2024 Truckload Roundtable: As the market bottoms, a road to recovery awaits

A shippers’ truckload (TL) market—with low rates and excess capacity—remains intact, leaving the question: How much longer will this remain the situation?

With carriers lacking the needed leverage—in the form of increased demand, pricing power, and tighter capacity—there’s an emerging consensus that the market is bottoming out, with the expectation that the upper hand will eventually return in favor of the carriers. However, the timing for that remains uncertain amid ongoing challenges, including inflation and low volumes.

Joining us this year to help truckload shippers put the many moving parts of the market into perspective are four of the top freight transportation experts in the nation, including:

• John Larkin, operating partner, transportation and logistics, Clarendon Capital;
• Avery Vise, vice president of trucking for FTR Transportation Intelligence;
• Garrett Holland, senior research analyst for investment firm, Robert W. Baird & Co.;
• Lee Klaskow, senior freight transportation & logistics analyst for Bloomberg Intelligence.

Logistics Management (LM): How would you define the state of the truckload market?

John Larkin: The truckload market is as ugly as it’s ever been. Demand has been sluggish due to higher interest rates, pesky inflation, and a shift in purchasing on the part of consumers, from goods to services. However, things have been a little encouraging lately, with some signs of a seasonal rebound in demand.

Capacity continues to exit the industry, albeit at roughly half the rate capacity exited in prior freight recessions. But I’ll say we’ve probably seen the bottom of this cycle, but expect only a slow, gradual tightening of supply and demand from here.

Garrett Holland: Though we’re more than two years into this freight recession, carriers still have little leverage given excess capacity in the market. While indications of reemerging seasonality are encouraging, spot truckload rates are still near small carrier operating costs, which underscores the challenging operating conditions. Absent improvement in demand, more capacity needs to exit to restore balance to the truckload market.

Lee Klaskow: It’s stubborn. We would have thought more trucking supply would have come out of the spot market at a much faster clip than what has transpired. Truckers’ ability to wade out the downturn has been greater, which we attribute mostly to savings socked away when rates were stronger during the pandemic.

The rebound in trucking rates and earnings might have been pushed further into the second half of the year, as slack capacity in the spot truckload market remains stubborn to exit. That said, the worst appears to be behind for the industry, with a more constructive outlook for 2025 earnings per share.

Depressed rates, tepid volume and rising costs are weighing on public truckload carriers’ revenue and earnings in 2024, which could see a second consecutive year of declines. Earnings are also being pressured by smaller gains from sales of equipment.

Avery Vise: Indeed, the truckload market is in the early stages of a slow recovery. Active utilization—the degree to which truck drivers are engaged in hauling freight—recently bottomed out, but the market’s tightening looks considerably more gradual than stakeholders have come to expect based on recent cycles.

The weak market is a function mostly of too much capacity. Freight volume is sluggish, but it hasn’t really fallen off since the gains in 2021 and early 2022.

LM: How should shippers approach this market?

Holland: In our view, shippers should lock in capacity at current rates. While the 2024 bid season largely reflects continued rate concessions, market conditions are likely to change by this time next year. Pressing for additional savings now may compromise service during a freight market recovery. So, shippers should be mindful of this risk and try to take a longer-term view.

Klaskow: There are two kinds of shippers, those looking for strategic relationships with their transportation partners and those that are more transactional in nature. Most shippers are not just one type, because at times they can be strategic, while some lanes can be purely transactional. We think shippers that take a more strategic view will be better positioned when the market turns—because it always does.

Shippers that have turned the screws on pricing during the current downturn will find themselves in a similar position when the truckload market tightens. Those shippers must weigh the benefits on getting the best deal with the potential for higher rates and less access to capacity when the market tightens.

Vise: Shippers should assume that the most favorable period is behind them in terms of rates and service, but there’s no reason for panic. Our latest forecast doesn’t indicate any substantial increases, even in spot rates, paid by brokers to carriers until late this year, with contract rate inflation not taking hold until early next year or perhaps even later.

