After attending ACT Research's Market Vitals: The Current and Future Health of the Market Seminar 70 on February 21-22, David Spencer from Arrive Logistics and Tim Denoyer from ACT Research reflected on the current freight market and what the trucking industry can expect over the next six months and beyond. Scroll down to view the full conversation between David and Tim.
Below are the main points they discussed and their key freight takeaways from the seminar.
1. Summary of the Freight Market
There was a lot of talk around cycle bottoming--where we're at in the current freight market cycle for trucking and equipment manufacturing--and a general up-from-here mentality at Seminar 70. Carriers commented on their operating costs, cost of labor and maintenance, and difficulty finding quality mechanics and technicians, all of which should support upward rate movement in addition to the supply/demand trends we're seeing in the industry.
Arrive Logistic is anticipating flat to slight increased growth in overall shipments and a contraction on the supply side, which should fuel rate increases through 2024. If you're a broker, carrier, or shipper, you can anticipate higher rates as we move into the new cycle.
A demand takeaway from a volume perspective, from one of the specialty carriers on the trucker panel, is that bulk chemical demand is picking up here in February. As an input to production, this suggests the industrial economy is going to pick up this year.
2. Leading Indicators in the Freight Market
Freight Mix
Commentary from a couple of the fleet CEOs on freight mix revealed encouraging news. They're not getting higher rates yet, but they're able to choose a little bit more, and that's different. This signals to a change in the market and probably a leading indicator of better freight market conditions in the next few months. Brokers, carrier, and shippers can anticipate more freight and higher rates as we continue transitioning into the next phase of the cycle.
Disruption Sensitivity
The market's sensitivity to disruptions is another indicator of the freight market transition. January's weather caused disruptions that haven't really been seen to that degree over the past two years.
Intermodal
The intermodal market is one to keep an eye on over the next few months as well. More on current intermodal trends and how they are impacting OTR trucking found below.
3. Freight Market Test
What will be the next test in the freight market? The end of Q1 always sees a little bit of an increase in freight volumes. There's usually an end-of-Q1 push in March, but with the timing of Chinese New Year this year, we don't expect much this March. ACT thinks the litmus test is in May. Mid-May is Roadcheck, and we think by then we will be in a different market balance.
One of the key takeaways, from the data recently and hearing from the fleets and manufacturers at Seminar 70, is that we are getting close to balance, but we're not quite there, and ACT anticipates that mid-May will be a really important proof point.
4. Intermodal
What impact will imports shifting back to the West Coast have on the OTR freight market? What's happening in intermodal right now is a great leading indicator. ACT thinks a restock is just beginning. The consumer is generally pretty health. The US economy is surprisingly strong. We're setting up for 2.5%-plus growth this year. That requires a restock. We're not feeling it in the trucking market yet, because capacity has been available, but we are feeling it in intermodal.
Imports are up 20% y/y for the past five months in Southern California. East Coast is going to be soft, we know that, but this is just the beginning of the wave. There will be some choppiness in the short term, but as we look at the next three-to-six months, ACT anticipates imports to continue rising, and at some point, the rail network won't be able to handle it. Then it'll end up on the highways.
For those based on the East Coast, it might be rough for a while longer. For those on the West Coast, or who operate intermodal, you will likely see increased work and higher rates because of the increased demand.
5. Push to Private Fleets
There was a major shift from for-hire to private fleets in 2023. What drove that push to private, and when might we see that rebalance? Supply-chain disruptions created an opportunity and a need for shippers to invest more in private fleets; however, cost economics will start to pull freight back into the for-hire market.
6. OEMs Perspective and What that Means for Supply
An OEM's perspective shared at Seminar 70 revealed that tractor demand for sleepers is coming down, or normalizing, from record levels last year. This is key to the supply dynamic changing and an important takeaway for freight markets.
7. The Impact of Regulations on the Freight Market
At this point, everyone is likely aware of the degree to which regulations will affect the commercial vehicle industry and freight markets. Low NOx mandates in 2027 will likely raise the Class 8 truck/tractor price approximately 15-20%. Those price increases will likely drive a prebuy in 2025 and 2026. Why is this important for freight markets? Regulations and their impact will likely keep this market very cyclical.
A bigger upside risk to the forecast? There was talk at Seminar 70 regarding a possible speed limit regulation. If this were to happen, it could have an impact on capacity in a fairly significant way. It could pinch capacity and push rates up.
Want to hear the full conversation from David and Tim? Check it out below!
Arrive Logistics is on a relentless pursuit to deliver an unparalleled freight experience by pushing the limits of what is possible. Their partners, team, and technology have made them one of the fastest-growing transportation and technology companies in the United States. To learn more about Arrive Logistics visit their website, arrivelogsitics.com.
Ready to hear more from the ACT Research team? We have an OUTLOOK webinar coming up on April 11th and our next Market Vitals Seminar will be on August 21-22, 2024. Click here to learn more about our events.
