An oversupply of trucks coupled with falling freight volumes signals more pain ahead for carriers in 2024, experts warn. Meanwhile, structural risks exposed by the pandemic continue to disrupt supply chains.
Too Many Trucks, Too Little Freight
During a virtual event this week, Jared Weisfeld, Chief Strategy Officer at RXO, warned that excess capacity will further drag down rates next year. He noted that truck revocations have continued to outpace new carrier entries since October.
“That’s encouraging but not yet at the pace required to tighten capacity. There’s still too much of it for rates to strengthen,” Weisfeld said. He believes the market needs a 4:1 load-to-truck ratio for spot rates to recover. Currently, that ratio hovers around 3:1.
Weisfeld also foresees growing demand for brokers like RXO as shippers seek flexibility and tech-enabled solutions. He expects brokerage penetration of for-hire truckload spend to reach 40-50% in the long run, up from 10% a decade ago.
Inventory Levels Offer No Respite
Despite easing transportation costs, companies show little appetite to rebuild inventories to pandemic highs. With consumer demand uncertain, most firms instead seem focused on right-sizing stockpiles, consultancy McKinsey reports.
That means transport volumes could remain depressed well into 2023, offering little relief for oversupplied carriers.
Diesel Declines But Clouds Loom
The average weekly retail diesel price dipped below $4 per gallon this week for the first time since July, potentially easing costs for carriers. However, crude markets and colder weather could reverse that trend.
On top of that, OPEC’s new production cuts are expected to drive up oil prices again in 2024. That led the EIA to forecast higher diesel costs over the next two years in its latest short-term energy outlook.
Peak Season Disappointments
Cass Information System’s November report paints a gloomy picture of what was supposed to be the freight industry’s most profitable period. Both Cass’ shipments and expenditures indices posted declines, suggesting minimal rate increases during the peak.
Private fleet growth continues to divert loads from for-hire carriers when they need it most. And carriers exiting the market at a rapid clip remove critical capacity ahead of 2023.
While consumer spending is expected to see modest gains, it likely won’t be enough to rescue a painful peak season for most trucking companies.
Key Takeaways:
- Oversupply and revocations signal more pain for carriers in 2024
- Shippers cautious about restocking with uncertain demand
- Diesel declines to offer temporary relief on costs
- The weak peak season concludes a difficult year for carriers
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