Ask AFS: Why Isn’t The Truckload Market Recovering Faster?

The Q1 TD Cowen/AFS Freight Index showed Truckload rates still “hovering near the bottom” even though other modes’ rates seem to have increased or leveled out. What’s up with Truckload’s slow recovery?

Nothing that affects the Truckload market is “up” right now – except for interest rates. That’s the problem.

Sorry, poor word choice. Should we have said something like, “Give us the low-down on why Truckload rates are still in the basement” instead?

It would be more fitting.

When the Fed raised interest rates to help slow down the rate of inflation, it also slowed down many of the big-ticket purchases that fuel the Truckload market’s success. After all, when people buy fewer new homes or invest in fewer major home improvements, they also don’t buy as many large items like furnishings, appliances or lawn equipment. The reduced demand for these items has reduced the need for shipments of every kind, but particularly for Truckload, which is often the preferred mode to carry them.

Inflation’s impact on the average order size also continues to play a role. With consumers unable to purchase as much as they once could, many companies simply don’t need as much inventory. This has created an uptick in smaller-quantity orders that are better suited to LTL (or even parcel) and a downturn in large-quantity orders that are generally a better fit for Truckload.

Has COVID-19 also played a role?

Absolutely. The pandemic years saw a huge surge in the kinds of purchases we mentioned above. This was especially true because during the many months that people couldn’t spend money on major travel, many chose to reallocate their vacation funds into making the places they were living nicer.

But now, the pendulum has shifted. Travel expenditures are significantly up, while home improvement expenditures are expected to decline by about $30 billion this year.

One of AFS’ executives also recently pointed out that, as a mode, Truckload tends to be more sensitive to macroeconomic forces.

That’s true. Truckload is often the first to make an upward or downward shift as the result of events like increased inflation, the resumption of student loan repayment requirements, or geopolitical unrest. Some might even say that it’s the equivalent of the canary in the coal mine for the other modes.

It’s also usually the last to revert to business as usual – or to whatever the “new normal” is.

In other words, what we’re seeing with Truckload right now is pretty par for the course.

Yes. However, that doesn’t mean that shippers should just ignore it, because right now they have a prime opportunity to get better rates, service and overall value from their Truckload providers – especially if they have a good handle on how to balance all of those factors. And given how we’ve begun seeing other mode’s rates rebound, the time to take advantage of that opportunity is now.

Give AFS’ Truckload experts a call if you’d like to hear more. We’d welcome the chance to discuss the possibilities.

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