Over-the-road freight is traveling a bit of a rocky highway heading into Q2, with indexes down and an uncertain economic picture under a new administration, but industry executives see hopeful signs of a market turn.
Even with volumes down overall across trucked freight, lower capacity due to massive exits over the past couple of years should help to boost rates slightly, executives hope. And it’s harder than usual for analysts to forecast volumes due to the high degree of market volatility.
Broad Market Trends
Along with lingering inflation, fears related to the new trade war have been impacting freight demand. Manufacturers are leery of increasing production in an uncertain climate. The Purchasing Managers’ Index (PMI) for manufacturing was in positive territory in February at 50.3 for the second consecutive month after more than two years of decline. But it was lower than January’s 50.9 and below the consensus figure of 50.6.
The Cass Freight Index for February was down 5.5% year over year but up 10.5% from January, with analysts there attributing more than half of that change to seasonality. Seasonally adjusted, the Cass index was up 4.7% sequentially, with much of that attributed to pre-tariff activity.
The American Trucking Associations (ATA) is optimistically calling for a 1.6% increase in contract freight volume in 2025 after two years of decline. But this would be difficult to achieve if the trade war with Canada and Mexico drags on and consumer confidence remains low heading into Q2, when construction and nursery/planting demand normally kicks into gear.
FTR Transportation Intelligence told Fleet Owner that an incremental increase in trucking capacity, after two years with thousands of carriers falling out of the market, will lead to modest increases in rates this year. Another positive for carriers: a friendlier regulatory environment with easing of environmental and EV mandates.
LTL Outlook: Soft Demand, Gradually Increasing
A 5.8% increase in the LTL Producer Price Index (PPI) from the Bureau of Labor Statistics was taken by carriers as a positive sign that rates are on the rise. March is seen as a “make or break” month in terms of volume heading into Q2, the Journal of Commerce reports (subscription required).
Signs of growth in industrial output early in the year fueled optimism for LTL carriers, counterbalanced by tariff fears. Industry analysts told Logistics Management that LTL demand in general remains soft, with prospects for improvement in 2025 not particularly strong. Nearshoring and e-commerce have held steady as drivers, but LTL’s bread-and-butter industrial tonnage still isn’t there, and is expected to see a slow recovery.
Among individual carriers, Old Dominion Freight Line CFO Adam Satterfield said in a February analyst call that recovery in industrial freight will be “a multiyear type of story.” XPO said on its quarterly call that its customers expect a gradual increase in demand this year.
Things will shift considerably in July when the new NMFTA freight classification system for LTL takes effect. The emphasis will be on density-based pricing, allowing carriers to more accurately assess profitable loads. Shippers with lighter, bulky freight that quickly cube out trailers will face higher pricing.
Truckload Outlook: Still In Oversupply But Rates Rising
A divergence of spot and contract rates for truckload in February, erasing earlier spot rate gains, does not bode well for demand recovery, Chris Caplice, executive director of the MIT Center for Transportation and Logistics, said during a Commercial Carrier Journal roundtable. Increases in spot rates generally indicate tighter capacity as shippers look to plug gaps in transportation.
According to DAT Freight & Analytics, truckload freight, both spot and contract, is still oversupplied by 8%. This is based on an assessment of carriers still in the market that joined during the pandemic, when the number of companies doubled; most have exited due to lower rates and higher costs.
“This excess capacity is weighing on any gradual recovery in demand, but with demand becoming increasingly uncertain, we believe spot and contract rates will be much the same as the last two years,” said Dean Croke, principal analyst at DAT. “At best, we think a low single-digit rate increase by year end could be a possibility, but even that’s a stretch given the trade war that’s creating so much confusion.”
Among individual carriers, executives at both Werner and RXO pointed to positive movement in both truckload contract and spot rates during investor conferences last month. In particular, Werner said it was having positive conversations with shippers in retail and food & beverage. RXO also cited capacity exiting the market and upward movement in linehaul spot rates as drivers of truckload rate inflation.
The Bottom Line: Slight Rate Bumps, Capacity Holds Steady
With the trade war running hot and trucking volume forecasts cloudy in an uncertain economy, shippers are proceeding cautiously in booking freight. Even with demand down, the capacity exits of 2023 and 2024 have allowed carriers to hold rates steady and consider slight increases.
In this environment, it might be wise for shippers to rebid their freight now, finding LTL and TL providers that provide a good balance of service and price based on their profile. This is an area where an experienced 3PL partner with a large network of generalist and specialist carriers can provide strategic guidance and help you mitigate tariff impacts.
Wicker Park Logistics, a woman-owned logistics company and WBENC Certified Business, has a team of specialists providing dependable transportation services for top firms across industries. Through deep industry expertise, a cloud-based platform, and a consultative approach, Wicker Park helps you find the most efficient transportation based on your budget and service level needs.
We offer on-demand transportation across modes (FTL, LTL, flatbed, hot-shot, reefer, etc.) and end-to-end shipment visibility. To learn how Wicker Park Logistics can help you meet your transportation needs in a disruptive time, get in touch for a quick quote.
