2023 is certainly in a freight recession regardless of the overall economy which has been on the brink of recession for years now.
Also called a freight downturn, there is a decline in the shipment of goods and consequently reduced demand for freight transportation services.
After a period of high freight demand, the U.S. trucking market is seeing a decline equivalent to 2020 at the height of the pandemic. Everybody is paying more for goods and services, and interest rates are rising.
Now two years into this recession, freight rates have dropped significantly in 2023. As noted by Reuters, “ Global freight movements continued to dwindle in the first two months of 2023 as manufacturers and distributors struggled to reduce excess inventories and cope with rising interest rates and increased caution among buyers.”
The problem, in part, is that because of general recession fears, many companies overproduced and now have too much inventory. On top of that, supply chains remain disrupted, and labor and shipping costs further complicate logistics challenges.
According to Fleet Owner, “Carriers are likely concerned about a decrease in rates due to an oversupply of capacity.”
And Bloomberg Intelligence reports, “Contractual-rate declines in the mid-single digits and moderating economic activity will weigh on truckload carriers’ revenue and earnings in 2023. Earnings and margins will also be hurt by rising labor, insurance, and equipment prices, along with higher maintenance costs. Truckload carriers are being forced to hold equipment longer due to the lack of supply of new trucks, which will push up maintenance costs.”
According to FreightWaves, “Much of the newer small carrier capacity that came into the market in 2021 to take advantage of sky-high spot rates did so at the cost of expensive equipment, insurance and fuel — and those carriers are washing out of the market. That process is in full swing, represented by a net revocations number climbing higher and higher.”
What we are seeing is that big carriers are either buying out smaller companies that are moving freight for next to nothing during the 2023 recession, which means they can buy these smaller companies for next to nothing right now.
Transport Drive quotes one industry executive, “I think the washout will be severe.” And “I think the conversation about whether there is or isn’t going to be a bloodbath, it’s hard to ignore the fact that 90% of the industry is 20 trucks or less, and there’s going to be blood in the water at that level.”
This perhaps explains the 2023 trend of owner-operators opting to work more for large fleets than small independents. When demand for transportation services decreases during a freight recession, it leads to increased competition among carriers for limited freight volumes.
The result is lower freight rates as carriers undercut each other to win contracts, leading to reduced profit margins for small carriers. Lower freight rates can put pressure on small carriers’ profitability, making it harder for them to cover their operating expenses and maintain their business operations.
During this 2023 freight recession, managing costs is crucial. Trucking companies need to analyze their operational costs and identify opportunities to reduce expenses without compromising safety or service quality.
Examples include optimizing routes, improving fuel efficiency, managing labor costs, and negotiating better contracts.
One great way to manage your costs during this freight recession in 2023 is to take advantage of shipping rates and carriers that are moving freight at a loss. This is why quick and accurate access to the spot market is so important.
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