The freight industry has had a turbulent year, with notable shifts and various market forces shaping its performance. The trucking industry, in particular, has largely remained stagnant, continuing its lukewarm fortunes from the first half of the year, thanks to a persistent weakness in domestic manufacturing.
Before the International Longshoremen's Association for the (short-lived)“ILA” strike, which impacted East and Gulf Coast ports for three days, shippers had been frontloading their inventories because it was clear the strike was inevitable since negotiations had stalled. Shippers began expecting the strike to commence on Oct. 1, even if uncertain about its length, so they began reacting in advance.
This led to an import spike in Q3. The country saw record imports in July, higher than all years from 2019 (except 2021, which was an anomaly due to extremely high demand). Shippers diverting away from the US East Coast region led to the West Coast ports witnessing a massive year-over-year increase in volumes. However, all of these failed to translate into increasing freight costs in the trucking market, as available capacity largely accounted for the increased import volumes.
As we head into the next quarter, it is essential to review what made Q3 good or bad for various stakeholders; that way, we can gain valuable insights that could impact Q4 and reliably predict what lies ahead.
Q3 Freight Market Recap
The third quarter of 2024 saw mixed results across the freight market. Key metrics like freight volumes and rates showed fluctuations influenced by various factors, such as inflationary pressure on businesses forcing them to increase prices, and changing consumer behavior, which led to discretionary spending plateauing. Consumers are more conscious of spending, especially in certain verticals like eating out and home furnishing.
This shift in inflation and spending had little impact on the freight market. For starters, the demand for freight services remained relatively stable because of the available capacity on the supply side, which helped diffuse any pressure on rates. So, despite an 18% increase in freight volumes (propelled by increased air cargo demand), it was still less than shipping capacity. This has resulted in freight rates remaining relatively flat, though some sectors like shipping and FTL trucking saw pricing declines due to softened demand.
Trucking capacity has steadily declined, with over 10,000 trucking companies exiting the industry in the first half of 2024. Rising operational costs — driven by increased driver wages, unpredictable fuel prices, and other carrier expenses — have placed significant pressure on businesses, pushing many out of the market. This challenging environment hits owner-operators and small trucking firms particularly hard, as high expenses and shrinking margins make it increasingly difficult for them to remain competitive.
Industry-Specific Highlights
Amid the holiday season preparations, the retail sector expects to see freight demand increase to 4.8% this year, up from 3.9% last year. The last few years following the pandemic have seen low-to-decent upticks during the holiday season. With the rising inventory levels, there have been some inconsistencies in demand, with certain categories seeing stronger freight needs than others.
In the manufacturing industry, freight remained strong, though inhibited by ongoing supply chain bottlenecks such as trade wars with China and increasing geopolitical tensions, which have also impacted shipping routes and operations. The sector faced issues with raw material availability and labor shortages, limiting its contribution to freight growth.
Demand for agricultural freight increased in late Q3, driven by harvest season and strong export activity, but logistics bottlenecks (especially in rail and trucking) constrained the sector's overall performance.
Produce season usually runs till the middle of summer, so Q4 2024 will likely not see an uptick in agriculture freight. However, the refrigerated transport segment will continue seeing good demand from the CPG segment, which will see an uptick during the peak demand season.
Notable Challenges
Q3 was not without challenges for the freight industry as supply chain bottlenecks and disruptions spurred by global conflict, trade wars, natural disasters, and labor shortages continued to permeate across various markets, which also crippled operations in major transportation hubs. Failure on the part of the USMX to resolve labor disputes with the ILA also led many supply chains operating in the East and Gulf Coasts to divert their operations to the West Coast. In contrast, others temporarily halted them during the strike, therefore negatively impacting the industry.
Positive Trends
It wasn't all bad news for the industry, though. Due to the challenges, more stakeholders, especially carriers, began drifting to tech solutions, allowing them to optimize routes and reduce inefficiencies throughout the transportation process. Leveraging automation and data-driven strategies also helped drive quicker recovery from earlier challenges such as trade wars, port congestion in parts of Asia and Europe, and the Red Sea challenges that have led to major supply chain disruptions.
Key Factors Impacting Q4 Predictions
Inflation, interest rates, and fear of a recession have been a major consumer concern in the freight market for much of the year, impacting spending trends. So far, it looks like freight prices in Q4 will continue in the same trend of Q3. That said, freight volumes will likely see an increase, thanks to peak season demand. There can be a stabilization of demand in other sectors, such as manufacturing and construction, towards the end of the year leading to 2025.
The upcoming holiday season will undoubtedly drive demand. Sales typically ramp up when major holidays are around the corner, but experts believe the increase will be nowhere near as much as the market is accustomed to as consumers are forced to make hard choices.
Ongoing Challenges
Higher operational costs coupled with stricter regulations, especially in driver safety and sustainability, pose a challenge to the trucking industry. Carriers are still grappling with tighter margins even though there have been some improvements towards the end of Q3.
Although increased seasonal demands during the peak season should help, the difference is expected to be little and will only last for a short while. This was also the case with the impact of hurricanes Helene and Milton, which did not cause a noticeable difference in freight costs despite the disruptions.
Q4 Freight Market Outlook
Freight volumes in Q4 are expected to experience a modest uptick of up to 1% compared to previous years, driven largely by retail demand for the holiday season. However, broader economic uncertainty may temper this growth. Manufacturing and agriculture are expected to remain steady contributors to freight demand, though ongoing supply chain issues like growing independence of raw materials from China (amid trade wars) and environmental sustainability or regulatory challenges could limit their potential.
Capacity Expectations
Capacity constraints will become a pressing issue especially in trucking as we go deeper into the holiday season and retailers scramble to stock up for increased demands this holiday season. Bankrupted LTL giant Yellow selling off its remaining terminals would help LTL carriers mitigate the capacity issue. Labor shortages and rising operating costs will continue to impact carrier operations, while larger operators will be able to weather the storm of rising demands for the most part.
Rate Projections
Although the holiday season is expected to generate enough demand to drive up prices, the difference will be slight. As mentioned earlier, such rate increases could only last as long as the season persists before crashing back down. However, considering the tangible number of carriers that exited the marketplace all through 2024, the balance between freight demand and available capacity will play a significant role in determining what direction the rates will go.
Technological and Operational Shifts
As technology evolves, more carriers will likely invest in automation and digital platforms to optimize their operations in Q4. This could lead to further improvements in efficiency, especially in areas like load matching, route optimization, and the ongoing demand for real-time tracking solutions.
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