Now that inventory levels are shrinking and inflation is easing, trucking rates may have finally hit bottom. Could we be nearing the end of the freight recession?
Sean Maharaj is a vice president in the Global Transportation Practice of the management consultancy Kearney. Additionally, Maharaj is a chief commercial officer of Kearney’s Hoptek.
Balaji Guntur is a vice president in the Global Transportation Practice of the management consultancy Kearney. Additionally, Guntur is a co-founder and chief executive officer of Hoptek, a Kearney company focused on the trucking industry with a suite of software-based products.
The transportation industry has always been vulnerable to economic shocks or slowdowns, and the trucking sector has certainly seen its fair share of rough road conditions over the decades. The current cycle, however, is more severe than any that has occurred in the last two decades.
Several factors made for a perfect misalignment of supply and demand in 2022–23. Stubbornly high inventory levels and high inflation led to cooling demand for shipping. At the same time, increased trucking capacity entered the industry after the pandemic, which created a situation characterized by industry experts as a “freight recession.” Furthermore, leading up to the recent cooling off, there was a healthy run of profitability post-pandemic, which resulted in record high spot rates. As a result, the cliff from which trucking spot rates dropped was that much steeper.
However, even with more than half of the year in the rearview mirror, there’s so much more to unfold in the world of shipping and transportation in 2023. In terms of volume, the industry typically sees the busiest season beginning August through October. This period also contributes to the lion’s share of revenues. In 2023, we have seen a mixed bag of signals related to inflation, the job market, and the war in Ukraine. As a result, the jury is still out on the timing and extent of the much-touted recession.
The trucking market continues to remain “loose,” but as inventory levels shrink and inflation abates, rates are expected to recover. However, as persistently high inflation and recessionary headwinds continue, it isn’t clear if the trucking industry is out of the woods yet, so to speak.
Have truckload rates hit bottom?
According to ACT Research, spot rates bottomed out in April with May seeing a slight uptick. The transportation data analysis firm speculates that some of that upward movement was caused by a loss of labor, as approximately 50,000 jobs were purged in Q1 of 2023, potentially leading to more competitive terms.1 In fact, we could be looking toward the end of oversupply and the beginning of a recovery or transition phase in the second half of 2023. Most of 2023 thus far has been marred by tremendously low spot rates, which have pushed many smaller fleets and owner operators out of the market. That said, as hiring slows and smaller players exit, the market will see a rebalancing of supply and demand.
As evidenced by the ACT For-Hire Trucking Index in Figure 1, rates remain contracted for 2023, but May shows a slight uptick. Whether this indicates a bottoming out of rates will have to be proven beyond a sample of one data point, but many in the marketplace do believe that further rate reductions are unlikely to occur.
From a revenue perspective, the upturn in rates should help carriers forecast a little better for the remainder of the year. When the carrier “earnings party” came to an end in the third quarter of 2022, forecasting revenue for the near future became harder. For example, for Q1 2023 some carriers reported revenue as flat or only slightly up, while others saw revenue fall through the floor by double digits. It’s important to keep in mind that during the past year many carriers benefitted from heavy gains on the sale of existing assets at prices not seen before. Equipment prices, however, have been falling, and many believe they have not yet found their floor. So that revenue opportunity may not resurface again for the foreseeable future.
Much speculation exists around what will help to drive the trucking industry back to healthy territory. Financial pressures include, but are not limited to, inflation, slowing consumer demand, weakness in the technology and media sectors, and a general sentiment of market weakness across the board. However, projections of a recession happening in 2023 are confounded by a red-hot job market that is adding jobs at well above projected rates.
To get out of the current freight recession, the trucking industry will need to see volumes recover due to increased consumer spending. Meanwhile carriers are still dealing with the compounding effect of cost increases on their business, some of which are “sticky.” For example, removing fuel from consideration, some fixed costs—which include driver salaries, maintenance and equipment costs, and overall operating costs for a fleet—have risen by almost a third since 2019.
