After a couple years of idling, the truckload marketplace is poised to shift gears. That leads to two questions: What should we expect in 2025, and what took so long?
Like other industries, transportation experiences distinct market cycles. Typically, a complete market cycle in transportation spans around three to five years, navigating through phases of expansion, peak, contraction, and trough. Each cycle is influenced by a number of factors such as macroeconomic conditions, technological advancements, regulations, consumer demand, etc.
Since 2010, the TL industry has seen four distinct cycles of growth followed by a downturn. In the past two cycles, outside events accelerated those shifts. In late 2017, major storms led to rebuilding efforts which then led into the ELD mandate. Those events along with macroeconomic factors tightened capacity, sending rates upward. In 2020, it was the COVID-19 lockdowns. What’s different this time is how long the down market has lasted. So to better understand where we’re going, let’s take a moment to remember how we got here.
This is an excerpt from our annual report, “Freight Focus.” Read it in full in full here.
The COVID-19 impact and market correction
It’s impossible to overstate the disruptions caused by COVID-19. Entire supply chains and transportation networks were upended in countless ways, laying waste to routing guides.
The combination of lockdowns, stimulus spending, shifts in consumer behavior, and a host of other factors led to record-high truckload rates. Those rates attracted a record number of new entrants to this space — the number of for-hire interstate carriers nearly doubled.
The pandemic, while similar to the previous cycles, had higher peaks and lower valleys. During the pandemic freight cycle, the year-over-year change in dry van spot rates peaked at over 50%. None of the previous three cycles exceeded 40%. Similarly, the pandemic cycle bottomed out at below -30% year-over-year spot rates, while the previous cycles were between -10% and -20%.
The duration of the pandemic cycle was also about 6 months longer than the previous three cycles: 42 months versus 48. As with all cycles, the duration of the contracting or deflationary period is slightly longer than the expanding or inflationary period. So the length of this most recent deflationary period is due in part to the height of its peak – it takes longer to come down.
Once the market finally softened, truckload capacity was in oversupply. Given the historic nature of the spike in new carrier entrants, it’s taken a much longer time for supply to find equilibrium with demand. As a result, we’ve seen a historically long inverted market — one where the average spot rates are below average contract rates. At 30 months and counting, the deflationary market has put transportation providers in a squeeze.
Peaks and valleys on the road ahead
The inverted marketplace has been particularly favorable for shippers.
New RFPs saw double-digit percentage rate decreases throughout 2021 and 2022. Shippers have still enjoyed cost savings with spot rates remaining significantly lower than contract rates.
This inverted market is unsustainable for transportation providers, though. The duration of this market trough has been unusually long, as it has taken over a year to begin a notable recovery towards equilibrium. During this period, many carriers were forced to tighten their operations or exit the market entirely due to unsustainably low rates.
That reversal won’t be a linear path, however. Instead, it will involve a series of peaks and valleys shaped by a myriad of influencing factors, from trade policies and consumer confidence to fuel costs and the weather.
