Editor’s note: This story is part of an ongoing series diving into the opportunities and challenges supply chains face in 2023. Read the rest of the series here.
If carriers are expecting record spot prices to return in 2023, analysts say don’t count on it.
Conditions fueled by the pandemic and shippers seeking any means necessary to meet customer orders have waned. The experts say soft economic conditions at least through the first half of the year won’t be great for carriers in an environment, which now is a shipper’s market.
Major carriers including Schneider, J.B. Hunt and HUB Group are telling investors they expect market conditions will improve by midyear. Others, like Old Dominion CFO Adam Satterfield, are holding their breath as they watch improving market trends.
"We are starting to trend back in the right direction [on volumes]," Old Dominion CFO Adam Satterfield said on a Feb. 1 earnings call. "Whether or not we get back to the full 10-year average at least in the first-half of the year remains to be seen."
A drop in rates was expected
Falling spot rates were evident throughout 2022, though the drop was greater than analysts projected.
Ken Adamo, DAT chief of analytics, told Supply Chain Dive his organization originally thought rates would fall between 15% and 20% in 2022, but the actual decline was closer to between 25% and 30% YoY.
The large decline led DAT to suggest in its annual outlook report that spot rates may already be at their floor, and are poised to turn the corner soon.
“Throughout 2021, capacity struggled to keep pace with truckload demand,” DAT said in the report. “Early 2022 showed signs of equilibrium, but the record number of new entrants — attracted by high rates during the pandemic peak — created an oversupplied market that pushed spot rates downward.”
Spot rates plummeted in 2022
Dry van, flatbed and reefer linehaul rates since 2018
Jonathan Phares, assistant professor of supply chain management at Iowa State University, said the trucking industry started 2023 with unfavorable indicators: There was extra trucking capacity to start the year, and retail inventory data suggests stores are stockpiled.
“With a looming recession and excess inventory, we could see spot markets rate drop dramatically in the first quarter (and continue) into the second quarter if the recession hits during that time,” Phares said.
Some executives expect the economy to recover before the end of Q2, though.
"We're hopeful, got our fingers crossed that we will come out of this thing as we get into the spring and later on in the second quarter," Old Dominion CEO and President Greg Gantt said on a recent earnings call.
Knight-Swift Transportation Holdings CFO Adam Miller cited a similar timing in the company's January earnings call.
“Last year, we expected the first half to be strong and then cool off in the second half, which is largely what happened,” Miller said. “In 2023, we expect the opposite: more challenging environments in the first half before we start to see a recovery to a more typical freight demand, leading up to an improving Q4 peak season.”
The outlook for rates
Though trucking executives are looking forward to a spot rate recovery, shippers may seek to take advantage of low prices to be more thoughtful about their strategy, Ronnie Davis, vice president, North American surface transportation for C.H. Robinson Worldwide, said in an email.
“During the pandemic, shippers, carriers and all of us in the logistics industry were focused on agility and getting creative to work through the latest disruption,” he said. “There’s no better time for a shipper to find efficiencies and take costs out of their supply chain.”
C.H Robinson is forecasting rates to be down 16% this year compared to last year. “The market is projected to bottom out in late April or early May, when rates reach the average cost of operating a truck,” Davis said.
He said when it reaches a point where rates meet carrier operating costs, it’s easy to think that’s when trucking capacity oversupply will resolve itself.
So far, though, there have been few signs carrier capacity is shrinking. According to Davis, back orders for new trucks are still eight months out, the price for a used truck is still double what it was before the pandemic, and exports of used trucks in 2022 were half the normal rate.
“Unless supply shrinks meaningfully or demand increases meaningfully, the typical seasonal variance in rates may be all we see through the back half of 2023,” he said.
But if trends sway from historical patterns the outlook may darken. Jim Gattoni, president and CEO of Landstar, said during a Feb. 2 earnings call if the economy softens more than anticipated it will be a struggle.
Historical patterns are not guaranteed, though. Jim Gattoni, president and CEO of Landstar System, told investors the outlook may darken if trends sway from the norm.
“When you read about the economists, you've got some that are dire, [saying] there's going to be a huge recession and others are talking about no soft landing, so I'm not going to go with what anything the economists say, because they're all over the map right now,” Gattoni said on an earnings call. “So trying to predict what's going to happen is hard.”