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Freight Market Update – December 2023

Author: rwalter@arrivelogistics.com
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December Theme: Ending 2023 on a High Note

Freight Market Update - December 2023

November trends aligned with typical seasonality, with increased tightness observed around Thanksgiving. While the peak season was relatively muted for van, reefer saw tighter conditions than in Q4 2022, indicating that the reefer market recovery remains well ahead of van.

The gap between spot and contract rates remains historically high and will continue to drive downward pressure on contract rates as we head into the new year. Capacity continues to exit the market slower than previous downcycles, potentially prolonging the current cycle.

The consumer remains relatively strong as credit card spending was up across most categories. Inflation continues to decline but remains sticky, leading the Fed to keep interest rates flat for another month. The Fed will likely start cutting interest rates at some point in 2024, which would spark increased spending activity and increase overall freight demand.

The capacity correction must continue for the market to become more vulnerable to disruptions. However, continued profitability for carriers with contract freight is slowing down the capacity correction.

Truckload Demand

Still down YoY.

Truckload Supply

Still a surplus.

Truckload Rates​

On the rise.

Market by Mode

Reefer tightness.

Cross Border

Thefts spike.

Capacity Outlook

Slow correction.

Volume Outlook

A mixed bag.

Consumer Sentiment

Going strong.

Insights Delivered Directly To You

Key Takeaways

  • Holiday demand picked up before Thanksgiving, resulting in tighter conditions.

  • Tender rejection activity below 4% for van equipment illustrates historically strong contract compliance and carriers’ continued appetite for accepting nearly all contract freight.

  • Elevated tender rejection rates indicate the recovery may be further along for reefer equipment than van and that the market may be more vulnerable to seasonal demand surges later in the quarter.

  • Large numbers of authority revocations continue; there has been a negative net change in the carrier population in 13 of the last 14 months as exits outpace new entrants.

  • New Class 8 truck orders remain high as 2024 build slots open, indicating capacity is exiting the market more slowly than previously estimated, which could push the rate recovery deeper into 2024.

  • The National Retail Federation reported strong import numbers over the last quarter of 2023, indicating that the destocking phase is ending for many retailers.

  • Inflation remains below 4%; the Fed kept interest rates flat for another month and will likely start to decrease rates sometime after Q1 of 2024.

Truckload Demand

What’s Happening: Demand continues to decline year-over-year.

Why It Matters: Weak demand conditions could keep rates lower for longer.

November demand trends continued to reflect the trends that we have been experiencing for the majority of 2023. According to DAT, which reports exclusively on spot load trends, load postings were down 41.3% year-over-year and 12.8% month-over-month. Truck postings also have seen large declines, albeit not as large as the declines we have seen for load postings. Truck postings are down 18.4% year-over-year and declined by 10.9% from October to November.

Figure 1: DAT Trendlines

The FreightWaves SONAR Outbound Tender Volume Index (OTVI), which measures contract tender volumes across all modes, was up 9.6% year-over-year, or 10.0% when measuring accepted volumes after the significant tender rejection rate decline.

Accepted volumes were up 11.1% month-over-month as of early December, driven by a 9.9% increase in accepted dry van tenders and a 4.0% increase in accepted reefer tenders. This large jump was relatively unusual for this time of year and can be attributed to flat volumes in October and early November.

Figure 2: Contract Load Accepted Volume, SONAR: Accepted contract volumes were up 11.1% y/y in early December and remained well above historical pre-pandemic levels.

USDA truck shipment data for fresh fruits and vegetables continues to show pullbacks. In mid-November, total shipments were down 7% year-over-year, with U.S.-grown shipments declining 9% and imported crop shipments down 5%. That trend accelerated in mid-December, with total truck shipments down 8% year-over-year. U.S.-grown shipments are now down 11% from last December, and crop imports are down 5% in that same time frame.

Figure 3: USDA Specialty Crops National Truck Rate Report

Truckload Supply

What’s Happening: Tender Rejections remain below 4%.

Why It Matters: Historical routing guide compliance is a sign that conditions will likely hold steady in the near term.

This holiday season indicates there is sufficient capacity to meet the demand. While there was some tightness around Thanksgiving, it was not as severe as in previous peak seasons. However, regional demand surges may lead to tighter conditions as we approach Christmas and New Year’s. By mid-January, conditions are expected to loosen as demand slows down and drivers return from time off.

