Q4 market update: Key freight insights and takeaways for shippers

November 17 / US
Q4 market update: Key freight insights and takeaways for shippers

In Q4, the freight market continues to see consumer spending slow, inventories expand, order backlogs decline and contract rates fall. More than ever, shippers are looking to eliminate costs, streamline their operations and fortify their supply chain infrastructures to better respond to an increasingly complex (and competitive) market fraught with uncertainty.

Encompassing a wide range of shipping modes across domestic and international markets, our Q4 Market Update and Outlook Report spotlights industry data to capture current trends, as well as valuable observations and action steps that shippers can lean on as they gear up for 2023. 

Here’s a high-level overview of the logistics landscape as it stands now—and what shippers can do to get ahead of supply chain fluctuations.

Supply continues to expand as the market adds more trucks and drivers

Carriers have faced a significant driver shortage, but we’re finally starting to see a reversal of this prevailing trend. With consumer demand stagnating and capacity loosening over the past 12 months, the spot market has continued to soften, causing owner-operators to enroll with larger fleets. Carriers ended up over-hiring, and Q2 saw a record 9.3% year-over-year growth in long-distance truckload employment. This unprecedented surge forced carriers to cut 11,400 trucking jobs in September—the largest drop we’ve seen since the onset of the pandemic. 

But even as truckload employment took a hit, transportation equipment manufacturers are only seeing numbers go up. Truck production and sales jumped, 33% and 29% year-over-year, respectively. In September, truck orders reached record levels, indicating that pandemic-driven supply chain pressures have eased over the last two years, and OEMs are now more comfortable opening up their order books. 

Following Q2 and Q3 supply trends, capacity continues to expand as we enter Q4. Order backlogs decreased by 25% year-over-year, while inventories rose by 39%. Order lead time also dropped below 8 months, after averaging 11.4 months in 2021.

Freight volume and rates decline, but LTL carriers preserve pricing discipline

As capacity loosened over the past year, tonnage and shipment count slowed for LTL carriers. LTL tonnage peaked in January, reaching nearly 10% above the previous cycle high—but this number has since fallen off, now down 6% year-over-year. Contract rates for LTL and FTL carriers continue to fall across the board, dropping 2 to 7% from Q2. 

Despite softening demand, however, LTL carriers have maintained a strict pricing discipline. We expect lower contractual increases, with most renewals rising only 4-8% through the end of the year. And while still below pre-pandemic numbers, on-time service levels have stabilized and show signs of incremental improvement over the next three to six months.

Bulk shipping remains strong despite persistent equipment challenges

Last quarter, we saw capacity gradually expand for bulk. Tender acceptance is improving, with September exceeding 92%—easily rising above the industry’s 90% target rate—indicating that bulk carriers are actively looking for freight. Despite loosening capacity, rate reductions for bulk have lagged behind due to specialized equipment needs. 

Operational delays and costs pose major obstacles for bulk transport. We expect setbacks in tractor and trailer production to continue well into Q4, creating 12 to 18-month lead times for new equipment. For shippers all around, fuel still remains an issue: Prices started to decline in Q3, but have surged back up again in October due to OPEC production cuts. Inflationary pressures have also exacerbated operational expenses and cost of delays. 

Overall, we anticipate favorable bulk rate trends heading into 2023. Both contract rates and spot rates are dropping, and brokers are expected to play a key role throughout the end of the year as shippers rely on third parties to deliver safe, compliant shipments.

International logistics: Demand and inventory levels are shifting

Like the US, stagnating demand has led to higher inventories in Europe. Lack of storage space, coupled with a dramatic rise in labor and energy costs, are contributing to a recent surge in warehouse rates. Moreover, ocean carriers are being forced to adjust their weekly capacity from Asia to Europe as consumer demand continues to fall. 

In Mexico, the Mexican Chamber of Deputies recently announced an initiative to ban double-trailer trucks, sparking debate in the transportation sector, with freight experts citing the proposal’s negative effects on costs, capacity and sustainability. The Mexican Institute of Public Accountants also stated that only 0.47% of trucking companies today meet the Bill of Lading Supplement’s official Carta Porte requirement. To avoid fines and shipment rejections from carriers moving forward, shippers should plan to adapt to these new regulations. 

Finally, Canada’s cross-border market has leveled out as shippers saw inventories increase in Q3. The balance between capacity and load volume has returned to a sustainable normal. While more than 40% higher than last year, freight rates are slowly settling down. Demand growth has shifted closer to pre-pandemic levels, and we will likely continue to see mixed responses among RFP submissions as incumbent carriers work to maintain their achieved rate increases while other carriers actively pursue new opportunities.

Looking ahead to 2023

Despite softening demand, retail sales have risen incrementally month over month. We’re cautiously optimistic for the freight market heading into the holiday season. Concurrently, the potential of a mild recession could impact future operational expenses, demonstrating the need for shippers and carriers to reevaluate their transportation strategies as 2022 comes to a close. 

Amid unpredictable market conditions, shippers should work closely with their carrier base to forecast capacity requirements. Carriers should also prioritize cutting costs and improving their operating ratios during this economic downturn, as the next six to 12 months could be a challenging time for all transport providers. 

By brushing up on operational execution, integrating carrier automation, and improving driver and equipment utilization, shippers can help enhance their carrier operating ratios. 

For a comprehensive look at what shippers can expect over the next few months, see our full Q4 Market Update and Outlook Report here.*

*This report is for informational purposes only. The conclusions drawn in this report are based on our own analysis and the Uber Freight marketplace.

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