However, we do not see anything on the horizon remotely like 2021, so shippers might want to think about returning to whatever approach they found to make sense prior to the pandemic.

Larkin: Garrett, Lee, and Avery all make great points. I’ll add that shippers should lock in contractual rates with carriers ASAP before the market begins to flip towards a more carrier friendly supply-demand dynamic. Use this loose market as an opportunity to reevaluate your modal split and your carrier selection within modes. Carriers are currently hungry to serve your needs.

LM: What can shippers expect in terms of service over the course of the next year?

Vise: In broad strokes, service levels should not deteriorate much over the next year given how gradually we expect the market to tighten. Even by early 2026, we don’t expect utilization levels to be anywhere near the peak in 2021.

However, individual carriers will need to navigate the balance between utilization and service, so shippers might see somewhat more volatility than they have been accustomed to as tender rejections probably will rise.

Shippers might have a near-term ally in the Environmental Protection Agency [EPA]. New emissions rules are expected to yield a big increase in model year 2027 truck prices, which might even take effect in 2026.

Some larger carriers may pull forward some equipment purchases, which might encourage them to keep the driver supply a bit elevated. Once higher truck costs kick in, they will represent an upside pressure for freight rates, of course.

Larkin: Service levels have been fairly good in recent months. This is typical in a loose market. As supply and demand tighten up, expect service levels to decline as carriers scramble to add new equipment, recruit new drivers, and deal with increased transaction intensity.

Holland: I’ll add that supply chain fluidity has generally been restored both upstream and downstream. Additionally, shippers have made meaningful progress clearing excess inventory and see less urgency to aggressively restocking given sluggish consumer demand and restored confidence in just-in-time inventory management. Though shippers are enjoying a more settled operating environment for now, they should not lose perspective on how quickly disruptions can emerge.

LM: Is pricing where it needs to be for truckload rates from both a contract and spot market perspective?

Klaskow: Absolutely not. Many trucking companies in the spot market are operating for cash flow and not profitability. They’re just looking to pay their bills, like a truck payment or insurance, which have been rising over the last couple of years. Operators of fleets are also facing higher labor expenses.

There are a couple of public truckers that are running with operating ratios above 100%, while the better performing carriers are operating in the mid to high 90s. Carriers need to earn a decent return to reinvest in their fleets, which is important for shippers that appreciate high levels of service.

Carriers have been diversifying away from exposure to the irregular route truckload market, organically and through acquisitions, making them more resilient to rate cycles. Areas of interest include dedicated, intermodal, and brokerage businesses.

Dedicated businesses, with long-term contracts and more stable earnings, have strong pipelines this year and should outpace the over-the-road, irregular-route contractual market over the next 12 months.

Vise: I’d add that spot rates are where they should be most of the time because the market responds almost solely to supply and demand dynamics. We see periods early in both recoveries and downturns where pricing is adjusting, but that clearly isn’t the case today. Spot prices for van equipment normalized almost two years ago at a level that is comparable to 2019, and they’re pretty much still there.

Contact rates are probably at the low end of where carriers need them to be given increases in driver and equipment costs, but, so far, they don’t appear to be detrimental to the preponderance of the market as truckload employment levels have declined only slightly from record levels in the spring of 2023.

Holland: Contract pricing trends may continue to grind lower in the very near term, but incremental rate pressure will force more capacity from the market and likely accelerate the end of this freight recession. The truckload industry profit margin has largely vanished given the significant top-line headwinds and inflationary pressure across labor, equipment, and insurance.

Profitability for many of the industry’s largest carriers is at multi-decade lows. However, market stress will right-size capacity, and as demand eventually recovers, the balance of supply/demand in truckload markets will re-tighten, marking the start of another spot market pricing cycle, in our view.

Larkin: Rates are currently too low, from both a spot rate and contract rate perspective, for carriers to justify reinvestment in rolling stock. As a result, many fleets are downsizing, others are parking equipment, and still others are shifting equipment into the spot market in anticipation of shifting it back to the contract market as contract rates recover.

