September 2023 Freight Market Update
Welcome to Yellow Diamond Logistics' September 2023 Freight Market Update, where we dive deep into the dynamic factors shaping the freight industry today. Whether you're a seasoned shipper or just starting out, these insights will be your guiding light as you navigate the ever-evolving freight landscape.
Consumer Spending and Savings:
Starting on the consumer side, despite some concerns in the labor market, consumers are spending at unprecedented levels. In July, expenditures on goods and services reached historic highs. However, there's a caveat – this surge in spending has come at the expense of personal savings. As real disposable income decreased, consumers opted to spend more, hinting at potential challenges down the road.
Spot Rates and Diesel Prices:
August brought its share of challenges to the freight industry. Spot rates dipped below April levels due to a sudden spike in diesel prices, which skyrocketed by nearly 60 cents per gallon in just one month. This drop in spot and contract rates signals further capacity reductions in the months ahead.
Shipper Recommendations:
In this dynamic environment, adaptability and foresight are your greatest allies. Many shippers are proactively strengthening their relationships with carriers, emphasizing loyalty even during a soft spot market. This strategic move positions them for a strong rebound when the market inevitably shifts.
Economic Analysis and Predictions:
Our analysis of current economic conditions and market trends offers essential insights. It's not just about the present; it's about preparing for what lies ahead in Q4 and beyond. These predictions empower you to navigate market fluctuations with confidence.
US Economy's Impact on Freight:
The US economy exerts a substantial influence on freight demand and supply. Understanding this connection is crucial for informed decision-making. Delve into supply/demand indices to stay ahead of the curve.
Truckload Demand and Supply:
July witnessed a third consecutive month of growth in truckload demand. What's driving this growth? Increased wholesale sales and robust consumer spending on goods. While demand remains slightly below its January 2022 peak, it has turned positive year-over-year – an encouraging sign after nine months of struggle.
On the flip side, truckload supply declined by 0.3% for the second consecutive month, primarily due to a slowdown in employment. However, supply remained 3% higher year-over-year. The gap between supply and demand indices, closely linked to dry van spot rates, reached its lowest level since February.
Spot Rates:
July saw dry van spot rates maintaining stability. However, come August, a significant drop occurred. While all-in spot rates (including fuel costs) increased by 1 cent/mile, linehaul rates (excluding fuel) took a hit. The culprit? Soaring diesel prices led to rates plummeting by approximately 7 cents per mile (a 4% month-over-month decrease) or 3% on a seasonally adjusted basis. Compared to the previous year, rates were 17% lower.
Freight Demand and Supply:
July delivered positive signals across the board for freight demand. Consumer spending, manufacturing, housing starts, and wholesale sales within specific truckload sectors all posted gains.
Fleet Size and Employment Challenges:
June witnessed a sharp decline in trucking authority revocations, but they still outpaced new authorities, marking the seventh consecutive month of net reduction in the carrier population. Despite record numbers of carrier authority revocations, the market remains oversupplied, with capacity remaining abundant.
Many struggling carriers have merged with larger fleets, but these fleets may soon reach their hiring limits. Long-distance truckload employment dipped by 0.3% in June, only 1.5% higher year-over-year. However, it's unlikely that large carriers can absorb all failing carriers, especially as their contract margins turn negative.
Manufacturing Sector and Retail Imports:
Despite expectations that the manufacturing sector would be a key driver of demand in 2023, new orders have now contracted for eleven consecutive months, introducing potential downside demand risks. On the flip side, the National Retail Federation reports that year-over-year retail imports are moving in the right direction. After reaching their peak in August, they are expected to continue trending positively by year-end.
Future Outlook:
Historically, truckload employment typically lags contract rates by about ten months. If historical patterns hold, we could see truckload employment contract by approximately 4% to 5% over the next year. This contraction could lead to a 15% to 20% increase in spot rates.
In conclusion, the September 2023 freight market is dynamic, presenting both challenges and opportunities. While there are concerns related to authority revocations, employment fluctuations, and the manufacturing sector, positive trends in retail imports and stable consumer spending offer a ray of hope. Staying informed and adaptable will be your greatest asset in this ever-changing landscape. As you navigate these fluctuations, rest assured that Yellow Diamond Logistics is here to support you every step of the way.