An Unusually Terrible Freight Market May Get A Lot Worse

By Craig Fuller, CEO of FreightWaves,

“It’s the worst freight market since the Great Financial Crisis.” This statement is commonly heard on our channel checks among carrier and broker executives and often repeated on social media. Now we have some evidence to support it.

The National Truckload Index (NTI), available on SONAR, which measures the average national truckload spot rate, is $1.49 a mile, breaking below the 2019 seasonal equivalent.

While extremely low rates are bad enough on their own, the worse news is that operating costs for trucking companies (not including fuel) are up more than 30 cents a mile in that same period. Operating expenses include maintenance, insurance, driver salaries and equipment.

On a cash flow-adjusted basis, current spot rates are equivalent to $1.19 a mile, without including any increases in the cost of capital to finance operations.

Where are the bankruptcies?

With the soft market conditions and low rates, where is the surge in 2023 bankruptcies?

While we know that thousands of small carriers have revoked their operating authority, we have yet to see a rash of bankruptcies in the truckload industry.

So far in 2023, FreightWaves has reported on only seven bankruptcies, a little more than one a month. The worst trucking market prior to the current one was in 2019, the “Trucking Bloodbath.” At one point, FreightWaves reported on 10 trucking bankruptcies in a single week.

New England Motor Freight’s (NEMF’s) bankruptcy opened the year (3,000 employees) and Celadon’s shuttering (5,500 employees) ended it. There were hundreds in between.

Is this a function of trucking companies doing so well during the COVID economy that they were able to pad their balance sheets and prepare for a massive downturn?

If so, it may mean that capacity stays in the market longer than in a typical down cycle.

Tender rejections show how dire conditions are in the freight market 

Tender rejections have dropped to an all-time low of 2.53%. The previous record low was set during the COVID lockdowns at 2.57%.

What is a tender rejection?

A tender rejection measures the balance of supply and demand in the trucking market.

A high rejection rate means that trucking firms have a lot of discretion on what loads they will take. Carriers want a high rejection level. It gives them a lot of choices on loads and drives up rates.

A low rejection rate is the opposite. It means that the carriers have few loads to pick from and are taking almost anything, without consideration of where it is going and at what price.

A rejection rate that is this low is significant because it means that carriers are struggling to find load opportunities and have lost pricing power.

Even though we are talking about freight, let’s look at this in the context of dating

When feeling desperate — you swipe right on everyone, without considering the quality of those prospects — you have a “low rejection rate.”

When feeling “hot” — you swipe left often and are highly selective — you have a “high rejection rate.”

It’s the same idea, just applied to “freight tenders,” not “Tinders.”

There are reasons to expect things could get worse

We know that a lot of the weakness in trucking is related to the expansion of capacity over the past few years.

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