The most important trend we are watching this year is the freight recession which began in late 2022 and early 2023. Like most freight recessions, the current one we find ourselves in is quite complex. Since at least early 2022, industry experts saw a freight recession on the horizon. When exactly the freight recession will end is not yet known. However, many in the industry say they expect a recovery to begin this year, perhaps in the second half of 2024. To better understand the current freight recession and why it matters this year, let’s take a look at the main reasons for its existence.
COVID-19
During the pandemic, consumers spent like never before. Many were working at home and spent lavishly on décor, home offices, exercise equipment and other products. This was further compounded by stimulus money that was pumped into the economy by the U.S. government. However, when the pandemic ended, consumer spending resumed to its pre-COVID levels, leaving businesses — including big box chains — with excess inventory. With the dip in consumer demand, companies had less need to move products, which had a negative impact on freight carriers everywhere — large and small.
Excess carriers and capacity
To take advantage of the COVID-19 spending surge, new freight carriers flooded the market to meet the rising need to move products. Some estimates say that the number of new freight carriers during this time increased by as much as 50 percent. Now that consumers are spending less, there is excess freight capacity in the marketplace and carriers have had to lower rates to attract loads and are competing for business. In fact, many carriers and brokers have gone out of business, most notably Convoy and Yellow. Some industry analysts say that in time, the freight industry will automatically right-size itself.
Fuel prices, inflation and labor shortages
Fuel prices were an additional burden on carriers last year. While there was a short reprieve during the summer months, fuel prices rose again in Q3 and Q4. In fact, in November 2020 (during the pandemic) fuel prices were $2.462 per gallon, compared to $4.146 in November 2023. Already stung by the lack of shipping volumes, this caused carriers to continue to struggle. Additionally, there continued to be a shortage of labor, and carriers found it difficult to find drivers to operate trucks. In fact, 30 million U.S. workers across all industries resigned their jobs from January through August 2023.
Why is 2023 important for 2024?
The major challenges that the shipping industry faced during the freight recession in 2023 will bleed over well into 2024, according to most reputable industry analysts and insiders. According to a CNBC Supply Chain Survey, there will be “no growth for the first half of 2024, and at best a mildly positive turn in the second half of the year.” Specifically, of those surveyed, “half expect a 5% increase; 33% expect a 10% increase; and among the 17% that were the most optimistic, a 15% increase is anticipated” in Q3 and Q4 of 2024. So, while data suggests that this year will not improve to pandemic or pre-pandemic prosperity, the market will show improvement toward a normalization of some kind.