FTL pricing has softened over the past quarter and looks set to dip further in 2023, but LTL pricing continues to increase and looks set to remain reasonably stable next year, with select increases, reports US freight giant C.H. Robinson From around week 13 of this year to now, the truckload market has performed with more balance than many predicted. The market corrected in the second half of the first quarter. Since the correction, the spot market developed a pattern of oscillating above and below the five-year average for DAT’s load to truck ratio (LTR) for both dry van and refrigerated truckload. Those experienced in the logistics industry understand that while the market follows a cyclical pattern, the experience and time it takes to cycle fully varies. Eventually, the inevitable occurs and the cycle starts all over again. The graphic below shows the full cycle as well as highlights the current status of the market. Looking at DAT’s LTR and the performance of shipper route guides from TMC, a division of C.H. Robinson, today’s market is holding firm. The market will eventually shift to oversupply. When that happens, spot market pricing will reach the average estimated cost per mile to operate a truck. C.H. Robinson forecasts indicate this intersection of market and cost of operations for the U.S. truckload dry van spot market will occur in April 2023. What to expect in the coming months During the last quarter of 2022, it is likely there will be some normal cyclical uptick in the spot market. This will be caused by some reduction in active capacity as drivers take vacations for Thanksgiving and end of year holidays. In the first quarter of 2023, expect a typical drop off in tension and pricing due to lower freight volumes associated with historical shipping patterns and the continued impact of the cooling economy. As this occurs, the shift to oversupply will become more evident and the cost per mile will reach the C.H. Robinson estimated cost per mile to operate a truck. Further out, C.H. Robinson forecasts for 2023 show some familiar seasonality to pricing with the year ending about where it begins. The market will likely take 2023, and perhaps into 2024, before the upcycle returns again. Trucking labor and carrier registration During this phase of the market cycle, drivers and tractors tend to drift toward larger carriers. The Bureau of Labor Statistics (BLS) reports growth in trucking labor at a time of a softening spot market. This is likely accounted for by small carriers voluntarily revoking their operating authority and driving as an employee for a larger company where the BLS can better identify trucking labor from payroll records. September BLS figures reported a contraction of 11,000 trucking jobs. One month does not make a trend, so we will be watching the balance of the year. What this means for shipping Often, participants in the trucking market focus on the economy and correlated freight volumes. As the market gets closer to the cost of operations, investment tends to taper off in the form of new and used tractor purchases. Fleets may still purchase newer tractors to improve the age of their fleet, but at a level of stagnation or even contraction. Eventually either the economy produces more freight or active capacity reduces to a point where carrier profitability returns to a level that supports investment and growth. This occurs during the period of the cycle after the bottoming of the spot market at estimated cost of operations per mile. That is the ‘late cycle’ phase shown in the visual above, which may not occur in 2023, but rather 2024. LTL pricing continues to increase Little has changed since September regarding the LTL market in the United States. For the remainder of 2022, forecasts estimate a a range between 10% and 14.2% Y/Y increase, which is flat to slightly up from forecasts last month. Unlike truckload, which has seen softening over the past quarter, LTL pricing continues to increase. With continued supply, equipment, and labor challenges at crossdocks and for drivers, pricing discipline is expected to help ensure profitability and support attracting people and expand crossdocks. Along with carrier pricing discipline, for the line haul element of LTL, expect adjustments to accessorial fees for services that do not fit will in operations. Pricing forecasts for the upcoming year range from -4% to 1% Y/Y, according to FTR and ACT Research. Thus far however, recent general rate increases (GRI) have been more aggressive in the mid-single digits, this before customer-specific pricing negotiations. Demand LTL volume growth is decelerating to flat. Manufacturing’s Purchasing Managers Index from the Institute of Supply Management (ISM-PMI) again showed expansion, but at the slowest growth rate in 28 months. Both this historical foundation freight for LTL along with the continued expansion of ecommerce middle mile are key to volume forecasts for LTL. With recent increases of freight volumes not materially threatened to a degree that would significantly shift the balance of the LTL market from supply to demand, transportation managers should consider the LTL market to retain some reasonable pricing stability with select increases. Forecasts for contracting pricing in 2023 at this time might be considered uncertain. Government and regulations There seems to be quite a bit of anxiety amongst supply chain professionals over talk that California’s AB5 law could be implemented on a national basis. Remember that little transportation policy will be addressed until well into the middle of 2023, when a new session of Congress is seated. Further, the industry has seen little direct impact to rates in California since the recent Supreme Court decision to let the AB5 rule stand. This is a good reminder that macro-economic conditions regularly overwhelm regulatory issues regarding their impacts on freight markets. Let’s check back in on this issue in the middle of January once the new Congress is fully seated and committee chairs are named.