Nationally, the dry van side shows softer conditions relative to the past five years. The reefer side saw a tender rejection spike in late November but has since declined after Thanksgiving. Reefer conditions remain relatively loose, though not as loose as last year.

The Sonar Outbound Tender Reject Index (OTRI) measures the rate at which carriers reject the freight they are contractually required to take. The index briefly reached 4% around Thanksgiving before dropping below that mark, indicating that shippers’ compliance with routing guides on contractual freight is improving from already high levels. We anticipate some tightening as we approach the second half of the month and enter January of next year.

Figure 4: Outbound Tender Reject Index, SONAR: OTRI remains below 4% and 2019 levels — a sign capacity is still sufficient to support demand and carriers are protecting their contract freight despite increases in spot.

Tender rejections on the Reefer side continue to follow a similar direction as van but with increased volatility. Reefer rejections briefly spiked to 11% ahead of Thanksgiving before declining and ending the month around 7.7%. The current value of 6.87% indicates better routing guide compliance than in November but tighter conditions than in December 2022.

Figures 5 & 6: Van and Reefer Outbound Tender Reject Indices, SONAR: Dry van rejections remain historically low, but a meaningful increase in the baseline for reefer tender rejections is a sign that the market is becoming more vulnerable for the equipment type.

The DAT Load-to-Truck Ratio measures the total number of loads relative to the total number of trucks posted on their spot board. Despite a meaningful spot load decrease, November data showed relatively flat conditions on the van side and increased tightness on the reefer side.

The Dry Van Load-to-Truck Ratio was up 0.2% month-over-month but down 21.2% year-over-year. The Reefer Load-to-Truck Ratio in November was up 7.2% month-over-month but down 36% compared to November 2022. These numbers align with what we experienced throughout the month, with van conditions relatively stable and reefer conditions slightly more volatile.

Figure 7: DAT Van Load-To-Truck Ratio

Figure 8: DAT Reefer Load-To-Truck Ratio

The Morgan Stanley Dry Van Freight Index is another measure of relative supply; the higher the index, the tighter the market conditions. The black line with triangle markers on the chart provides a great view of what directional trends would be in line with normal seasonality based on historical data dating back to 2007.

Conditions were relatively stable throughout the first half of November before ticking up in the second half. This was in line with seasonal directional trends but remains below the 10-year average, indicating that supply is still largely sufficient to support current demand.

Figure 9: Morgan Stanley Dry Van Truckload Freight Index

Figures 10 & 11: Morgan Stanley Reefer and Flatbed Truckload Freight Indices

Truckload Rates

What’s Happening: Rates are seeing increased movement during the holidays.

Why it Matters: Thanksgiving rate volatility will likely be mirrored around Christmas.

The Truckstop Weekly National Average Spot Rates index provides a detailed view of week-to-week rate movements and a real-time look into the current rate environment.

Van spot rates remained relatively flat in early November before spiking during the week of Thanksgiving and into December. Reefer rates followed a slightly different trend, increasing in early November before falling toward the end of the month and into mid-December. The flatbed market remained steady, with rates only fluctuating by a couple of cents each week.

Figure 12: Truckstop Weekly National Average Spot Rates

According to DAT, all-in spot rates, including linehaul and fuel costs, are up slightly for van and down for flatbed and reefer equipment types. All-in van rates have increased by $0.03 since November, while reefer and flatbed rates have dropped by $0.07 and $0.02, respectively. Fuel prices have declined rapidly over the past seven weeks, likely influencing all-in rate trends for reefer and flatbed. All-in van rates have increased despite the fuel surcharge decline, indicating that linehaul rates increased more than all-in rates.

Figure 13: DAT Trendlines National Spot Rates

The month-over-month van rate spread decreased by $0.08, dropping from $0.46 in November to $0.38 month-to-date in December.

All-in dry van spot rates are down 12.5% year-over-year in December, while linehaul spot rates are down 9.9%. If rates hold, this would be the second straight month with single-digit percentage declines in linehaul spot rates. Between May 2022 and October 2023, we saw 18 straight months with double-digit percentage declines. All-in dry van contract rates are down 15.9% year-over-year and linehaul contract rates have declined 14.8% year-over-year.

