The US freight market is experiencing a significant shift, with spot rates plummeting 3% since early August and tender rejection rates dropping by 30 basis points. This reversal in market trends is a stark contrast to the tightening signs seen earlier in the summer. The spot market, often referred to as the “Wild West” of trucking, is characterized by extreme volatility and is highly sensitive to changes in supply and demand.
Operating costs for carriers have surged over 30% in the past five years, putting upward pressure on rates. However, intense competition has prevented many carriers from passing these costs on to customers. The influx of new entrants during the pandemic era has contributed to this competitive environment, with a record 50% growth in newly registered carriers between 2020 and 2022.
As a result, the market has experienced a prolonged downturn, leading to numerous carrier exits. In fact, over 200 carriers per week are leaving the market, with the majority being small fleets and owner-operators with fewer than five trucks and less than three years of experience.
Despite this capacity deterioration, the market has only experienced brief periods of vulnerability. The refrigerated trucking market showed signs of tightening last year, but has since recovered in a more sustainable manner. The dry van market, which accounts for the bulk of for-hire trucking activity, has also had its moments, including a spike in spot and rejection rates during the summer due to an unexpected influx of imports on the West Coast.
While the spot market has collapsed and many disruptive events have faded, rejection rates are still trending higher over the course of a year. This suggests that the market is poised for a shift, potentially as early as 2025. With capacity exiting at its fastest pace over the winter, the likelihood of a severe supply shock increases substantially if the market remains soft through the holidays.
The freight market is unsustainable in its current state and will eventually shift. The timing of this shift is uncertain, but it will likely occur when many have lowered their guard. As the market continues to evolve, it’s essential for transportation service providers to stay informed and adapt to changing trends.
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