The trucking industry, while grappling with the ongoing debt ceiling crisis in the United States, has also been confronted with a series of economic challenges over the past week. This article explores the negative developments affecting freight haulers, including a weakening Canadian spot market and contracting contract freight. Additionally, it delves into the impact on truckers and shippers, as well as the outlook for equipment manufacturers in the industry.
Canadian Spot Market Weakens
In April, Canada’s spot market experienced a decline in volumes, with fewer loads available despite an increase in the number of trucks. Loadlink Technologies’ latest data reveals that volumes fell by 39% compared to March and were down 56% year over year. The decrease in volumes is primarily attributed to the challenging year-over-year comparisons against the record-high volumes observed during the same period last year. However, a glimmer of hope can be found in the inbound cross-border loads from Texas and Florida, which saw increased volumes.
Outbound loads to the U.S. experienced a significant drop of 44% compared to the previous month and a substantial decline of 69% year over year. Moreover, the domestic spot market freight fell by 41% from March and 47% year over year. Loadlink reports a notable increase in the truck-to-load ratio, with 4.18 trucks available for every load on its board. This represents a 67% increase from the ratio seen in March and a staggering 266% surge in the year-over-year comparison.
Contract Freight also Contracting
Contract freight, which typically provides some relief from the volatility of the spot market, has also experienced contraction. The American Trucking Associations (ATA) truck tonnage index revealed a 1.7% decline in for-hire truck tonnage in the U.S. during April, following a 2.8% decrease in March. ATA’s chief economist, Bob Costello, highlighted the divergence between the broader economy and the freight economy. While the broader economy remains relatively stable, the freight economy is encountering difficulties. Even contract truck freight is declining, albeit not as significantly as the spot market. The tonnage index reached its lowest level since September 2021 in April and has now seen year-over-year decreases for two consecutive months, with a 3.4% decline compared to last April.
Bad News for Truckers, Good News for Shippers
The challenging conditions in the trucking industry have implications for both truckers and shippers. FTR, an industry forecaster, reported a deterioration in trucking conditions in March, leading to a decline in its Trucking Conditions Index. While lower fuel costs and improved utilization provided some relief, a more negative rate environment offset these gains. Financing costs continue to burden fleets, and FTR anticipates persistently unfavorable conditions for trucking companies into 2024.
Conversely, these unfavorable conditions for truckers translate into improved conditions for shippers. FTR’s Shippers Conditions Index (SCI) in March experienced a slight decline, settling at a positive reading of 4.5 compared to 5.1 in February. However, all four freight metrics considered by the SCI, including freight demand, capacity utilization, rates, and fuel costs, exhibited positive trends in March. This marks the third time since May 2020 that all components of the index have shown positive readings. FTR expects the positive shipper conditions and stable outlook to persist throughout 2023, indicating a lack of pressure in the system at present.
Equipment Outlook Remains Bright
Despite the challenges faced by truckers and shippers, trailer manufacturers and major suppliers report stable business conditions. Build rates increased in April as supply chain disruptions eased. However, ACT Research suggests that softer demand can be expected in the following year. OEMs have reported robust order books for 2023, with some trailer makers already taking orders into 2024. Nonetheless, industry stakeholders remain concerned about various factors, including the labor market, slowing demand, potential U.S. Federal Reserve rate hikes, pressure on carrier profitability, recession risks, material supply availability and cost, and their impact on dealer confidence.
Conclusion
The trucking industry is currently navigating economic challenges, with the weakening of the Canadian spot market and the contraction of contract freight. Truckers face adverse conditions, while shippers benefit from improved circumstances. Equipment manufacturers report stable business conditions for the time being, but concerns about the future persist. By understanding these dynamics, stakeholders in the trucking industry can better prepare and make informed decisions in the face of ongoing economic uncertainties.