LM: How do you view the state of driver availability?

Vise: The overall supply of drivers in the truck freight market is ample, but the situation is a bit more complicated than it usually is. Compared to past cycles, a great deal of that driver capacity resides with very small carriers who left jobs with larger carriers at the height of the spot market in 2021
to form their own companies. Although that dynamic has been reversing for nearly two years, the market still has roughly 92,000 more carriers—mostly very small—than it did before the pandemic.

For larger carriers, driver quality is a chronic issue, and individual carriers might still struggle to find drivers who meet their standards. However, payroll employment in the truckload sector is still nearly 5% higher than it was before the pandemic, and it shows no signs of falling sharply. Trucking still faces a long-term demographic challenge, so a perceived driver shortage will return—however, it won’t be this year.

Holland: Given pressure on both small carriers and competing job markets, driver availability has significantly improved. It’s easier to attract drivers, but carriers are reluctant to shed capacity given challenges attracting and training labor in recent years. The long-term demographic trends for drivers remain challenging, but cyclical factors have resulted in some near-term relief for recruiting.

Larkin: As the panel has alluded, driver availability has been good in recent months as owner-operators are shifting over to companies operating company-owned power. Drivers have seemed less inclined to shift into other industries, such as construction, during this freight downturn.

And, drivers, originally from other countries, seemed to have unlimited staying power as they live in their trucks and focus on survival rather than earning a reasonable return on their investment. Recent strengthening in the driver lead provision and driver recruiting sectors suggests a tightening in labor supply may reappear as soon as freight supply and demand once again tighten.

Klaskow: Indeed, as slack capacity comes out of the market, we expect the structural issues plaguing driver supply will return, most likely sometime next year. This will make it harder for trucking carriers to attract and retain qualified drivers and will increase expenses related to these activities. Demographics, the alcohol-and-drug clearinghouse, and increased hair-follicle testing may limit the industry’s ability to seat tractors with safe, qualified drivers over the longer term.

This could be exacerbated if the labor market stays strong, providing work alternatives for truck drivers. High interest costs may be another obstacle for owner-operators looking to get back into the industry, making leases or loans more expensive.

LM: How will the truckload market look five years from now?

Holland: Freight markets remain cyclical, and that reality shouldn’t change. In a less severe downturn, though, large, scaled, multi-modal carriers are better positioned to deliver higher trough profitability and compounding gains as they use technology to aggregate share in the fragmented TL market.

Benefits from power-only services are here to stay, though pricing for the solution likely needs to move higher. Leading carriers are also increasingly leveraging the financial and operating benefits of scale to supplement organic growth through merger and acquisition, which should drive further industry consolidation.

For all of the market enthusiasm around generative AI applications, the potential for scaled carriers to capitalize on advancements in technology over time to deliver better growth, profitability, and customer experiences should not be overlooked.

Larkin: I agree. The truckload market will experience a giant leap in technology adoption over the next five years. Electric and hydrogen powered trucks will be commonplace, and autonomous tractors will play a bigger role in the movement of freight.

Network optimization software will be harnessed more broadly across the industry as existing equipment will be utilized more efficiently. And, a network of multi-carrier terminals, allowing for hyper-efficient relay operations, should be taking shape by then.

Klaskow: Well, when I look into my crystal ball one thing is clear: The truckload market will be in flux. We don’t think autonomous trucking will be widespread across the highways, and almost all trucks will be seated by people. Truckers will face increased margin pressure, even if rates move higher from current levels due to tougher emission standards.

The EPA passed more stringent nitrogen oxide rules that will go into effect in model year 2027. Though the costs associated with these new standards are unknown, the EPA’s estimate is about $8,300. The agency has historically underestimated mandate costs.

The true expense from the major emissions standard in 2001 was about 4x the EPA’s initial forecast, according to a study by the American Truck Dealers Association. This may drive the cost of equipment up and raise the barriers to enter the market, which are currently nonexistent.

