Weekly market update for January 9th, 2024

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On last year’s final DAT iQ show, we spoke to industry experts Professor Chris Caplice and Professor Jason Miller about the 2024 outlook for shippers, carriers, and brokers. The complete version of the show can be found here

As we do at the end of every year, we ask industry experts what happened in the freight market in the past year and what they expect to happen next year. Professor Chris Caplice from MIT, DAT’s chief data scientist, and Professor Jason Miller from Michigan State University weighed in on the debate.

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Dean Croke

What does 2024 have in store for the truckload sector?

Jason Miller 

The first half of the year is going to be soft in terms of freight demand. I’m not seeing any change in demand that’s really going to lift us out of this freight recession. The most encouraging sign was November’s single-family housing. The volume of new starts was phenomenally strong and received very little media attention. November is also when things slow down, so phenomenally strong means it didn’t fall as much as usual. 

Aside from residential construction, the big industries that generate a lot of demand for trucking, including food production, are decreasing right now. Chemical and paper production is flat year-over-year (y/y) but down 10% from early 2020. Wood products are down 5% y/y, machinery is down 6% y/y, and the auto sector, which has been the one industry that’s carried a lot of freight volume in 2023, is expected to decline next year when dealers start selling off inventories.

To sum up, I see little in the first half regarding volumes. The second half is opaque because we need to know when the Federal Reserve will start cutting interest rates. It will still be June, as I don’t see the proposed March cuts manifesting. But we also need to find out how quickly there will be a response. Historically, the argument has always been it takes almost nine to 18 months to see an effective drop in interest rates. So, the first half of 2024 will be flat, and the second half will depend on the Federal Reserve’s behavior.

Chris Caplice

Shippers are waiting for the shoe to drop the other shoe. They’ve been in a holding pattern for several months, although the rise and fall in diesel prices is about all that’s changed since July. At our most recent Shippers Roundtable event, we asked them about the volume of unsolicited calls from carriers and brokers. They said it’s still high, and to me, that’s a sign carriers and brokers are still looking for freight. 

Capacity is still decreasing, but truckload supply leaving will not cause the market to turn. A significant change in demand will catalyze the market’s turn, but I do not see demand picking up soon. Based on recent contract rate negotiations, new rates in routing guides are still coming in negative single digits. It’s been that way for almost two years now. The gap between contract and spot long-haul rates is still around $0.28/mile to $0.32/mile for dry van and reefer. I don’t see that closing anytime soon. So I see more of the same for the first two quarters.

Ken Adamo

Can you compare and contrast the most recent freight recessions with those in the prior decade? 

Jason Miller

The smoothest period of not having a freight recession was the 1990s when rucking demand was continually climbing. At the turn of the century, we started seeing market shocks fundamentally changing supply and demand. Starting in 2000, we had a tremendous offshoring shock in about 2000. That caused a three-year freight recession where trucking employment didn’t bottom out until the middle of 2003, so there was a steady three-year decline.  

Housing boomed between then and 2007 when truck unemployment started to plunge, which didn’t stop till 2010 with the Great Recession—following that, we had a smooth upward increase. And a bull market in 2014, followed by a bear market in 2015/2016.

Since then, there have been shocks to the market that have driven the timing and highs of the freight market. The challenge is we’re used to rapid market cycles, noting the last two market cycles were abnormal in terms of how extreme they were. The next cycle will be much more muted and look like 2013 and 2014. 

The complete interview can be found here.

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