The freight market hit rock bottom on May 14, according to data from the Freight press data tool. Since then, things have been getting steadily better for carriers.
Data tool’s outward offer rejection index (OTRI) is based in part on the amount of truckload freight that is turned down. This shows how well supply and demand are balanced. In a given shipping market, the supply of trucks is equal to the number of vehicles that can be sent out, while the demand for trucks is equal to the number of loads that are offered.
OTRI Data Indicates Positive Outlook for Motor Carriers
OTRI information comes from “tender” talks between shippers and trucking companies. Tender texts are pleas from shippers for bulk capacity in the contract freight market. When a carrier turns down a shipper’s offer, it means that the carrier has found a better way to move the truck(s) in question. Rising refusal rates show that the balance between supply and demand is changing in favor of trucking groups.
Based on the most recent data on contract rejections, motor carriers might hope for a better quarter year over year. By the end of the third quarter, it is likely that the number of rejected bids will have topped the total for the whole of last year.
Rejections of bids also show that the market is in a similar state to that of 2019.
Waterfall Theory of Freight Indicates Positive Outlook for Large Companies
The Waterfall Theory of Freight says that a slowdown hurts the largest companies the least and a rebound helps them the most. Most of the time, information about rejected bids is used to follow the Waterfall Theory of Freight.
The numbers show that the number of visitors has been slowly going up this year. This means that trucking companies may have a good peak season, which is good news for the business as a whole.
Market Overcapacity Expected to Normalize in the Coming Months
Even though things are getting better, the market is over-capacity, which means there are too many trucks looking for too little freight. In the next few months, things will get back to normal on their own.
The graph also shows the number of net gains to the trucking business based on the ratio of license revocations to new drivers. On the chart, green and red lines show how much the market went up or down each week.
As more space is made available, the freight rate cycle will speed up. This could happen later this year, but it’s more likely to happen at the end of the first quarter of 2024. The rates on loans are going up. This is good for the carriers, but it is bad for the customers.
Spot prices will go up when the market has lost a lot of capacity and more people want to buy.
Freight Market Improvement in 2024 May Impact Companies and Freight Brokerages Differently
When the freight business gets better in 2024, companies may have to pay more to get their goods moved. But the next part of the freight cycle may be a lot harder for freight brokerages than it is for companies. Shippers are putting more weight on asset-based carriers in their route rules, which has hurt the business of brokers.
When there is less work, traders make less money. Brokers make money not only from the gap between the contract price and the spot price, but also from something called the “spread.”
The gap is currently -$0.79, which means that using a carrier from the spot market to move a truckload of freight is now $0.79 cheaper per mile (net of fuel) than using a contract.
Even though the spread has gone down, it is still very close to its all-time high.
As spot rates go up and contract rates stay close to their floor (many of which will be renegotiated at lower levels starting in the spring of 2022), the gap will get smaller.
Freight Agents May Face Financial Challenges Due to Market Conditions
Because of this, freight agents who have already hired freight will make less money.
That could mean the end for some brokerages that grew quickly and borrowed a lot during the time when interest rates were close to zero.
If these traders didn’t pay their earnings, they would break the terms of their loans. Because of this, some brokerages could go out of business, just like Surge Transportation did earlier this year.
Surge Transportation, which was started by Omar Singh in 2016 and is based in Jacksonville, Florida, has filed for Chapter 11 bankruptcy. 16 of the top 20 creditors are small transport factoring companies.
The outlook for 2024
In the second quarter of 2024, things may have gotten a lot better for airlines, giving them more power in talks with shippers.
Many companies have had a hard time in the past 18 months or more, so they should be ready for more customers and higher prices. They should keep working to cut costs that aren’t necessary and get to a point where they can safely offer volume and service to both new and old shippers.
What choices do shippers have when the market starts to change?
Now is the time to be ready by comparing freight prices to industry trends, putting in contract rates, or using index-linked contracts to protect against rate/capacity instability.
Contact Lading Logistics for comprehensive logistics solutions.
Overall, it seems that the fact that the freight market is expected to turn around in 2024 has a positive impact on the logistics industry, particularly for carriers. Lading Logistics is dedicated to staying up-to-date with the latest developments in the trucking industry. They offer a wide range of services, including:
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By leveraging their expertise and resources, Lading Logistics aims to provide efficient and reliable international shipping and logistics solutions for their clients.