The cyclicality in the freight market has never been more evident than during the past three years.
In 2020 and ’21, transportation companies experienced unprecedented freight demand and remarkably tight capacity, leading to an inflationary rate environment over 18 months. The freight demand was driven by stimulus-aided goods spending as the services side of the U.S. economy battled with the COVID-19 economy.
In ’22, the freight market underwent a dramatic shift. A record number of new entrants entered the trucking market and demand slowed, especially in the back half of the year, driving rates, particularly spot rates, to the lowest levels since September 2020.
Consumer spending stayed resilient throughout the beginning of the year despite stimulus measures expiring and inflationary pressures on everyday goods rising at levels not seen in more than 40 years. The result has been consumers spending more on credit cards than pre-pandemic and the Federal Reserve’s hawkish approach to curbing inflation leading to the costs of debt rising.
As the calendar rolls over to ’23, consumers have started to shift back to the pre-pandemic trends of more spending on services than goods. As that trend continues to mature, the freight market tied to the goods sector of the economy is due for a slowdown.
Any reversal in the current freight market to drive rates higher once again will stem from the supply side, as new and legacy transportation companies continue to battle inflationary pressures across their operating expenses. The bright spot for them is that fuel prices are on the decline, but the volatility in the oil market could cause another shock to a company’s operating expenses.
The 2023 freight market outlook — “Rocky road on the way in 2023?” — provides a year-end review across the freight demand, capacity and rates, highlights changing consumer conditions and issues a forecast of what’s to come next year based on the current market conditions.