Uber Freight shares Q2 market update and outlook report

Market update: Key Q2 2023 insights for shippers and carriers

Following a soft market in Q1, weak demand and increased supply have persisted into Q2. In fact, trucking employment remained on the rise, with a 4.7% Y/Y increase in March, widening the gap between supply and demand. Consumer spending has also fell in February and March after surging in January, though it remains stronger than initially expected.

At Uber Freight, we’ve taken a look at key market trends to craft recommendations that help shippers and carriers make informed decisions to navigate market volatility and deliver. Taking a look at macrotrends impacting supply chains domestic and abroad, these are the top takeaways shippers and carriers need to know:

The market remains oversupplied as demand falls

U.S. trucking employment is plentiful heading into Q2, with 2,400 jobs added in Q1. Falling diesel prices are also providing much-needed relief to carriers, keeping supply resilient. However, growth may weaken over the coming months due to stagnating demand, which was down 1.2% YoY in Q1. Lower than expected produce volumes caused by flooding in California are also expected to exacerbate seasonal headwinds in April and May, causing rates to fall further ahead of the start of summer produce season in June, where we could see a seasonal increase in rates. 

In U.S. manufacturing, the sector has continued to struggle as well, contracting for the sixth consecutive.  The Institute for Supply Management notes that a Purchasing Managers Index (PMI) reading above 50% indicates an expanding manufacturing economy, while a reading below 50 indicates contraction. March reported at 46.3 in U.S. manufacturing, suggesting a continued industry volume decline. Key indicators such as backlogs and new orders lead us to believe that further contraction will continue into the coming months.

Despite a 3.1% surge in January, real spending on goods fell in February and March. However, demand still remains fairly strong, especially as consumers rebuild their savings, and increasing incomes offset the effects of high inflation. 

LTL carriers focus on service improvements amidst industry volume decline

As a result of an overall reduction in tonnage and shipment count, most carriers are experiencing available capacity in their networks, particularly due to expanding supply during a 2022 peak.

Still, LTL carriers continue to be price-disciplined despite softening demand in order to meet rising costs of doing business, focusing on value-added services that improve customer loyalty and are more profitable. U.S. contractual renewals remain in the 3-5% range as carriers are pricing new and existing business more aggressively, and we expect them to remain in that range for the rest of the year. 

Intermodal spot and contract rates continue to fall

Since the onset of the pandemic, intermodal providers have added roughly 40k units, leading to available capacity in most metro areas. Meanwhile, service continues to operate above the 5-year average as networks are generally free of congestion, and dwell time has fallen below the 5-year average. As a result of available truckload capacity and faster transit time, volume is currently moving to over-the-road. However, we expect longer term supply issues may eventually drive volume back to intermodal.

Intermodal spot rates have fallen to levels we haven’t seen since 2016, while contract rates have an average 5-10% reduction YoY with some variance depending on lanes. We expect that rates will continue to fall throughout the rest of the year before rebounding in 2024, with modest increases compared to a lower base. Weakness persists across North America, and while Mexico volumes have held up best, they remain volatile. U.S. and Canadian volumes continue to fall as shippers are turning to more truck competitive ports on the East and Gulf Coasts instead of West Coast ports, which are beset by labor issues.

How shippers and carriers can prepare for Q2 and beyond

During a soft market, with uncertainty surrounding economic recovery, it’s essential for shippers to plan and react to their networks. By looking for strategic relationships outside their current network, shippers can find more cost-advantageous rates. Carriers are currently committing to longer, more favorable terms, so there is an opportunity to negotiate contract rates. Shippers should also continue to keep careful track of spot versus contract rates, as trends indicate spot is significantly lower across US markets. Looking to alternative ways of moving cargo such as transloading, intermodal and ocean services may also provide cost advantages while demand is weak.

For a full overview of what shippers can expect over the next few months, see our full Q2 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.