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Ten Key Takeaways From the ACT Research Seminar

05 Mar 2024
Category: Blog
Author: David Vidri

On February 21-22, commercial vehicle and logistics industry leaders attended ACT Research’s Market Vitals: The Current and Future Health of the Market Seminar 70 to discuss current freight market conditions and forecasts for the year. 

To wrap up the event, David Spencer, Arrive VP of Market Intelligence, joined Tim Denoyer, ACT Vice President & Senior Analyst, for a conversation about their respective takeaways and insights on the road ahead in 2024. Read on to learn what these experts think will shape demand, rates, capacity and more as the year rolls on. 

Green Shoots Support Cautious Optimism  

After nearly two challenging deflationary years, the market is finally approaching balance. Event speakers and panelists largely shared an “up from here mentality,” with the main source of their collective optimism being a few critical green shoots that some believe could spur an inflationary flip in the back half of the year. These include bottoming in freight and manufacturing markets, high carrier operating costs, an improving freight mix, increased bulk chemical freight demand, and growing market vulnerability due to falling contract rates. 

What Recent Volatility Revealed About Market Vulnerability

January’s cold, snowy weather caused delays for shippers and operational downtimes for truck manufacturers. Though the weather-related rate surge was short-lived, volumes could get another boost in the coming months as shippers work to make up lost ground. The next significant market test might happen before the end of Q1, but with factors like the late Chinese New Year still at play, we are unlikely to have a clear picture of where it’s heading until around the annual road check period in mid-May.

Carriers Facing Pressure to Lower Contract Rates Despite High Operating Costs

Shippers are working hard to lock in contract pricing while spot rates are at their floor. In turn, fleets are pushing back with defensive bidding strategies to limit exposure to further rate reductions. While low rates will benefit shippers in the short term, they could also drive more carriers out of the market, ultimately leading to rate increases as capacity tightens down the road.

The Impact of Rate APIs

Despite being somewhat of a mystery to many, APIs (Application Programming Interfaces) have created a grey area between spot and contract pricing. Spot market demand has already suffered due to the attractiveness of contract freight over the last few years, and those declines are growing today as more shippers use APIs in their routing guides to get contract-like service at spot-level rates. 

The most significant impact of this trend is that it predominantly benefits larger carriers since many smaller fleets and owner-operators lack the resources to integrate effectively with shippers through rate APIs. As larger carriers increase their advantage, it will likely lead to further capacity consolidation.

The Private and For-Hire Fleet Market Shift

Significant supply chain disruptions in recent years underscored shippers’ desire for more direct control over their shipping and logistics operations. In turn, many invested heavily in their private fleets to move more volume and gain benefits like end-to-end visibility, guaranteed capacity, and brand representation on the road. 

However, as fleet operating costs continue to hover near record highs, the volume pendulum appears to be swinging back toward for-hire fleets. Ultimately, this shift bodes well for the for-hire market because private fleet expansion can cut into its volume and potentially limit the rate cap during the next inflationary cycle.

West Coast Intermodal Volume as an OTR Leading Indicator

Import volume is returning to West Coast ports, particularly in Southern California, where many believe the first signs of a major market disruption could appear. A 20% year-over-year increase during the last five months is leading to tightness on the rails, and while the oversupplied trucking market has yet to see the spillover, reports of 2.5% projected economic growth and increasing restocking efforts lead many experts to believe it’s only a matter of time before the excess volume ends up on the roads and accelerates the capacity contraction.

The Move Toward Inflation

Even without a significant disruption, the freight market could enter inflationary territory by late 2024 as flat to increasing demand and contracting supply drive up spot rates by 10%-20%.

OEM Indicators

OEMs reported that sleeper demand is normalizing from last year’s highs, as the ongoing trucking recession has many fleet owners wary of investing in new equipment until conditions stabilize. As a result, the average age of fleet equipment is increasing, which could later impact supply, efficiency, and costs.

The Potential Impact of New Regulations

The trucking industry is bracing for major regulatory changes that could drive the market toward inflation. 

For example, the Low NOx and GHG Phase 3 mandates could raise Class 8 tractor sleeper costs by 15%-20% by 2027, potentially causing a pre-buy surge in 2025-2026. Fleet updates might also be necessary depending on how speed limit regulations play out, and the push towards zero-emission vehicles is only getting stronger (though a true shift may still be at least a decade away). 

Fleet CEOs are cautiously navigating these and other regulatory changes, weighing their investments today against potential inflationary pressures and rising operational costs down the road.

The Most Critical Trends to Watch in 2024

It’s clear that 2024 will be a year of significant change for the freight market. Of all the trends to watch, Arrive and ACT recommend keeping a close eye on increasing tightness in West Coast intermodal markets, the narrowing spot-contract gap, declining truck orders impacting the supply-demand balance, and how Q2 contract rate resets will affect the market later in the year.

Stay Up to Speed

With over 250 years of combined industry experience, ACT Research is the leader in market data, industry analysis, and forecasting for the commercial vehicle and transportation markets. Visit their website to learn more about their work.  

Arrive Logistics also publishes several freight market resources available at no cost to you. Check out our 2024 Truckload Freight Rates Forecast for more on where the market is heading this year, and keep up with the latest on rates, demand, capacity, economic indicators and more by getting the Arrive Market Update and Carrier Outlook delivered directly to your inbox every month.

Watch the full conversation here!

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