The freight market is suffering from very challenging conditions and few dispute that the freight market is in recession.
The root cause of the current freight recession has been the imbalance of supply and demand.
Let’s break down demand first:
According to SONAR’s Outbound Tender Volume Index, or OTVI, freight volumes are currently up 16% over 2019 levels. Volumes are at some of the highest levels of the year to date.
Although the peak season began slowly, over the past week, things appear to be turning. To date, peak season certainly has not been robust, but it also has not been abysmal.
The macro outlook, capacity and OTRI
Next up, we need to look at capacity.
While there are good datasets that track total aggregate capacity, the data painfully lags the market because it is government generated. So, there’s no precise measurement of the total number of trucks currently available for dispatch.
To address this issue, FreightWaves developed the Outbound Tender Rejection Index, or OTRI. The index measures the number of truckload orders rejected during the previous week.
And whatever the state of the economy, there has always been and will always be a level of rejection in the market.
But with the data OTRI provides, there is an indicator for how full the truckload order book is at any moment in time.
Since FreightWaves first published the OTRI in 2018, it has ranged from 2.5% to 30%.
Currently, SONAR’s OTRI is at 3.5% — low by historical standards.
Like airlines, trucking companies strive to overbook their capacity. So, trucking companies reject a percentage of loads every day, just like airlines bump passengers from their airplanes when a flight is too full.
These rejections happen electronically via computer messages called “EDI” or “API” message protocols. These messages are sent from trucking companies in response to orders for capacity from shippers of all kinds — retailers, manufacturers and industrial firms.
In SONAR, all of the data that would identify a specific company is stripped, so no one ever knows which specific company ordered a truck or which carrier rejected a specific load. This is done to protect the confidentiality of SONAR participants.
When gauging the health of the U.S. freight market as a whole, SONAR data is focused on the market’s breadth, not what takes place at individual companies.
The freight economy at road level
Since its inception, FreightWaves has reported the good and bad news about the freight economy. We also report what is happening at the companies that make up the freight economy, because these companies and their employees are the key to moving the nation’s goods.
And despite the industry’s importance to the overall economy, at the company level, bankruptcies, closures and downsizings have occurred at large and small companies for more than a year and a half.
Overcapacity is the primary problem
But while there are certainly a number of problems, the “freight recession” is due primarily to too much capacity — or for the layperson, too many trucks for the amount of freight being moved.
Freight volumes are more robust than would be expected had there been a sharp economic recession, but there are real problems stemming from too much capacity in the market.
And while the goods economy is not nearly as robust as it has been in previous years, the softness in freight is a capacity issue, not a demand issue.
Interested in the data presented in this article? Sign up for a demo of SONAR by FreightWaves.
Cm Evans
Federal spending is the only thing keeping this economy alive.
That said, and I repeat again in effort to get some FreightWaves reporting and info on what role both Mexican, and Canadian Carriers more specifically are playing in the role of Cabotage.
The uptick in volumes both of these Foreign Carriers are involved in is obvious to those of in the business.
Either the Brokers are looking the other way, or the Foreign Carriers are skirting the Laws, or possibly both.
Cmon Craig, either yourself or one of your aides are reading these responses, let’s get some reporting on this issue and focus on the American Carriers, Employers, Employees and Small Businesses first.
hector parada
Sara you are probably using the most expensive carrier that’s what i can think of.
Loads are leaving very little profit to over all carriers. i can not get into the business because i dont see the money with the way miles are being paid .
B
Likely due to higher interest rates, higher company overhead, higher insurance & higher wages…all driving profitability requirements above what they used to be. You could also be a small shipper going to LTL carriers direct, thinking that’s the best way to go, which results in limited to no discounts that larger 3PL and 4PL providers can get you.
Stephen webster
I am seeing a wider cut by some brokers. I am seeing the most small trucking companies and lease ops parking trucks since 2008
Sara Jo Depies
I’m not following the claim of a freight recession. The cost to ship freight has never been higher for our distribution company. We shipped 1 pallet from WI to southern CA and the cost was over $900.00. last yeas it was $600.00 and pre-pandemic, for $350.00. So if there is such an over capacity of space, why are the costs so high?