Vise: The trucking industry is just scratching the surface of the potential that information technology in general, and AI in particular, offer in terms of efficiency. As the economy tries to squeeze more costs out of the supply chain, we likely will see some business model changes in truckload that will resemble LTL in some respects.

For example, we envision greater cooperation among shippers in warehousing and distribution in ways that maximize use of the cube capacity available to their for-hire carriers.

Meanwhile, digital freight platforms will continue to mature in ways that provide brokers and their small carrier partners virtually endless opportunities for dispatching freight. That growth in technology will allow even single-truck operations to build essentially dedicated routes, opening the occupation of driving a truck to people who would not consider any job that requires them to be away from home overnight.

LM: What are the biggest lessons learned more than four years after the onset of the pandemic?

Larkin: Truckload remains the backbone of our nation’s supply chain network. Industry participants have hopefully learned that great freight markets do not last forever and that fleet additions should be carefully managed during the good times so as not to create an unhealthy surplus of equipment—the likes of which have plagued us for the past two years.

Klaskow: The biggest lessons learned is that the industry is resilient. The pandemic also pushed the trucking industry to the forefront of people’s minds. Most folks didn’t give a second thought to where and how their toilet paper got onto store selves.

That changed very quickly when stores faced shortages from supply chain dislocations created by the pandemic. I think it gave people a greater appreciation for truckers, who are essential to our economy.

Vice: Perhaps the biggest lesson of all is that any major disruption in the economy or truck freight market produces echoes that reverberate for far longer than expected. The prolonged period of extraordinarily high spot rates from late 2020 through early 2022 resulted in enormous capacity growth in the for-hire sector.

Meanwhile, unprecedented levels of stimulus and other government support have propped up consumption, which has kept freight from collapsing. Stable freight and an expectation of a market turnaround that hasn’t occurred yet have encouraged elevated driver capacity to stick around, further slowing that very turn.

Holland: The pandemic revealed cyclical extremes to the upside and downside that may never happen again. Mean reversion is a constant though, and profitability must improve in order for carriers to earn their cost of capital. While current fundamental trends remain challenging, we’re confident earnings will normalize higher from depressed levels.

LM: Given the up-and-down nature of the economy, can you offer words of advice to shippers?

Vise: Although the economic uncertainty that held sway for much of the past four years has not vanished, the range of outcomes is narrowing. Large swings in either direction for the industrial and consumer economies are becoming less likely month by month, so if they have not done so already, shippers should consider returning to practices that seemed appropriate before the pandemic.

The road ahead should not be overly rocky, but it will be less favorable to shippers than it has been for the past couple of years. The past four years have left all stakeholders fatigued, and carriers will likely become increasingly annoyed at tactics they perceive as attempts to prolong shippers’ current leverage.

Holland: Embedding more resilience and flexibility into supply chains should remain a priority for all shippers. Diversification of sourcing and more nearshoring of production likely remain long-term trends. While challenges may have passed for now, the value of durable supply chains along with dependable production and transportation
partners should not be forgotten.

Larkin: Shippers need to periodically review their supply chain design, their modal mix, and their selected core carriers, across all the modes. Times change and relative costs change with the times.

Sometimes intermodal is a better option than truckload. Sometimes shared truckload is a better option than LTL. And, sometimes LTL is a better alternative than parcel.

The point is that supply chain strategies need to be updated as market conditions evolve. Plenty of transportation management companies can help you with this periodic evaluation. Consider gain sharing agreements with your transportation management partner to make sure that all parties’ goals and objectives are aligned.

Klaskow: These all make perfect sense, but also remember that it goes back to relationships. If transportation is an integral part of your business, you should be building strategic relationships with capacity providers. That can be with asset-based trucking companies and non-asset freight brokers.

This will reduce variability in rates and ensure a priority for capacity when it becomes scarce in tighter markets. There’s also a lot to be said to becoming a shipper of choice. This includes more than just being a partner through the cycle.

It also means being welcoming to truckers that come to your facilities. This could be as simple as letting someone use a restroom to allowing them to park overnight.