News / US trucking sector recovery still elusive, say latest market numbers

© Wlodzimierz Dondzik Dreamstime.com

Notwithstanding some tender shoots of improvement, the US trucking market is still in contraction, with margins pointing to more casualties ahead.

The US Bank Freight Payment Index for the second quarter shows continuing decline, both in shipment volume and customer spending on trucking.

The operating margins revealed in Uber Freight’s Monthly Economic and Market Update for July paint a grim picture of an unsustainable divergence between operating costs and freight pricing – both in spot and contract rates.

According to the index, shipment count sank 2.2% from the first quarter, while spending retreated 2.8%. This was a gentler decline than in the first quarter, which saw shipments sink 7.8%, while spending fell 16.8% from Q4 23.

Three regions actually registered increases in volume in Q2 – the first time in more than a year for more than one region.

“Our data is showing some signs that the very challenging freight market could be nearing a bottom,” said Bobby Holland, director of freight business analytics. “There are still headwinds for carriers, but at least in terms of volume, there are some bright spots across the country.’

Year on year, the results are still sobering, however. Shipments fell 22.4%, while spend dropped 23.5%.

The south-west fared the worst, with shipments falling 13.6% from the first quarter and 26.8% year on year. Spending was down 25.5% from a year ago and 1.4% lower than in the first quarter.

In the midwest, shipment count contracted 2.7%  from Q1 and 20.3% year on year, while spending was down 6% and 23.1%, respectively. The region has seen sequential decline in five consecutive quarters.

In the west, shipments grew 1.5% from Q1, which was 19.8% lower than a year ago. Spending dropped 2.3% from the previous quarter and 25.5%  year on year.

Shipment count rose 2.7% from Q1 in the north-east, resulting in an annual decline of 25.2%. Spending slipped 0.1%, marking a yearly drop of 26.9%.

The south-east showed a quarterly gain of 1.8% in shipments, down 22.9% year on year. Spending declined 0.9% and 20.3% respectively.

According to US Bank, the market was affected by consumers spending more on services, which accounted for 65% of consumer spending in the period.

Mazen Danaf, senior economist and applied scientist at Uber Freight, noted that the unemployment rate had climbed to 4.1% in July – the highest level since November 2021. It jumped from 3.4% in April 2023, a pace of growth that has often been a precursor to recessions, he pointed out.

Uber Freight’s data show deadhead mileage up, from 15.4% to 16.3%, indicating a weak market. Worse yet, rates declined, whereas costs moved in the opposite direction.

Spot rates dropped to $2.19 per mile in the first half of the year. Despite a nine cent decline in diesel prices, operating costs increased by two cents per mile. This rise can be attributed primarily to significant year-on-year increases in insurance premiums (up 13%), truck and trailer costs (+9%), and driver wages (+8%), noted Mr Danaf.

On a cost per revenue mile basis, average operating expense has reached $2.52 per revenue mile, reported Uber Freight. This is markedly higher than the average dry van spot rate of $2.28 per mile, and it also exceeds contract rates.

“This suggests carriers are experiencing significant pressure on their profitability, even for contracted business. Therefore, current spot and contract rates are not sustainable over the long term,” said Mr Danaf.

While the US Bank Index looks a bit brighter in comparison, its ultimate conclusions are also dark, and Bob Costello, SVP and chief economist at the American Trucking Associations, commented: “Trucking companies are facing a triple challenge of lower volumes – due to consumer preference to spend on experiences versus goods – suppressed rates and higher costs.

“This situation is likely to cause further capacity reductions in the industry.”