Freight demand is likely to be soft for some time, but nascent capacity removal will be key to rebalancing. ACT Research points to slower declines and wider spreads between specialized and dry van rates this year and note that a lot of rebalancing must take place to turn the proverbial ship, according to the latest release of the ACT Research freight and transportation forecast.

“Spot rates are now about 17 percent below truckload fleet operating costs in Q2, worse than the 15 percent operating loss in Q1, by our estimates,” said Tim Denoyer, ACT Research’s Vice President and Senior Analyst.

“Failures started to pick up when the loss reached 10 percent in Q4 2022. This was a record at the time, and we see Newton’s third law of motion at work as the rebalancing requires a string of record losses following record pandemic profits. Q2 is the fourth straight quarter of significant losses, and both the time and magnitude of the losses should send a strong enough signal to tighten capacity.”

He continued, “The pendulum of pricing power has been firmly with shippers for some time, and the cudgel of lower rates is starting to impact capacity. Though new equipment production remains elevated, hiring and fleet exit trends tell us capacity is slowing at the margin. With marginal fleets scrambling for miles with busted budgets, spot rates have gone far below costs, but this can only go on so long.”

Denoyer concluded, “The symbiotic relationship between TL and LTL is informative for understanding the freight cycle: in tight markets, freight flows from TL to LTL, and in loose markets from LTL to TL. The trend change so far this year suggests the industry has passed peak looseness, and a rebalancing has begun. The bottom of the spot rate cycle can’t be far now.”

The monthly 58-page ACT freight forecast provides analysis and forecasts for a broad range of U.S. freight measures, including the Cass Freight Index, Cass Truckload Linehaul Index, and DAT spot and contract rates by trailer type.