% of LTL market share. As a result, LTL carriers are faced with the challenge to absorb its volume. Currently, the LTL market has excess capacity to absorb Yellow’s volume due to nearly a 10% drop in volume from 2021/22 highs, mitigating all excess supply. Assuming no unexpected increase in demand, we expect it will take several months for the market to adjust to the shock.

All carriers are in the process of quickly ramping up capacity in order to secure Yellow’s volume while maintaining service levels, resulting in high costs. Because Yellow had represented the lowest cost national carrier, its shutdown is expected to result in less competitive pricing from remaining national carriers. While some national carriers are avoiding pursuing new opportunities, others are using this situation to grow their customer base.

How shippers and carriers can prepare for Q3 and beyond

With easing cost and capacity pressures paired with plentiful supply in full-truckload, shippers should take advantage of this opportunity by prioritizing FTL routes before the market turns. On the LTL side, it’s essential for shippers to build flexibility into their networks to prepare for market shifts due to expected service deterioration and delay. With ongoing challenges in LTL, shippers should look to opportunities in intermodal, where capacity is plentiful and spot rates are low.

Mexico became the top ranked US trading partner in Jan. through May, shippers can also look to expand their nearshoring operations. With imports up 3.5% year-over-year, low costs, and high capacity, cross-border has finally turned to a shipper-dominated market after three years. However, shippers should work alongside a logistics partner to navigate complex Carta Porte requirements to ensure compliance with import laws.

Meanwhile, carriers should be prepared to ramp up capacity following Yellow’s shutdown in July. Carriers must closely monitor additional volume flowing within their network to ensure profitability and service don’t deteriorate while combating rising costs across the board. With trucking employment flattening and loosening capacity, carriers should seek to optimize where they can to account for declining spot rates and rising demand.

For a comprehensive outlook of what shippers and carriers can expect in the coming months, see our full Q3 Market Update and Outlook Report here.

*All data is generated by Uber Freight internal indices using a weighted combination of truck and driver availability for supply, and manufacturing output, goods consumption, imports and exports for demand.