Why a freight recession is unlikely - and definitely not a bad thing

There’s been a lot of conversation around recent articles calling for a “trucking bloodbath” and an “imminent freight recession.” This past Friday two securities analysts repeated these words - almost to a T - and downgraded a vast majority of the transportation sector and sent transport stocks tumbling.

Here’s why I think a significant “freight recession“ is unlikely

Disclaimer: I barely passed Macro-econ in business school but I do have 13 years in the industry, 400 shippers I speak with regularly, and a $300m truckload business unit I’ve built from the ground up.

• This decline in truckload rates doesn’t apply across the entire truckload market: Flatbed is just picking up steam, Expedite is in high demand, and reefer/produce season is just around the corner.
• The recent volume downturn has actually been in the works since December but rates didn’t drop until March. Omicron and prolonged winter weather related truck repairs pulled a massive amount of trucks off the road in January and February -driving rates higher while volumes were decreasing. 
• Sky high winter rates are just correcting and haven’t even crossed back below November rates- and would still need to drop more than $.50/mi before carriers see any real pain
• Chemicals are considered a leading indicator of the economy and critical to CPG production: chemical rail tonnage has been considerably higher in the past few months
• Intermodal volume was down in Q4 and Q1, but has seen an increase in the last 4 weeks 
• Dry Van Contract rates have only gone up since January and are exceeding spot rates. Analysts are unfairly punishing publicly traded trucking companies.
• Since the pandemic started, many flatbed drivers have parked their trailers and traded for dry vans and reefers. A rise in flatbed rates will persuade them to switch back -assisting with a quick correction in dry van oversupply.
• Shippers are getting more sophisticated- thanks to companies like FreightWaves and DAT- there’s more real time market data available to shippers and they’ve learned how to prevent punishing their carriers into oblivion during a downturn like they have in the past.
• In past freight recessions, truckload freight was converted to intermodal. Since PSR, railroads no longer have the flexibility to hit the transit times shippers need.
• Sky high prices have put the movement of commodities that rely on low shipping costs on the sidelines. Downturn in rates should open up capacity to these goods.

Why there’s more good than harm in a “freight recession”

• While downgrading most of the transport sector, a few logistics companies were coincidentally upgraded. (Lower rates = expanding margins). Capacity has shifted from company drivers to owner operators over the last 2 years which puts more capacity into the hands of brokers. Lower rates allows them to cherry pick the best partner and offer improved service levels, alleviating bottlenecks.
• Freight rate cycles have been getting shorter in duration and greater in elasticity. The faster and further rates drop- the faster and further they’ll come back.  (see Cass Truckload Linehaul Index)
• Reducing overall shipping costs will bring cost savings to the end consumer in a fight against inflation
• Shippers and brokers should be aware that in a downturn equipment maintenance takes a back seat, higher propensity for double brokering, increase in claims, etc. A call for compliance tightening will certainly come about and pruning of poor Carrier operators will keep everyone safer.
• Worst case scenario there is a bloodbath- many of us will make it out stronger than we were before- just like in times past.  Maybe the VCs will finally get scared off from their gross over-investing in the logistics and freight tech space- bringing valuations, comp packages, and hiring practices back to normal.  My phone could use a break from ringing off the hook with industry ‘disruptors’ whose #1 value prop is how much money they were handed in their last round of funding.

The truth is there is nothing to be afraid of if you’re on the right team, with the right people who want to win together.

My team’s truckload volume and number of shipper clients is actually up 25% since this ‘downturn’ started.  We’re not scared of a freight recession or a bloodbath- and have plans to keep growing.  #imhiring so if you don’t think your company can navigate the changes ahead - come join my team.

The market is without a doubt finding a post-Covid new normal (like the rest of us).  You can keep your eyes closed and hope for the best - or join a company thriving in it.

See our open positions for our 12 offices across the US and for remote positions at www.circledelivers.com or contact me directly.