Photo by Jakub Zerdzick

The freight and transportation industry, a vital component of global supply chains, has seen ups and downs over the past few years. Following the unprecedented disruptions brought on by the COVID-19 pandemic, demand spikes, and subsequent downturns, experts are now closely monitoring new data for any signs of market stabilization. Recent analyses by industry leaders and analysts reveal that the freight cycle may be approaching a turning point. In this article, we dive into these emerging signals, the industry’s challenges, and what lies ahead.

Understanding the Freight Cycle’s Current State

For any industry, cycles of expansion and contraction are natural. However, the transportation sector has experienced an extended and challenging downturn, lasting well beyond typical cycle lengths. According to a recent report from FTR Transportation Intelligence, indicators suggest that the freight market may have “bottomed out.” This conclusion is supported by rising applications for new trucking and warehousing businesses in June, the most significant increase since August 2022. Additionally, FTR’s July 2024 analysis reflects an upswing in new trucking authorities, reinforcing that the market has reached its lowest point (FTR Transportation Intelligence, 2024).

Ken Adamo, Chief of Analytics at DAT Freight and Analytics explains that typical freight cycles usually last 19 to 22 months. However, this one has extended past 27 months, marking a significant deviation from the norm (Adamo, 2024). He suggests that a quarter of sustained positive growth would be an encouraging signal that the market is turning around. However, even a few consecutive months of growth would provide reassurance.

Spot and Contract Rates: A Window into Market Health

A critical gauge of market conditions is the ratio of spot rates to contract rates. This ratio is often called the “dry van spot market cycle indicator” by Dr. Jason Miller, interim chair of Michigan State University’s School of Supply Chain Management, which reveals whether the market is bullish or bearish. Calculated using data from DAT Freight and Analytics, the indicator shows that a ratio above 15% typically signals a bear market, while a ratio below 10% signals a bull market (Miller, 2024).

Currently, this ratio stands at approximately 15.8%, a figure that Miller says remains “well away from the 10% threshold needed for a turnaround.” However, he adds that the stability of dry van spot rates in recent months may indicate that the market has reached a bottom (Miller, 2024). While this is not definitive proof of a recovery, it suggests the worst may be over for the transportation sector.

From Pandemic Boom to Bust

The current downturn followed an unprecedented boom driven by the COVID-19 pandemic. The massive surge in e-commerce demand and supply chain needs led to record-high spot and contract rates as carriers rushed to meet rising needs. However, the boom was unsustainable, and demand eventually decreased, leading to a steep drop in freight rates. The subsequent downturn led to bankruptcies and reduced trucking authorities, a sign of excess capacity that has weighed heavily on the industry (FTR Transportation Intelligence, 2024).

A recent example is Heartland Express, a large carrier based in Iowa. In its Q2 earnings report, the company reported an operating ratio of 99.9%, reflecting the ongoing financial strain compared to the previous year’s 94.7%. Despite these challenges, Heartland’s CEO Mike Gerdin remains optimistic, stating, “The freight market will improve as capacity exits, helping the industry’s restoration to financial stability and more orderly operations” (Heartland Express, 2024). 

Increasing Confidence as New Applications Rise As more companies apply for new transportation and warehouse licenses, the number of applications has risen to its highest level since mid-2022, and encouraging signs are starting to show. According to FTR experts, this trend indicates that industry confidence has returned. Furthermore, the recent rise in new trucking authority suggests that companies should once more make growth investments, setting the stage for future expansion (FTR Transportation Intelligence, 2024). According to Miller, stabilizing dry van spot rates, which react to market fluctuations faster than contract rates, contribute to this trend. “Dry van spot rates seem to be off their lowest point, with contract prices either at or above,” he clarified. Although even one or two months of positive growth would be encouraging, it is necessary to prove a proper market recovery (Adamo, 2024).

The ongoing downturn highlights the need for resilience, as the current freight cycle has extended far beyond the typical length of previous cycles. Adamo suggests that contract rates will likely flatten out around the holiday season, marking a potential inflexion point for the sector. Should this trend hold, it could signal the end of the downcycle and a new period of stability.

Financial Pressures and Challenges for Carriers

The extended downturn has been challenging financially for carriers. Many have faced bankruptcy, while others, such as J.B. Hunt Transport Services, have reported shrinking profits. Heartland Express is among the many operators experiencing financial strain, with reduced margins and a more challenging operating environment. Despite this, CEO Mike Gerdin hopes that as capacity exits the market, disciplined operations and better financial results will likely follow in 2025 (Heartland Express, 2024).

Adamo points out that contract rates, while still declining, have slowed their descent. He adds that consistent positive growth is essential before the industry can declare a total market turnaround. Adamo states, “Contract rates may reach a year-over-year flat rate by the holiday season, marking a potential stabilization in the industry” (Adamo, 2024). His remarks underscore a sentiment many in the industry share: cautious optimism and a need for patience.

What Lies Ahead: Analyst Predictions and Market Outlook

Experts like Jason Miller and Ken Adamo agree that while there are positive signs, a full recovery will take time. Miller remains optimistic about the recent increase in new trucking authorities, seeing it as an indication of growing confidence in the industry’s potential. On the other hand, Adamo stresses that a proper recovery requires consistent performance above year-over-year comparisons for at least one quarter (Adamo, 2024).

The upcoming holiday season will be crucial, as it typically represents a period of high demand and activity. If positive trends persist, the freight market could enter a sustained recovery by 2024 or early 2025. This would be welcome news for carriers, shippers, and stakeholders as the industry gradually rebuilds from one of its most prolonged and challenging downturns.

Key Takeaways

1. Freight Market Reaches Possible Bottom

FTR’s July 2024 report suggests that the transportation freight cycle may have reached its lowest point, supported by a recent surge in new trucking and warehousing business applications (FTR Transportation Intelligence, 2024).

2. Spot and Contract Rate Dynamics

Dr. Jason Miller’s “dry van spot market cycle indicator” shows that while the ratio between spot and contract rates remains in the bear market territory, dry van spot rates have stabilized, hinting at a market bottom (Miller, 2024).

3. Long-Term Economic Pressures

Following pandemic-driven growth, the industry faced a steep downturn, marked by prolonged negative contract rates. Carriers like Heartland Express are navigating this challenging period with cautious optimism for recovery by 2025 (Heartland Express, 2024).

4. Waiting for Consistent Growth

DAT’s Ken Adamo suggests consistent positive quarterly growth is necessary to confirm recovery. The holiday season may provide crucial insights into the freight market’s future trajectory (Adamo, 2024).

5. Signs of Resilience

Rising new applications, stabilizing spot rates, and industry optimism reflect the freight market’s resilience. A sustained upward trajectory could signal a more robust recovery in 2024.Conclusion

The transportation of the freight cycle is nearing a critical juncture, with crucial indicators suggesting potential stabilization. While experts remain cautiously optimistic, the journey to full recovery requires sustained growth and industry resilience. With the holiday season approaching, the industry awaits further data to confirm whether the sector has turned a corner. For now, stakeholders in the freight industry can take solace in the promising signs and prepare for a possible upturn in the months ahead.

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