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By Dean Croke, DAT Freight & Analytics
Talk of a freight recession sent the general business media into a spin earlier this month, much like the dimwitted Chicken Little when he scurried around the farmyard warning that the sky is falling after an acorn dropped on his head.
Predicting a calamity is one way to get attention (or in this case, clicks on a headline). It’s true that demand for truckload capacity is waning after a two-year buildup spurred by consumers spending on goods instead of travel, entertainment, and other services.
But is the sky falling? Are we headed into a freight recession?
The truckload freight market has two components: loads moving under contract, which account for 80 to 85% of all truckload volumes; and freight on the spot market, where brokers and carriers negotiate terms on a per-load basis. Most truckers hauling spot-market loads are small carriers, and predominantly owner-operators with a single truck.
If you’re a trucker who uses spot freight as your sole source of revenue, it sure feels like something hit you on the head. The national average spot rate for dry van freight was $3.06 a mile in March, down 3 cents compared to February, and has plunged to $2.86 a mile in April. The spot reefer rate fell 9 cents to $3.44 per mile in March and was $3.21 a mile as a national average in mid-April.
At the same time, fuel prices are stratospheric. Prices have hovered around $5.10 a gallon in April, which means it costs a little more than $1,000 to fill your tanks. That’s a $400 increase compared to the same time last year.
Falling away from highs
It’s been a while since truckers have felt this squeezed by lower-paying freight and more expensive fuel but many have been preparing for a “down” cycle and are ready to ride it out. Others will park the truck and go back to farming or construction or whatever they were doing before they saw an opportunity to make money hauling freight. Some will go back to working for a larger carrier and unfortunately, some will go out of business as is the case in every down cycle.
The reality for most is that demand for their services on the spot market appears to be reverting to more seasonal levels.
This is the case for refrigerated produce, where March truckload volumes were on par with the same month in previous non-pandemic years. Shipments soared in late 2020 and 2021 as more consumers cooked meals at home. Fast-forward to March 2022 and produce shipments were down 22% year over year as people returned to work and their old eating habits.
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Monthly produce volumes are now slightly lower than in non-pandemic years, so even though they’re dropping rapidly, they’re falling away from the highs of the last two years and settling in line with seasonal expectations. We do know that the 2022 produce season is off to the slowest start since 2017. But peak produce harvests are still several months away, and we have yet to see how drought in California and unusually cold weather in the southern U.S. will affect crop yields.
Finding a balance
DAT has contended there have always been enough trucks to meet demand; it was just that they weren’t cycling through freight networks at the same rate we’d typically expect. Having trucks and drivers held up on labor-starved docks over the past 18 months resulted in longer dwell times and lower network velocity, creating the impression that capacity was tight. The same applied to shippers who made demand appear artificially higher by shipping more partial loads so they were on time with customer deliveries.
Today, with shippers consolidating loads and making sure trucks leave their docks full, demand is returning to expected levels. On the flip side, trucks are moving through freight networks faster now that COVID-related workplace restrictions have eased. We’ve always had enough trucks and drivers, but as is the case when the market turns, there are more trucks competing for loads, driving down spot rates in the process.
The recent decline in spot van and reefer rates doesn’t apply to the entire truckload market. Flatbed spot rates are rising as we head into peak construction season. And prices to move freight under contract are setting records.
For now, if you see someone flapping their wings in the press about a freight recession, just step aside and look at what you’re seeing in your specific business and supply chain. Draw on perspective and data that spans years, not weeks, and renew your focus on relationships with vendors and customers.
Whether storm clouds are gathering or you’re under a blue-bird sky, the cooler and well-informed heads always prevail.
Dean Croke is the principal industry analytics at
DAT Freight & Analytics, which operates the DAT
One load board network and the DAT iQ data
analytics service.
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