For the truckload sector, challenges will remain—no one is out of the woods by any stretch of the imagination. Initial indicators are directionally welcome, and the anecdotal feedback is turning somewhat more positive than prior months. Indeed, some organizations do seem to be anticipating better times ahead and are starting to consider investments across areas that will drive greater levels of efficiency, utilization, and execution.
LTL holds strong
In contrast to truckload, the over $80 billion less-than-truckload (LTL) sector continues to be the darling of the industry. LTL’s strong pace of growth is a result of a rapid acceleration of e-commerce trends during the pandemic years and the resulting improvements by fleets to achieve high levels of efficiency and profitability. While the industry slowed down a little at the end of 2022, it still maintains a healthy position. Thanks to industry leaders like UPS and FedEx, LTL players have adjusted pricing and business models that reflect strength across the industry. In fact, LTL carriers have even managed to fend off price erosion when demand softens. “The LTL carriers seem to have figured it out,” says Bob Costello, chief economist at the American Trucking Associations.
LTL carriers are less fragmented compared to their truckload counterparts, with the top 25 LTL carriers owning 80% of the market.2 In addition, existing providers also benefit from the sector’s intricate hub-and-spoke organizational structure, which is hard to replicate, creating a high barrier of entry and limiting new competitors. As a result, providers have the scale and ability to manage the industry forces currently at work.For example, at the start of 2023, some LTL carriers implemented general rate increases to account for changes in business costs and other related network factors directed at maintaining critical customer services levels in key lanes.
With the above in mind, we expect LTL rates to increase steadily for the remainder of the year, and potentially rise by single digits in 2024, especially as the effects of the recent bankruptcy of Yellow, the nation’s third largest LTL carrier, is already starting to be felt. While the industry is not immune to geopolitical factors, many experts project a positive outlook for LTL carriers.
Technology’s helping hand
Regardless of market conditions, carriers have an opportunity to improve their profitability by increasing their focus on technology and innovation. By harnessing real-time data, such as truck location and driver hours of service, carriers can improve their visibility into the state of their network. Artificial intelligence (AI) and real-time optimization can help them increase efficiency and utilization, lower operating ratio (OR), improve driver retention, and increase return on assets, while also meeting customer demands. Better data literacy and AI have also helped leaders to improve decision-making by addressing chronic challenges related to manual effort, tribal knowledge, and human judgement.
Those carriers that have embraced AI, real-time optimization, and digital freight search have seen a 20-point improvement in OR and a 70% reduction in driver turnover, while achieving up to 2,500 revenue miles per week. These statistics show that even though economic cycles in trucking are inevitable, carriers have an opportunity to leverage data and technology to ride through them and deliver consistently better performance and financial results.
New Jersey is home to the most congested freight bottleneck in the country for the seventh straight year, according to research from the American Transportation Research Institute (ATRI), released today.
ATRI’s annual list of the Top 100 Truck Bottlenecks aims to highlight the nation’s most congested highways and help local, state, and federal governments target funding to areas most in need of relief. The data show ways to reduce chokepoints, lower emissions, and drive economic growth, according to the researchers.
The 2025 Top Truck Bottleneck List measures the level of truck-involved congestion at more than 325 locations on the national highway system. The analysis is based on an extensive database of freight truck GPS data and uses several customized software applications and analysis methods, along with terabytes of data from trucking operations, to produce a congestion impact ranking for each location. The bottleneck locations detailed in the latest ATRI list represent the top 100 congested locations, although ATRI continuously monitors more than 325 freight-critical locations, the group said.
For the seventh straight year, the intersection of I-95 and State Route 4 near the George Washington Bridge in Fort Lee, New Jersey, is the top freight bottleneck in the country. The remaining top 10 bottlenecks include: Chicago, I-294 at I-290/I-88; Houston, I-45 at I-69/US 59; Atlanta, I-285 at I-85 (North); Nashville: I-24/I-40 at I-440 (East); Atlanta: I-75 at I-285 (North); Los Angeles, SR 60 at SR 57; Cincinnati, I-71 at I-75; Houston, I-10 at I-45; and Atlanta, I-20 at I-285 (West).
