2024 Freight Economy Outlook

The Calm After the Storm

The trucking sector has been volatile for several years as COVID-19 scrambled supply chains, new players entered the market, old players exited, and freight volume sagged after the pandemic spike. While the past few years have seen a “trucking storm,” 2024 appears to be ushering in a period of calm, according to a range of experts.

“The volume forecast is unusually stagnant through the middle of the year and perhaps beyond,” says Avery Vise, vice president of trucking at FTR. Vise attributes this to consumers who still have resources leftover from government stimulus but are holding steady on consumption without more on the way.

Experts predict that status quo in 2024 will apply to rates, as well. And even if volume increases, rates won't budge immediately. “There will be no boost from increased volume because we still have more capacity in the market than we need,” Vise says.

Excess capacity is a residual effect from when so many new players jumped into the market during the pandemic as consumers stocked up on in-home goods and spot market rates skyrocketed. As demand dwindles, many carriers are exiting the market, but not enough to significantly tighten capacity.

“While we are losing large numbers of small carriers, we still have not put much of A dent in the growth the sector experienced from 2000-2022,” Vise says. We are still very elevated in employment, he adds, with the LTL segment being an outlier because of the collapse of iconic Yellow Trucking, which went back bankrupt in the summer of 2023. The bankruptcy left dozens of terminals - and thousands of trucks and drivers - idled.

Old Yellow’s Demise

Vise says because of Yellow’s collapse, LTL lost 25,000 jobs in August but added back around 6,000 in September as other companies hired those displaced drivers. But there are still other issues dogging the sector.

“LTL is constrained not by the availability of labor but the availability of equipment and terminal space, which is largely stuck,” Vise says. There are few places for LTL drivers to go due to the shortage of equipment and terminals. Vise expects it to take months for Yellow’s assets, like terminals and trucks, is to make their way back online in other capacities.

As smaller carriers continue to close, larger carriers are scooping up the drivers. “The driver supply is 15- to 20-percent higher, but freight volume isn't higher, it's a sluggish market,” Vise says. That leaves the trucking industry playing a game of chicken. “Many carriers think if they can hold on, competitors will get out, and they'll reap higher rates,” Vise says. It has created a situation where carriers are trying to hold out as long as possible, and larger carriers have a disincentive to cut back on drivers.

Equipment Demand Stays Strong

The sluggish freight environment has not kept carriers from adding equipment. Despite no relief on the demand side of the equation, strong Class 8 tractor sales have continued to add to the supply side, says Kenny Vieth, president of ACT Research, in ACT's most recent North American Commercial Vehicle Outlook report. “In the short term, one of the things staying our hand from deeper forecast cuts is the face of weak freight fundamentals and falling carrier revenues and profitability has been a solid industry wide start to ‘order season,’ which typically stretches through the first quarter” he says.

Vieth points out that December is typically the strongest month of the year for Class 8 trucks, meaning seasonality alone suggests a big number to end the year. “Q1 is historically weaker for orders than Q4,” he says.

Yet ACT Research also believes several “it’s different this time” factors are at work in 2024, that will help support broader Class 8 demand even in the face of fundamentally weak U.S. and Canadian tractor markets. Those factors include ongoing pent up vocational truck demand, strong tractor demand in Mexico, a healthy domestic LTL market, and issues surrounding supply chain integrity.

Cost management is another reason why many carriers expect to buy new equipment into 2024. In its Q3 2023 earnings report, Werner Enterprises, one of the North America's largest truckload carriers, announced plans “to continue to invest in new trucks, trailers and our terminals to improve our driver experience, optimize operational efficiency and more effectively manage our maintenance, safety and fuel costs.”

Focusing on improving efficiency and reducing costs are the best ways for carriers to weather the current freight environment, says Tom Mueller, Shell General Manager of Commercial Road Transport Lubricants. “Whether they choose to replace older trucks with more reliable and efficient newer models or to keep their existing equipment and utilize a more robust preventative maintenance program, proper equipment management will position them to survive challenging times and to thrive when freight turns around - whenever that may be.”

Light at the end of a Turnpike tunnel?

By historical comparisons, FTR's Vise says that freight levels are solid; they just aren't growing. But he does see distant relief on the horizon - that supply chain kinks will begin easing by the time the fourth quarter arrives, and demand will tick upward. But even when it does, Vise doesn't expect a roaring recovery. “By the end of the year, we will see a recovery in volume and rates, but it will be fairly tepid,” he says.