Figure 14: DAT Dry Van National Average RPM Spot vs. Contract

Monthly reefer spot rates rose by $0.07 from October to November but have dropped by $0.03 as of December. Spot rates are currently $1.91, excluding fuel, just $0.04 above the low of $1.87 observed in October.

The reefer spot-contract spread has dropped to $0.39, down from $0.45 last month and the lowest value since April 2022. This is mainly caused by the large contract rate decline this month. As we wrap up the year, expect contract rates to even out and rise slightly above current levels.

The current reefer contract rate has dropped 11.9% year-over-year to $2.30 per mile, excluding fuel. The current reefer spot rate dropped by 12.4% year-over-year to $1.91 per mile, excluding fuel.

Figure 15: DAT Temp Control National Average RPM Spot vs. Contract

Flatbed spot rates have increased by $0.04 this month, rising to $1.85, excluding fuel. If they hold, it would snap a six-month streak of rate declines. Contract rates have continued to rise, increasing by $0.04 this month to $2.58 per mile, excluding fuel. With both spot and contract rates growing at the same rate, the contract-spot spread remained at $0.73. The last time the spread was higher than this was in November of 2022 when the rate spread was $0.81.

Figure 16: DAT Flatbed National Average RPM Spot vs. Contract

Market By Mode

Cross-Border Canada

What’s Happening: Canadian shippers are starting to take holiday time off.

Why It Matters: Less available capacity could lead to higher rates and poor service.

  • Rates have been experiencing some recent volatility. Carriers are asking for more money on outbound freight while inbound Canada loads remain relatively cheap.

  • Inbound volume continues to exceed outbound volume.

  • Montreal and Quebec are experiencing delays due to winter weather.

  • Drivers are likely to take time off during the holidays, which may lead to increased tightness, but there should still be enough capacity to handle the freight.

  • Managers and owners of carriers are also expected to take time off, so it is important to establish communication channels before the holidays.

  • Canada carriers may hesitate to run long hauls deep into the U.S. during the holidays due to the risk of getting stuck.

  • There may be a slight rate increase on longer haul runs around the holidays as some capacity will be off the roads.

Cross-Border Mexico

What’s Happening: Cargo theft continues to be prevalent in several regions.

Why It Matters: Insurance rates continue to rise as capacity shifts to safer regions.

  • There is still ample capacity available for cross-border Mexico shipments.

  • Produce, such as onions and peppers, continues to flow through Nogales.

  • Drivers plan to take time off around the holidays, which could lead to limited capacity in certain regions.

  • Any shipments picked up this week should be delivered before Christmas to avoid delays related to the holidays.

  • West Coast imports are declining, leading to looser conditions.

  • There may be increased demand for protect-from-freeze capacity for soda and beer freight.

  • Due to cargo theft risks, capacity is shifting from the Puebla and Edo do Mexico markets to Northern regions and border cities.

  • Insurance rates have increased by as much as 100% in areas with increased cargo theft.

LTL Insights

What’s Happening: Large LTL players continue to purchase Yellow’s old terminals.

Why It Matters: This demonstrates carriers’ financial stability and appetite for investing in their business.

  • Yellow terminals have been auctioned off, with the majority purchased by other LTL carriers.
  • Over 130 terminals have been sold for over $1.9 billion. XPO, Estes, Saia, and R+L have purchased over 70% of these terminals.
  • 46 Yellow-owned facilities, including a 426-door terminal in Chicago Heights, are still available.
  • LTL rates are expected to rise 6%-8% in 2024, indicating profitability for LTL carriers.
  • Overall, capacity remains plentiful and will be able to support holiday demand.
  • Limited operations are expected during the holidays, with many carriers taking time off.

Temp Controlled

What’s Happening: The PNW and Midwest are seeing typical seasonal tightness.

Why It Matters: Rates are on the rise in these regions.

East Coast:

  • Demand in the Northeast has increased but is still muted compared to previous years.
  • Buffalo, New York, is experiencing increased tightness due to more freight crossing the border from Canada.
  • North and South Carolina have loosened up; Georgia and Florida markets are also loose.
  • Port cities in the Mid-Atlantic may experience occasional tightness as imports continue to flow in.

