I am writing to you this morning with an important market update. You may have seen prices go up significantly in a short period of time. The past 60 days have been very challenging in the freight world. I have included a link to a report that I contribute to from Cleveland Research that delves into the topic here, and I screenshotted some parts of it below. I think it will be helpful to you in understanding the current situation in the freight marketplace.
First off, capacity is typically tight coming off the Thanksgiving holiday as drivers who went home for the holiday are out of their normal position. After a week or so, that evens itself out. Except this time it didn’t. December was especially challenging. January has seen the same challenges that have been exacerbated by the blizzard that hit half the country.
Secondly, something seems to be happening that I have never seen in my 26-year career: Prices have increased while demand decreased. From almost our entire customer base, we did not see a spike in shipments. In fact, shipment volume across the entire industry plunged 7% month over month and 8% year over year in December. Volumes declined for the 3rd consecutive year across the board.
So why did prices suddenly increase? Trucking capacity dropped 26% month over month and 31% year over year. The only time I have ever seen a large sudden decline in capacity was in October of 2017 when the ELD mandate went into effect. But demand was still normal. This time, demand is weak, but capacity decreased at such a sudden rate that it has left a large gap.
Why was there a decrease? I believe it is two-fold. First, the bad weather does limit capacity as drivers are delayed or choose not to drive in certain bad weather areas. Secondly, and much more importantly, I believe the crackdown by the U.S. Department of Transportation on non-domiciled CDL holders, bad actor CDL schools, and other potentially nefarious activity has pulled a large number of drivers off the road. If bad actors were not caught outright, the fear of being caught forced many drivers off the road. The remaining drivers are seeing this as an opportunity to recoup the losses that many of them sustained over the past three year “Great Freight Recession”.
I have not seen the spot market like this since the post-Covid supply chain crisis. I do not know if this is a temporary situation or if it the beginning of a new normal. If demand increases (which it could if the Federal Reserve cuts interest rates), then the market will tighten even more.
I write this to help explain the current situation in the marketplace. If you should have any questions or observations about the freight market, please reach out to me anytime.
Dan Nester
dnester@polarislogisticsgroup.com | (419) 851-0033