Some experts paint a sunnier picture. “A realignment of supply and demand is inevitable, and it stands to reason that change will come in 2024, perhaps even in the first half of the year,” states Freightwaves annual carrier report, which points to an earlier revival in the year than some other experts prognosticate.

Act's Vieth comes down somewhere in the middle of Vise’s predictions and Freightwaves’ outlook. He points out that despite the GDP growing by 2.5% in 2023, freight volume contracted by 0.2% as rate retailers still had a lot of pent-up inventory. “2023 was marked by retail inventory correction that weighed on volume,” Vieth says.

2024 should see a return to balance with volume correlating with an expected robust GDP. Predictions are that the goods consumption economy will return to historic levels as the inventory correction works.

“All things equal, just getting rid of inventory will be positive for freight, especially as we move into the second-half of 2024,” Veith says.

Expect the Unexpected

Of course, there are always unexpected variables in forecasting and analysts don't factor in what they refer to as " Black Swan” events - unusual situations with potentially severe consequences. Also, not all variables impact all markets in the same way. For instance, a major hurricane smashing into the coast (which no one wants) can snarl supply chains but result in more freight volume, especially in flatbed, as carriers rush supplies to the impacted zone.

Uncertainty over shipping lane safety in the Suez Canal region could cause more ships to divert landing additional goods at West Coast ports. That requires a more extended truck trip to population centers in the Midwest and East, which could result in higher rates. Another wild card is the Panama Canal, where historically low water levels have halved the amount of traffic, once again putting pressure on West Coast ports.

Striking union workers can also disrupt freight and the broader economy. The automotive sector, for example, is still recovering from the after-effects of the strike on auto plants during the summer of 2023.

With five campuses in Michigan - an especially crucial state for automotive-related tracking – Travis Roberts, owner of Regan Trucking School, keeps his finger on the pulse of upcoming freight forecasts. Like many businesses, Roberts sees 2024 as a “transition year” between some of the flat freight numbers of the past year or two and more robust growth ahead. He also said there will still be some sorting out of the market for LTL carriers with the void left by Yellow Trucking.

In the retail sector, Roberts says consumers are still buying, and that is causing a boom in the private fleet market as retailers like Michigan-based Meijer and national chains Walmart, Target, and Amazon beef up their ranks behind the wheel.

Ultimately, though, where rates go in 2024 is subject to many variables, Roberts hesitates to predict.

“What will the price of diesel fuel be? When prices go up, so do rates, there are a lot of outside factors that can affect freight, but I don't expect it to go up too much,” Roberts says.

Driver Bob Morin concurs. He drives dedicated routes hauling dog food and animal feed throughout the Midwest for Warner Enterprises in Springfield, Ohio. He noticed a slow-down in his loads in 2023, but he says that can change quickly in his business.

“This is trucking, it could change next month,” Morin says.

The Fed Factor

The biggest external factor impacting trucking in the United States could be whatever the Federal Reserve does, says Andrew Balthrop, research associate at University of Arkansas’s Sam M. Walton School of Business. Balthrop Specializes in freight and supply chain issues.

“The Federal Reserve is the most significant macroeconomic uncertainty,” Balthrop says, adding that the Fed has telegraphed interest rate cuts are likely in 2024 and that would add juice to the economy. Anything less might chill it. But all other variables aside, Balthrop concurs with 2024 being a steady, status quo year.

“2024 will not be a boom year like 2022, it should be more stable, more predictable. Not a great year for truckers, but they've been through far worse,” Balthrop says.

Manufacturing freight usually leads retail by a quarter or two and there are some positive signals showing up in that sector which may portend better numbers in other segments as 2024 moves along. For instance, Balthrop says numbers show 1.5 percent growth in manufacturing output in Q2 2023 which he says means supply chain market conditions will marginally improve through 2024.

The purchasing managers index (PMI) continues to be on the soft side, but Balthrop expects this to improve as well. And a slight fall-off in trucking employment - down 1.2% from the summer - points to some reduction in capacity, which should cause rates to stabilize and not fall further, Balthrop says. More broadly speaking, Balthrop says supply chain bottlenecks contributed significantly to inflation in the past few years and those bottlenecks are largely resolved. That should take pressure off the Fed, he says. Balthrop Joins many other economists in thinking that inflation can be brought down to a benchmark 2% without clobbering the economy. All of this spells a calm 2024. All things considered, that's not a bad thing, Balthrop says.

“2024 will be bland. We need it after all the excitement of the past four years,” he says.