Experts Predict Freight Rates May Recover This Year

Trucking companies may not have to wait until next year to escape the prolonged slump in freight rates. Carriers are beginning to signal market improvements, which could mean higher freight costs for supply chain managers in the future. Currently, inventory levels are showing signs of normalization, and executives at several large trucking companies have also indicated that a return to market normalcy may be imminent.

"Although customers were still in a state of high uncertainty entering 2024, almost no one believes that the current demand and capacity cycle is the new normal, or even that it can be sustained," said Mark Rourke, President and CEO of Schneider National, during the company's fourth-quarter earnings call. "What they repeatedly ask is: when will it change?"

Brokers: Trucking capacity still in surplus

Freight brokers agree that the trucking sector remains in a state of capacity surplus, and more carriers need to exit the market to restore balance. Jason Mansur, Vice President of Corporate Partnerships at Valley Companies, a broker based in Hudson, Wisconsin, said trends show more trucking companies are exiting and fewer new entrants are arriving. However, the freight market beginning to stabilize could slow the pace of capacity exits, which may mean rates will barely change.

"Our assessment is that rates bottomed out last fall," he said. "We see some markets starting to rise, but rates are still near the bottom. We don't expect further downside in the future."

Ronnie Davis, Vice President of North American Surface Transportation at C.H. Robinson, noted that the prospect of rate stabilization and profits accumulated during the pandemic may be reasons why some trucking companies have been able to hold on despite the downturn. "In a typical market cycle, capacity increases by 10% to 15% during the upswing and exits by a corresponding proportion during the downturn, but that hasn't happened this time," Davis said.

However, Ken Adamo, Director of Analytics at DAT Freight & Analytics, said trends indicate the freight market is poised for recovery and has passed the cycle's bottom. His analysis shows that small carriers' operating costs are at the breakeven point. Additionally, fourth-quarter e-commerce and brick-and-mortar sales were better than expected, allowing retailers to clear inventory. "By now, inventory should be quite depleted," Adamo said.

Even so, neither shippers nor carriers should expect dramatic spikes in rates. Adamo said that only a major event—such as another COVID-19 pandemic or an ELD mandate—would shock the market. "There are many tailwinds," Adamo said, but trends suggest "this will be a moderate recovery."

Trucking spot rates bottomed out last year

Spot rates for flatbed, reefer, and dry van since 2018

Rates won't stay this low forever

Adamo said DAT data shows that spot rates at the end of 2023 were down 10% to 12% year-over-year, and contract rates were down 12% to 14%. Therefore, shippers are trying to lock in current low rates to address demand in the third and fourth quarters. Improving spot rates could cause trouble for shippers—even those with contracts. Jonathan Phares, Assistant Professor of Supply Chain Management at Iowa State University, noted that when spot rates surged during the pandemic and continued into 2022, the market saw carriers abandoning contracts to chase high spot rates.

Although few experts predict rates will spike, several suggest that shippers should consider adjusting their logistics management strategies to prepare for a shift toward a more carrier-friendly rate market. Mansur of Valley Companies said shippers should plan now for the market shift, including budgeting appropriately or negotiating with carriers to strengthen relationships and ensure capacity needs are met. Additionally, Mansur advised shippers to consider offering carriers more dedicated freight volume and increasing flexibility in loading and unloading operations.

"There are many ways to help carriers, so that when the market turns, they remember the partnerships you've built, rather than just seeing you as a rate comparison platform," he said.