The truckload market could normalize in the middle of 2024, but that's a best case scenario, according to DAT Freight & Analytics Principal Analyst Dean Croke.
The data and forecasting firm's outlook for next year calls for "current market conditions to continue until late Q2 when the market should finally find equilibrium."
Despite the possible turnaround, analysts are noting how barriers continue to clog a rebound from occurring. Record profits and falling diesel prices have allowed carriers to continue operating, allowing excess capacity to linger, Croke noted.
Over the past year, there was a net loss of 29,000 carriers having their Federal Motor Carrier Safety Administration authority revoked, which is not enough to make a significant difference in the overall market, Croke said.
Record profits allowed firms to pay off debts and allow trucks to operate even when below the minimum rates needed to break even. That suggests for many that they're just a breakdown away from going out of business, Croke has repeatedly noted.
"There's this unprecedented spread in operating costs that we've never seen before in the long-haul sector," Croke said.
Should excess capacity exit the market, it still may not spark a recovery, analysts including Croke and Michigan State University Professor Jason Miller have noted.
The sluggish conditions in the down cycle have changed carriers’ typical operating behaviors. Following pandemic-induced demand, a sluggish freight market has left firms rejecting maybe 3% or 4% of loads, rather than the usual 12% to 15% this time of year, Croke said.
And while retail inventories are normalizing, American Trucking Associations Chief Economist Bob Costello doesn't anticipate "a surge in freight levels in the coming months," he said in a tonnage report released Tuesday.
Miller expects dry van contract prices, including fuel, to be down about 8% in Q1 2024 year over year, he said in a LinkedIn post this week.
For the broader economy, J.P. Morgan projected earlier this month that economic growth will likely decelerate next year, dropping from an expected 2.8% in 2023 to 0.7% in 2024.
At the same time, stricter environmental and labor laws in California are further burdening the industry, Croke said, noting changes such as a new rule effective Jan. 1, 2024, that will expand FMCSA’s interstate ELD regulations to intrastate operations for the Golden State.
Among those complications, the state’s Assembly Bill 5 has shifted owner-operators away from the state. That’s due to the law defining who should be classified as an independent contractor or employee, and the trucking industry is trying to challenge its implementation for trucking firms in an ongoing legal battle.
“I'm not sure why you go to California for all the money in the world,” Croke said.
Additionally, the Panama Canal’s slowdown due to a drought and redirected shipping traffic to avoid Houthi attacks in the Red Sea could constrain supply chains and put stress on West Coast ports. The war in Ukraine also continues.
Despite the devastation, there’s potential relief in store. On Dec. 13, Federal Reserve Chairman Jerome Powell stoked optimism from investors when he declared at a news conference that the federal funds rate could be lowered to 4.6% in 2024.
Rate cuts expected in 2024 could spur housing starts and flatbed demand, especially in the Southeast, where about 60% of family homes in the U.S. are built, Croke noted.
"I think the state of the trucking market is going to hinge a lot on interest rates, how far they drop, and how much that stimulates construction activity," Croke said.