News / Uber Freight’s dismal view of US trucking; not much good news for shippers

© Chokchai Poomichaiya

Recession has spread from the spot market, and some freight rates have dropped to levels last seen before Covid.

The pain is expected to continue for operators at least through the first half of this year, according to the Uber Freight Market Update. However, shippers hoping for lower rates from their LTL providers will likely be disappointed.

Capacity and demand have diverged, with supply rising 8% year on year in November, while demand slipped 1%, owing to plunging imports and lower consumer spend, Uber’s analysts noted.

December produced a mild improvement, but this is unlikely to be more than a brief blip caused by seasonal factors. Uber’s analysts put it down to seasonality, severe weather and plunging diesel prices – and predict a return to the downward slope.

“Freight demand transitioned from a spot market recession to a broad-based volume recession,” noted Uber, pointing to negative signals across economic fundamentals. Imports, retail sales and manufacturing output all declined in the fourth quarter.

Imports have remained sluggish and are projected to remain in contraction through May. Manufacturing output dropped the most in nearly two years and remains in contraction mode.

The Institute for Supply Management’s PMI declined from a reading of 49 in November to 48.4 the following month, indicating weak future demand. Uber’s analysts expect demand to decline further through the first half of the year at least.

And the possibility of a tighter market in the latter half of the year is largely determined by a decline in capacity – the result of capacity exiting the market at an accelerated pace as smaller operators are squeezed between high costs and low rates.

“While we expect demand to fall further in H1, we also expect supply to contract further,” the analysts said.

Independent US truckers have increasingly thrown in the towel. For three consecutive months there have been more revocations of trucking authorities than new ones issued. At the same time, large trucking firms have expanded their capacity, indicating that owner-operators have abandoned their independence and sought employment.

The blight has been most pronounced in the truckload segment, which has led the slump in spot rates in the latter half of last year. That decline appears to have eased, while contract rates have continued to drop. Downward pressure on pricing remains strong as shipper seek cost reductions. First-tender acceptance has continued its upward trend.

Intermodal volumes have been down in 16 out of the past 17 months, and Uber analysts predict further decline in volumes there for much of this year, which does not augur well for service providers. Spot rates have already fallen in some cases to levels not seen since 2019, while contract rates show a mixed picture.

As truckload operators scramble for business, they are going to maintain pricing pressure on intermodal players in the coming months, according to Uber.

Overall its analysts expect little change for the intermodal sector, stating that strong growth will likely not occur before next year.

The LTL sector performed much better than truckload and intermodal providers, but it has not altogether escaped the weakness in the market, showing a 7% decline in volumes. As a result, pricing has softened, but not much, thanks to continuing pricing discipline by the carriers.

The slip in demand has opened up some capacity in what used to be a tight market, giving rise to shipper hopes of more advantageous pricing this year – but they may be disappointed. Uber analysts suggest shippers expect low rate increases in LTL this year, but note that actual increases are consistently higher than shipper expectations.

“Historical patterns predict that it is strongly likely shippers will experience higher increases than their expectations,” they warned. “We anticipate contractual renewal increases will continue to decline, sitting in the 3%-5% range through, at least, June.”

On a more positive note for shippers, though, the analysts pointed out that service levels had continued to improve and were beginning to compare with pre-Covid levels.

Their advice is “now more than ever, it’s important for shippers to focus on streamlining their logistics programme amid volatility to maintain budgets and keep freight moving without sacrificing service”.