ATRI’s analysis, which utilized data from 2024, found that traffic conditions continue to deteriorate from recent years, partly due to work zones resulting from increased infrastructure investment. Average rush hour truck speeds were 34.2 miles per hour (MPH), down 3% from the previous year. Among the top 10 locations, average rush hour truck speeds were 29.7 MPH.
In addition to squandering time and money, these delays also waste fuel—with trucks burning an estimated 6.4 billion gallons of diesel fuel and producing more than 65 million metric tons of additional carbon emissions while stuck in traffic jams, according to ATRI.
On a positive note, ATRI said its analysis helps quantify the value of infrastructure investment, pointing to improvements at Chicago’s Jane Byrne Interchange as an example. Once the number one truck bottleneck in the country for three years in a row, the recently constructed interchange saw rush hour truck speeds improve by nearly 25% after construction was completed, according to the report.
“Delays inflicted on truckers by congestion are the equivalent of 436,000 drivers sitting idle for an entire year,” ATRI President and COO Rebecca Brewster said in a statement announcing the findings. “These metrics are getting worse, but the good news is that states do not need to accept the status quo. Illinois was once home to the top bottleneck in the country, but following a sustained effort to expand capacity, the Jane Byrne Interchange in Chicago no longer ranks in the top 10. This data gives policymakers a road map to reduce chokepoints, lower emissions, and drive economic growth.”
It’s getting a little easier to find warehouse space in the U.S., as the frantic construction pace of recent years declined to pre-pandemic levels in the fourth quarter of 2024, in line with rising vacancies, according to a report from real estate firm Colliers.
Those trends played out as the gap between new building supply and tenants’ demand narrowed during 2024, the firm said in its “U.S. Industrial Market Outlook Report / Q4 2024.” By the numbers, developers delivered 400 million square feet for the year, 34% below the record 607 million square feet completed in 2023. And net absorption, a key measure of demand, declined by 27%, to 168 million square feet.
Consequently, the U.S. industrial vacancy rate rose by 126 basis points, to 6.8%, as construction activity normalized at year-end to pre-pandemic levels of below 300 million square feet. With supply and demand nearing equilibrium in 2025, the vacancy rate is expected to peak at around 7% before starting to fall again.
Thanks to those market conditions, renters of warehouse space should begin to see some relief from the steep rent hikes they’re seen in recent years. According to Colliers, rent growth decelerated in 2024 after nine consecutive quarters of year-over-year increases surpassing 10%. Average warehouse and distribution rents rose by 5% to $10.12/SF triple net, and rents in some markets actually declined following a period of unprecedented growth when increases often exceeded 25% year-over-year. As the market adjusts, rents are projected to stabilize in 2025, rising between 2% and 5%, in line with historical averages.
In 2024, there were 125 new occupancies of 500,000 square feet or more, led by third-party logistics (3PL) providers, followed by manufacturing companies. Demand peaked in the fourth quarter at 53 million square feet, while the first quarter had the lowest activity at 28 million square feet — the lowest quarterly tally since 2012.
In its economic outlook for the future, Colliers said the U.S. economy remains strong by most measures; with low unemployment, consumer spending surpassing expectations, positive GDP growth, and signs of improvement in manufacturing. However businesses still face challenges including persistent inflation, the lowest hiring rate since 2010, and uncertainties surrounding tariffs, migration, and policies introduced by the new Trump Administration.
As U.S. businesses count down the days until the expiration of the Trump Administration’s monthlong pause of tariffs on Canada and Mexico, a report from Uber Freight says the tariffs will likely be avoided through an extended agreement, since the potential for damaging consequences would be so severe for all parties.
