US truckers and trucking companies are warning we’re in the middle of a freight recession worse than the 2008 crisis. As retail sales drop, and both manufacturing and import activity continue to slow down due to lower consumer demand in 2023, the road transportation industry is seeing orders being cut in half, leading to falling cargo volumes all across the country.
The collapse was the word used by one industry CEO to define what just happened to freight rates, and that is putting several trucking companies at serious risk of bankruptcy. But according to Western States Trucking Association, the ongoing downturn in the freight market is only a sign something far more distressing is about to break out in America.
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When the health crisis locked people at home and Americans started to order more goods online, the freight market boomed, and rates shot up by up to 500% in some areas. But things have started to cool off in 2022, and since then, per-mile rates have been plunging at the fastest pace on record.
By November, prices were already nearing pre-pandemic levels. On the other hand, higher maintenance prices, as well as an increase in the cost of capital, and other difficulties in operating have resulted in a brutal mix for a notoriously cyclical industry — one that has the potential to be worse than famous trucking downturns experienced in 2019 and in 2008-09.
Today, instead of a shortage, the freight market is flooded with thousands of small-scale owner-operators and carriers of all sizes. But the threat of a deep recession is now reducing demand for goods, and as a result, cargo volumes are plunging all over the US. On top of that, data provided by Freight Waves shows that the per-mile rate fell to $1.49. At the peak of the boom in 2021, drivers were pulling in as much as $3.01 per mile. This means that freight rates declined by 52% so far, and could go even lower in the months ahead.
This means that there is far less money to be made in the sector. For those who made high investments to be able to enter the industry and profit from the boom, this may be just the beginning of a financial disaster. Since December, thousands of small carriers have revoked their operating authority, and bankruptcies started to arise in the truckload industry.
To make things worse, a recent CNBC supply chain survey that analyzed inventories and warehouse space tracked a decrease in truck movements in and out of the warehouse, revealed that ocean freight orders are down 50% year over year and that will keep impacting both rail and road Transportation in the short and long run, with trucking executives calling it “freight recession.”This along with a 40% decrease in manufacturing orders, are very bad news for the freight market.
The economic recession that is now upon us is going to shake entire industries to the core, millions of layoffs are expected, and economic and financial uncertainty will only grow worse. The crisis that is now unfolding before us will be unlike anything we’ve ever experienced, and the freight market meltdown is just one of the multiple indicators that something is terribly wrong in our system and that the dominoes have already started to fall.
Article and video cross-posted from Epic Economist.