The supply chain has gone from boom to bust the last couple of years. COVID-19 caused massive growth and expansion to maintain pace with the demand of everyone being at home and having goods shipped directly to their houses. Coupled with the low interest rates at the time that caused a housing boom, more people were even buying bulk items to fill their new houses. Most sectors of the supply chain underwent growth.
But like all things – whatever goes up, must come down.
As the economy has slowed and shipment volumes have decreased, the overcapacity across the supply chain has caused a volatile pricing war that has, in turn, also forced companies out of the market. However, in the last few weeks there has been news surrounding a rebound in the ocean carrier market that is showing an earlier than normal peak season, renewing optimism about recovery across the entire supply chain. But that doesn’t tell the entire story, especially not in the trucking sector.
While some industry analysts believe that the market is beginning to turn, research such as the Cass Transportation Index Report from June 2024 continue to show a decline in shipments. In fact, taking the economic impact of COVID-19 out of the equation, volume in June was the lowest since 2014. While conditions are improving, it will be some time before we see a significant impact in pricing.
The ongoing pricing battle between carriers to either maintain customers or pick up new shipments to make up for losses is not sustainable. Companies will either go bankrupt or limit operations, which will cause a tightening of capacity that should stabilize pricing in the truckload market over the long run. But that won’t happen overnight, and many carriers are bracing for a slower than normal peak season.
What factors are influencing the market?
An increase in ocean carrier shipments is typically the first sign of peak season arriving, as companies import most of their products from overseas to meet demand generated around the holiday season. This year, companies are navigating geopolitical factors and port labor disruptions that could impact pricing.
With the ongoing presidential election in the United States, companies are bracing for the possibility of added tariffs on imported goods, so bringing over products now alleviates those concerns. Also, ongoing labor negotiations at East Coast ports are influencing supply chain managers to reroute planned shipments to West Coast ports, which will also cause a tightening on the market, but there’s a chance that gets resolved before it truly impacts the supply chain. But those two factors alone haven’t been enough to spark a recovery in trucking, yet.
Produce season is typically another time of year when the market tightens due to an increase of crop tonnage needing to be moved after being picked. While the past couple of years didn’t see that normal tightening due to environmental factors that caused lower crop yields, during produce season this year, that traditional tightening of the market in produce regions was felt more. However, with so much excess capacity still in the market, there hasn’t been much of an impact to increase pricing in other regions.
Additionally, it’s no secret that inflation and interest rates are hurting everyone’s pockets right now. While it may not be obvious, high interest rates impact the trucking sector because of the housing market. With interest rates currently so high, there are less homes for sale and less people moving. This impacts the trucking sector because when people are buying houses and moving more frequently, they generally purchase bulky commodities, which are transported via truckload and less-than-truckload (LTL). Despite recent news around mortgage rates being lower and hope it will spark movement on the housing market, it will take time for that impact to be felt in the trucking sector.
Interest rates also directly impact carriers’ bottom lines when purchasing new equipment. Whether it’s trucks, trailers or other machinery used for operations, equipment needs to be cycled out when it either becomes too costly to maintain or is not safe for operations. In the last few years, equipment prices and interest rates on those loans were at an all-time high, and trucking companies needed to adjust pricing accordingly to balance their books. Now, with the market changing, carriers are being forced to decide how to make payments on new equipment that was purchased with high-interest rate loans. That factor is having a direct impact on carriers’ bottom lines.
What to expect in the coming months and when will trucking recover
Even with ocean carriers experiencing higher demand right now, which is mostly due to shippers wanting to avoid higher peak season costs or the potential increased tariffs down the road, don’t expect that to flip trucking demand.
The oversaturation in the truckload market combined with softened demand this year will likely keep capacity loose for a while longer. It’s a cutthroat market right now for brokers and carriers, where everyone is fighting for additional business. This will keep pricing competitive until more carriers and brokers exit the space, at which point capacity and pricing should stabilize.
Keep in mind that the market is cyclical, and we’re coming out of a period during COVID-19 where demand was extremely high and there was a capacity crunch. Now, with inflation taking a toll and the economy cooling, demand has bottomed out and the supply of available trucks is slowly following suit. It might take a few more months to truly bottom out, and then there will be the typical slower months of winter, but trucking should rebound by Spring 2025.
