Freight downcycle is closer to the end than the start, ACT says

The trucking sector is closer to the end than to the start of its freight downcycle, according to an analysis of February’s freight volumes and rates from transportation research firm ACT Research.

Both volumes and rates declined in February, but the Columbus, Indiana-based firm forecasted that “rate trends should begin to recover as soon as traction on freight volumes is established, and slower capacity growth this month is a hopeful sign the bottoming process is closer, as fleets begin to respond to softer market conditions.”

The market has not turned the corner yet; ACT says that freight volumes in February remained soft amidst a market of mixed economic signals. The firm’s Trucking Volume Index was in contraction territory for the 8th month of the past 11 in February, at 41.3 (seasonally adjusted) compared to 51.6 in January. 

ACT’s Pricing Index also showed continued weakness, decreasing 6.3 points, to 39.3 in February (seasonally adjusted) from 45.6 in January, marking only the fourth time in the index’s history that prices have been in the thirties.

However, markets with extremely low prices tend to correct themselves by attracting more buyers, thus driving up demand and supporting price hikes, according to an analysis from Tim Denoyer, ACT’s vice president & senior analyst. “The cure for low prices is low prices, and we currently estimate spot rates are 16% below fleet operating costs, which should expedite this bottoming process. Even as freight demand fundamentals will likely remain soft, seasonal increases in [truckload] volumes as capacity slows and eventually tightens will build the bottom of the spot rate cycle in the next couple of months,” he said.

That analysis was reinforced by news today that shippers’ leverage over carriers had loosed slightly in January. Transportation analyst firm FTR said that its Shippers Conditions Index (SCI) fell in January to a reading of 5.4 from its December mark of 10.3.

However, FTR said that the January SCI was still the strongest since May 2020 and is forecast to remain stable into 2024. “The Shippers Conditions Index is likely to hold firm unless overall economic conditions deteriorate significantly from present levels. Looser truckload capacity, slowing imports, and improving rail service should all support stable to improving shippers’ conditions through the balance of the year,” Todd Tranausky, vice president of rail and intermodal at FTR, said in a release.

The index tracks the changes representing four major conditions in the U.S. full-load freight market: freight demand, freight rates, fleet capacity, and fuel price. Combined into a single number, the result shows good, optimistic conditions when positive and the opposite when negative.