If the tariffs occurred, they could push U.S. inflation higher, adding $1,000 to $1,200 to the average person's cost of living. And relief from interest rates would likely not come to the rescue, since inflation is already above the Fed's target, delaying further rate cuts.
A potential impact of the tariffs in the long run might be to boost domestic freight by giving local manufacturers an edge. However, the magnitude and sudden implementation of these tariffs means we likely won't see such benefits for a while, and the immediate damage will be more significant in the meantime, Uber Freight said in its “2025 Q1 Market update & outlook.”
That market volatility comes even as tough times continue in the freight market. In the U.S. full truckload sector, the cost per loaded mile currently exceeds spot rates significantly, which will likely push rate increases.
However, in the first quarter of 2025, spot rates are now falling, as they usually do in February following the winter peak. According to Uber Freight, this situation arose after truck operating costs rose 2 cents/mile in 2023 despite a 9-cent diesel price decline, thanks to increases in insurance (+13%), truck and trailer costs (+9%), and driver wages (+8%). Costs then fell 2 cents/mile in 2024, resulting in stable costs over the past two years.
Fortunately, Uber Freight predicts that the freight cycle could soon begin to turn, as signs of a recovery are emerging despite weak current demand. A measure of manufacturing growth called the ISM PMI edged up to 50.9 in December, surpassing the expansion threshold for the first time in 26 months.
Accordingly, new orders and production increased while employment stabilized. That means the U.S. manufacturing economy appears to be expanding after a prolonged period of contraction, signaling a positive outlook for freight demand, Uber Freight said.
The surge comes as the U.S. imposed a new 10% tariff on Chinese goods as of February 4, while pausing a more aggressive 25% tariffs on imports from Mexico and Canada until March, Descartes said in its “February Global Shipping Report.”
So far, ports are handling the surge well, with overall port transit time delays not significantly lengthening at the top 10 U.S. ports, despite elevated volumes for a seventh consecutive month. But the future may look more cloudy; businesses with global supply chains are coping with heightened uncertainty as they eye the new U.S. tariffs on China, continuing trade policy tensions, and ongoing geopolitical instability in the Middle East, Descartes said.
“The impact of new and potential tariffs, coupled with a late Chinese Lunar New Year (January 29 – February 12), may have contributed to higher U.S. container imports in January,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “These trade policy developments add significant uncertainty to global supply chains, increasing concerns about rising import costs and supply chain disruptions. As trade tensions escalate, businesses and consumers alike may face the risk of higher prices and prolonged market volatility.”
New York-based Cofactr will now integrate Factor.io’s capabilities into its unified platform, a supply chain and logistics management tool that streamlines production, processes, and policies for critical hardware manufacturers. The combined platform will give users complete visibility into the status of every part in their Bill of Materials (BOM), across the end-to-end direct material management process, the firm said.
Those capabilities are particularly crucial for Cofactr’s core customer base, which include manufacturers in high-compliance, highly regulated sectors such as defense, aerospace, robotics, and medtech.
“Whether an organization is supplying U.S. government agencies with critical hardware or working to meet ambitious product goals in an emerging space, they’re all looking for new ways to optimize old processes that stand between them and their need to iterate at breakneck speeds,” Matthew Haber, CEO and Co-founder of Cofactr, said in a release. “Through this acquisition, we’re giving them another way to do that with acute visibility into their full bill of materials across the many suppliers they work with, directly through our platform.”
“Poor data quality in the supply chain has always been a root cause of delays that create unnecessary costs and interfere with an organization’s speed to market. For manufacturers, especially those in regulated industries, manually cross-checking hundreds of supplier communications against ERP information while navigating other complex processes and policies is a recipe for disaster,” Shultz said. “With Cofactr, we’re now working with the best in the industry to scale our ability to eliminate time-consuming tasks and increase process efficiencies so manufacturers can instead focus on building their products.”