As economic uncertainty grows, the freight industry finds itself on the front lines. With a 65% probability of U.S. recession according to Bloomberg analysts, the already strained sector faces new challenges. In a recent interview with Tucker Company Worldwide, Bloomberg analyst Klaskow provided crucial insights into the current freight market landscape and potential paths forward.
Recession Risks and the Current Freight Landscape
Klaskow noted that while any potential recession would likely be mild and short-lived, the freight market is already experiencing its own downturn. Key indicators include sluggish volumes, elevated inventory levels, and challenging year-over-year comparisons. "It's not that current volumes are terrible," Klaskow explained, "but they pale in comparison to the peaks of 2021 and 2022." This stark contrast has significantly impacted overall freight rates.
The trucking sector has been particularly hard hit, with spot rates down approximately 20%. However, Klaskow suggests the spot market may have bottomed out, with limited room for further declines. This outlook stems from an emerging trend of capacity exiting the market.
Market Rebalancing Through Capacity Reduction
Citing data from Werner Enterprises' leadership, Klaskow highlighted that current spot rates sit 13%-17% below independent operators' breakeven costs. This unsustainable environment is accelerating capacity exits, which could ultimately help rebalance supply and demand. The approaching seasonal peaks—including beverage shipping season and the holiday rush—may provide additional support, even in a mild recession.
Klaskow anticipates spot rates could begin recovering in the second half of 2023. This would particularly benefit large publicly traded carriers with strong balance sheets and diversified operations. Many major players have expanded into less volatile segments like freight brokerage or less-than-truckload (LTL) shipping—a strategy exemplified by Knight-Swift's LTL expansion.
Stabilization Ahead: A Return to Normalcy
Looking ahead, Klaskow predicts a more stable spot market could help support contract rates, improving overall trucking conditions. While contract rates may not surge dramatically, modest increases could offset inflationary pressures on labor, insurance, and maintenance costs.
Morgan Stanley data indicates current market conditions largely align with pre-pandemic decade averages, though the extreme volatility of recent years complicates comparisons. The extraordinary profitability of 2021-2022 represents an outlier rather than a new baseline.
Peak Season Outlook: Gradual Improvement
Regarding the 2023 peak season, Klaskow expects a "more normal" pattern compared to 2022's disruptions. While demand growth may be modest, improving inventory management could drive gradual volume increases. "Retailers have been working down inventories for about a year," he noted. "Levels are moving toward equilibrium, though not quite there yet."
The inventory glut stems partly from pandemic-era overordering during supply chain disruptions. "When goods became available, consumers bought aggressively—then demand abruptly slowed, leaving companies overstocked," Klaskow explained. He anticipates inventory normalization could occur in late 2023.
Conclusion: Challenges with Silver Linings
Despite economic headwinds and ongoing freight market pressures, Klaskow's analysis reveals several positive indicators. Capacity reductions may restore market balance, while seasonal demand could provide relief. Large carriers' strategic diversification enhances resilience, and improved inventory management could support volume recovery. While the industry may not revisit 2021's extraordinary conditions, the second half of 2023 could bring welcome stability.