Midwest:

  • Minnesota, Wisconsin, and the Dakotas are experiencing increased tightness, but there is still enough capacity to support freight volumes.
  • Most of Illinois is not experiencing the same tightness as the Northern states, but conditions will likely tighten after the first major snowstorm.
  • Missouri and Kansas markets are experiencing some outbound tightness due to the meat and dairy products shipments.

South Central:

  • Arkansas, Texas, and Oklahoma are seeing tightness as meat products ship out of the region; this trend will likely continue through the holidays.
  • Northbound freight volumes from Mexico are expected to increase throughout the winter months.

Southwest:

  • South-Central Colorado is experiencing increased tightness as potatoes and onions continue to be shipped out.
  • As expected, Yuma, Arizona, is starting to see more outbound shipments of leafy greens; this trend is expected to continue until March 2024.
  • Nogales is experiencing tightening conditions due to inbound freight from Mexico.
  • Southern California is experiencing some tightness as capacity shifts to Yuma; the rest of California remains loose.

Pacific Northwest:

  • The region continues to be one of the tightest in the country.
  • Fall harvest of apples, potatoes and onions continue to ship out of the region.
  • Boise, Idaho, is experiencing a heavy outbound volume of onions while the rest of the state continues to ship potatoes.
  • Tightness is expected to continue through the holidays and winter months.

Open Deck

What’s Happening: There is a capacity surplus in the open-deck market.

Why It Matters: Rates should stay flat or drop as we enter 2024.

  • The open-deck market remains quiet overall, with abundant capacity available.

  • Rates are expected to stay relatively stable until February; there may be an uptick in spot rates during an aggressive bid season.

  • Rate increases are expected for freight heading to Northern regions impacted by winter weather.

  • Demand for oil and gas remains steady in the South.

  • Short-term demand spikes will be localized and caused by the movement of project-based freight.

  • The open-deck market will likely remain loose until late Q1 or early Q2 2024.

Capacity Outlook

What’s Happening: Capacity continues to exit the market but at a slower rate.

Why It Matters: The slow exit could prolong the current downcycle.

Spot rates remain well below where they were at this point a year ago. As a result, carriers with heavy spot exposure continue to see strong margin compression as operating costs stay flat. While recent fuel price declines are providing some relief to carriers, it is not enough to offset the rate drop observed over the past 18 months. Capacity continues to exit the market, but slower than in previous downcycles.

The slow exit rate is largely due to the fact that carriers running mostly contractual freight are still profitable despite market conditions. Smaller carriers and owner-operators are joining larger carriers to avoid complete exposure to the spot market.

Monthly revocations remain below the 2023 peak but well above historical trends. Monthly revocations in November are down from October but above August and September. The high number of revocations led to another month of decline in carrier population, shrinking by over 2,500 carriers.

Figure 17: Net Revocations of Trucking Authority: FTR Analysis of FMCSA Data

A key trend we’re still watching is revocations outpacing new carriers entering the market for 13 of the last 14 months, reducing the total number of carriers. A significant amount of capacity that entered the market over the last few years remains under-utilized, so we expect this disparity to continue for at least the near term.

Figure 18: Net Change in Carrier Population: FTR Analysis of FMCSA Data

New equipment orders typically slow during freight recessions. However, as OEMs opened up 2024 build slots, carriers moved quickly to secure new orders. The past four months have seen some of the highest order volumes this year, with November’s report of 36,750 orders being the largest in 2023.

This trend likely points to the financial strength of larger carriers and private fleets’ ongoing investment in growth. While order levels were above the historical average, they did align with season trends. The increase in orders also represents the possibility of a much slower capacity reduction than in previous cycles. Overall, freight demand is healthy, so larger fleets are adding capacity to insource volume back from smaller for-hire fleets and owner-operators.

Figure 19: New Truck Order, Class 8: FTR Analysis of FMCSA Data

Volume Outlook

What’s Happening: Imports are up year-over-year, but key sectors continue to see demand declines.

Why It Matters: No meaningful demand shift is expected in the near term, leading to flat rates.

Demand remains down year-over-year and will likely stay flat into early 2024. The overall strength of the consumer remains a focus from an economic perspective. The National Retail Federation (NRF) recently reported that imports peaked in October, which was later than the typical peak expected in August.

