As we gear up for 2024, the freight market landscape is facing an uncertain time with significant impacts on owner-operators and small fleet managers.
Let’s break down the current scenario, delve into upcoming trends, and explore practical advice for owner-operators and small fleet managers navigating the challenges and opportunities ahead.
Current Freight Market
In November, the outbound tender reject index (OTRI) saw a rebound, a hopeful sign for the spot market, according to a Freightwaves Carrier Update.
However, according to a Journal of Commerce analysis, rates were down 4 cents per mile in November compared to October. What explains these seemingly contradictory data points?
Related: How To Understand The Freight Market
Four areas of interest might shed some light on where things are headed going into 2024:
Over-capacity is correcting, but slowly.
Everyone seems to agree that there are still too many trucks on the road for the amount of freight that needs to be moved in the current market. The problem of over-capacity has two possible solutions:
- Carriers downsize or go out of business, pulling trucks off the road, and/or
- Freight volumes increase to soak up the extra capacity
The current over-capacity is self-correcting as carriers leave the market, but it’s a slow bleed. This is likely due to the immense profit carriers reaped in 2021 and 2022, which help them stay afloat in downturns.
The FMCSA reported that the number of active motor carrier authorities dropped by over 16,000 from December 2022 to September 2023, a 4.5% decline in motor carrier authorities. But the volume of active MCs is still far above where we were in the pre-pandemic market.
Another indicator of the decline in carrier capacity: CH Robinson added 4,900 carriers to its network in Q3 of 2023 compared to 11,100 in the same quarter in 2022.
One area where capacity is not slowing down? Private fleets. Companies like Amazon, Dollar General, and Walmart have reportedly increased their private fleets in recent months. This is likely part of the reason why truck orders remain strong despite freight market conditions.
So what does this mean for owner-operators and small fleets?
Well, you don’t need me to tell you that the conditions for operating your business have become more difficult over the last year.
Things are particularly difficult for those who entered the industry in the last two years or so. You’re likely still paying off equipment, which puts a significant dent in earnings. Carriers with paid-off equipment or older loans with lower interest rates have an advantage in riding out the downturn.
However, the expansion of private fleets bodes well for people putting a pause on their own business to take a company driver position.
Brokers are struggling.
Convoy was the highest-profile broker shutdown, but more are happening every week. Almost 1,500 brokers went out of business between December 2022 and October 2023.
And more brokers shuttering their doors means more invoices going unpaid. That leads to carriers not getting their money in time to pay for expenses and putting their businesses at risk, too.
One way to protect yourself from this growing trend as a carrier is to learn to read brokers’ financial health metrics, including credit ratings and days to pay.
For those factoring with us at Bobtail, the credit rating we provide on brokers gives you a full picture of their financial health and payment history.
The threat of unpaid invoices is a daunting one for small carriers who don’t have the legal or financial resources to pursue long collections battles.
The factoring team at Bobtail works tirelessly every day to collect on outstanding invoices, often following up dozens of times until payment is made. This allows carriers to spend more time and attention on getting better rates, delivering more loads, and building relationships with customers.
Fraud is rampant.
Here is another trend that will continue to haunt carriers going into 2024. Fraud has been an increasingly damaging issue for everyone in the freight industry.
Not only does it lead to devastating losses for carriers, but it also damages the working relationships between carriers, brokers, and shippers.
It poses a particular challenge for newer carriers who are both more likely to be targeted by fraudsters and least likely to be trusted by brokers and shippers. Those with fewer than 2 years of experience on their MCs face high insurance costs and low levels of trust from customers.
In a loose market like we have today, brokers can be more selective about who they work with. Insurance companies can choose their customers more carefully, raising the barrier of entry.
This makes it even more important to legitimize and professionalize your trucking operation, no matter the size. Taking measures to ensure your customers’ peace of mind needs to be a priority. And it doesn’t take a ton of money or resources to do it.
Here are some things carriers can do to demonstrate their legitimacy:
- Prepare a stellar carrier packet and provide documentation proactively to brokers.
- Buy a corporate email and website domain
- Create a simple website with essential information about your business
- Get your VINs listed on your Certificates of Insurance
- Get a physical business address (no PO boxes or virtual offices)
Other economic indicators.
The trucking industry does not operate in a silo. Larger economic forces are at play!
For example, an uptick in imports arriving to the West Coast will mean busier ports and more demand for trucks to bring that freight to distribution centers.
Consumer spending trends also impact the outlook for trucking. 2024 trends include a focus on experiences and well-being, contrasting with the lockdown-induced consumer spending on physical goods. Despite this, retail sales and inventory are predicted to grow as inflation comes down, according to an Economist Intelligence report.
The construction industry can also be an indicator of the freight industry. Things are generally looking good for construction due to funds expected from new legislation passed in 2021 and 2022, according to an article by Deloitte.
Construction industry leaders are hopeful that new infrastructure for transportation, clean energy, and manufacturing will give them a boost in 2024. This bodes well for trucking, particularly for carriers specializing in oversized loads and experienced in hauling construction materials.
Other indicators include the PMI, a measure of domestic manufacturing. Unfortunately, the PMI in November 2023 was 46.7, meaning a contraction in the industry for the 13th month in a row.
Can we expect a rebound next Spring?
A recovery of the freight market will happen, but the question is, “When?”
According to an article in the Journal of Commerce, shippers are being urged to lock in rates in Q1 2024 because brokers say rates will be on the rise starting in March. If this plays out, it could push shippers to use the spot market, raising rates.
Some industry leaders are convinced we will see an uptick in rates as early as Q1, while others have a more conservative outlook.
Historically, seasonal trends would point to a slow start to the year. Q1 is usually the lowest part of the year for trucking and there doesn’t seem to be much evidence to contradict that for 2024.
What can small carriers do to prepare for 2024?
If you’re wondering why there are so many contradictory indicators for the freight market right now, a quote from Jason Miller, professor of logistics at Michigan State University and Journal of Commerce analyst might help: “It comes down to the fact that conditions in trucking are not universally as bad overall from a pure demand standpoint and pricing standpoint as folks have conveyed.”
Basically, just because trucking in general is bad right now doesn’t mean it’s bad for everyone.
Yes, it is important to follow along with the news of your industry and the overall economy. More information is better.
But it’s all about what you do in response to these conditions that will make or break your business. Carriers that focus on factors within their control have a much better chance of making it through the freight recession and reaping the rewards of future upturns.
These factors include financial discipline, relationships with customers, implementing technology to streamline operations, and legitimizing their business.
If you’re looking for specific ways to take your trucking business in a different direction, here are some ideas:
- Negotiate with service providers. If you’re proven to be a reliable customer, you may have some leverage to ask for better conditions or prices with dispatchers and insurance brokers, especially if you have a couple of years under your belt as a business owner.
- Learn to dispatch yourself. Dispatching services can be valuable, but they charge a significant portion of your revenue. Booking loads is your primary source of income and therefore a dangerous thing to outsource exclusively.
- Consider specialization. Hazmat haulers, oversized hauling, flatbeds, and reefers tend to be more resilient businesses in downtimes. You might consider getting an additional endorsement on your CDL or paying for your drivers to do so.
More generally, if you’re not already doing these things, here are some actions you should be taking.
- Know your cost per mile. Knowing your numbers is the first step to improving them.
- Foster relationships with customers—send them a handwritten holiday card.
- Explore load management tools that can give you a competitive edge.
- Focus on professionalizing your business to attract the right customers.
- Get control of your cash flow with a reliable factoring company. (Contact us for more information!)
- Take opportunities to learn: join our Facebook group, stay tuned for more events, and subscribe to our newsletter.