As the last Christmas decorations are packed away and New Year's celebrations fade into memory, America's freight market appears to be entering a period of unusual quiet. The pandemic-driven boom has given way to slowing demand, creating uncertainty across all transportation sectors. This analysis examines the current challenges facing the US freight industry and potential "black swan" events that could further disrupt supply chains.
I. Market Slowdown: Declining Demand and Excess Capacity
The US freight market is experiencing a significant cooldown following unprecedented growth during the COVID-19 pandemic. Transportation demand across all modes has declined due to two primary factors:
- Industrial and retail slowdown: The pandemic saw consumers dramatically increase spending on goods, creating a freight demand surge. As consumption patterns normalize, industrial production and retail sales growth have moderated.
- Overcapacity: Companies expanded transportation capacity during the boom—purchasing new trucks, adding shipping routes—but now face excess capacity as demand declines, leading to intensified competition and falling rates.
David Ross, Chief Strategy Officer at Ascent Logistics, describes the outlook as "somewhat murky." Inflation and high interest rates may further slow economic growth, though some analysts suggest the market could bottom out later this year.
II. Sector-by-Sector Analysis
Ocean Shipping
The sector has swung from extreme tightness to significant oversupply. Early pandemic port congestion and container shortages have given way to normalized operations and abundant capacity, causing shipping rates to plummet.
Trucking
Excess capacity plagues the trucking market. While some owner-operators have exited due to unsustainable costs, overall capacity remains high, maintaining competitive pressure.
Less-Than-Truckload (LTL)
The LTL sector faces similar demand and capacity challenges. As LTL typically handles shipments for multiple customers, it's particularly sensitive to economic fluctuations.
Rail
Rail volumes have declined with the economic slowdown, though railroads maintain advantages for long-haul and bulk commodity transportation.
Parcel
Parcel delivery stands as the only sector with relatively tight capacity, as e-commerce demand remains elevated above pre-pandemic levels despite some softening.
III. The UPS Strike Threat
Labor negotiations between UPS and the Teamsters union could significantly impact parcel markets. AFS Logistics and TD Cowen analysis suggests potential consequences differ from the 1997 UPS strike:
- The current market features more carriers and available capacity
- UPS risks permanent loss of business volume if shippers transition to competitors
- Shippers face potential rate increases and delays if they cannot quickly shift volumes
While both parties and the Biden administration have incentives to avoid a strike, wage, benefit and working condition disagreements leave negotiations uncertain.
IV. Yellow Bankruptcy Implications
The potential collapse of America's third-largest LTL carrier could:
- Contract market capacity, allowing competitors to raise rates
- Alter competitive dynamics through asset acquisitions
- Eliminate thousands of jobs with local economic consequences
V. Market Outlook and Strategies
The TD Cowen/AFS Freight Index predicts trucking rates may see their first quarterly increase since early 2022, while LTL and parcel rates could continue declining due to carrier competition.
AFS CEO Tom Nightingale notes shippers retain leverage despite market volatility, even as trucking rates show early signs of stabilization.
Recommended shipper strategies include:
- Monitoring UPS and Yellow developments closely
- Diversifying carrier relationships
- Optimizing transportation networks
- Developing contingency plans
VI. Equipment Market Trends
Despite overall softness, June Class 8 truck orders exceeded expectations at 13,800 units—flat versus May but down 7% year-over-year. FTR data shows 12-month orders totaling 297,800 units, below replacement demand levels.
The used truck market shows cooling, with average May retail prices down 30.9% year-over-year to $68,411, while sales volumes declined 4.9% to 19,300 units (ACT Research).
VII. Knight-Swift's Warning
The nation's largest trucking firm lowered quarterly guidance, anticipating operating margins 11-12 percentage points below 2022 levels. The company cited "softer-than-expected demand" creating pricing pressure while costs remain stable.
VIII. Conclusion
The US freight market faces multiple headwinds—from slowing demand to potential labor and bankruptcy disruptions. As Ross observes, the greatest concerns may be "the things we don't know we don't know"—unforeseen events that could further destabilize supply chains.
IX. Additional Considerations
Macroeconomic conditions, government policies, technological innovation, and geopolitical risks all represent variables that could influence the freight market's trajectory in coming months.