Imports in Q4 of 2023 remain above Q4 2022 levels, a sign that retailers may have been completing their destocking phase and were gearing up for the holidays. Downside demand risks remain, including concerns about manufacturing trends, how long strong consumer spending will continue, the potential impact of student loan payment resumption on 2024 housing and construction, and the possibility of an extended period of elevated interest rates.

If import volumes remain in line with the National Retail Federation (NRF) forecast, we will see an 11.5% month-over-month jump in December imports, leading to increased freight movement heading into the last two weeks of 2023 and into early 2024. When all is said and done, the total number of imports in 2023 will be around 22.4 million TEUs, down 12.4% from 2022 and over 13% from the all-time high seen in 2021.

Figure 20: NRF Monthly Imports

The latest ISM manufacturing report indicated more easing backlogs as new orders contracted for the fourteenth consecutive month amid slowing production, adding further uncertainty about future backlogs and, in turn, truckload demand. Although backlogs are shrinking at an increasing rate, higher production levels indicate the sector still has pent-up demand, which should enable healthy volumes in the near term.

Figure 21: ISM Manufacturing Report, Manufacturing at a Glance

Figure 22: Monthly Business & Economic Highlights

FTR’s latest truck loadings forecast for 2023 fell slightly from 0.3% year-over-year growth a month ago to flat this month. Food, construction and bulk aggregates had softer outlooks, resulting in a weaker forecast. The 2024 forecast for all equipment types also decreased, showing a 0.4% year-over-year decrease instead of the 0.3% year-over-year growth forecasted last month.

Figure 23: FTR’s Truck Loadings Summary

Consumer Sentiment

What’s Happening: Inflation continues to cool but remains above the Fed’s target.

Why It Matters: Interest rates will likely remain flat for a few more months, after which we can expect increased consumer activity.

November CPI data showed relatively flat inflation, with the reading up 3.1% year-over-year. As a result, the Fed decided to keep interest rates flat for the third consecutive month. If inflation continues to decline in early 2024, it is possible the Fed will start to lower interest rates at some point in the first half of the year. Lower interest rates would boost housing activity and manufacturing investments — two sectors that have meaningful contributions to freight demand.

Figure 24: New York Times Inflation Data

November Bank of America card data showed consumer spending per household increased by 0.5% year-over-year but decreased by 0.8% month-over-month on a seasonally adjusted basis. This was the largest month-over-month decline observed over the past six months. However, it is important to note that the largest driver was gas spending, which dropped 4% from October due to declining gas prices rather than weak consumer behavior. The only other category to see a decline in spending was groceries, which could also be attributed to declining inflation. The two sectors with the largest growth were furniture and airlines, up 2.9% and 3.0%, respectively.

Figure 25: Bank of America Aggregated Monthly Card Spending per HH

Conclusion

Thus far, end-of-year trends largely mirror what we have experienced for the past 12 months. The market remains oversupplied as carriers with contract freight continue to see profits and invest in their equipment. Nonetheless, we did observe some regional tightness around Thanksgiving, a sign that demand has not completely disappeared.

Our 2024 outlook remains the same. We expect carriers to continue exiting the market during the first few months of the year. In turn, the market will be more vulnerable to disruption, the gap between spot and contract rates will shrink, and spot rates will ultimately increase.

Shippers will likely look to lock in low rates during the next RFP cycle. While there will undoubtedly be some volatility throughout the year, we expect typical seasonality throughout 2024. Q1 freight demand trends should mirror 2023. However, the Fed will likely cut back on interest rates as inflation declines, leading to increased activity in manufacturing, housing and other sectors that drive freight demand.

We continue to monitor the geopolitical conflicts in Ukraine and the Middle East. If either one escalates, they could become “Black Swan” events capable of disrupting the domestic freight market in the U.S.

Ultimately, the freight market will become more vulnerable and move toward an equilibrium state throughout 2024. However, we do not anticipate any significant disruptions in the near term.

About the Market Update

The Arrive Monthly Market Update, created by Arrive InsightsTM, is a report that analyzes data from multiple sources, including but not limited to FreightWaves SONAR, DAT, FTR Transportation Intelligence, Morgan Stanley Research, Bank of America Internal Data, Journal of Commerce, Stephens Research, National Retail Federation and FRED Economic Data from the past month as well as year-over-year.  We know market data is vital in making real-time business decisions. At Arrive Logistics, we are committed to giving you the data and insights you need to better manage your freight.

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