December 2022 freight market summary

• Elevated consumer spending persisted as services spending continued on an upward climb. Combined with retailer inventories finally beginning to decline, demand appears headed toward more typical seasonal patterns.
• Interest rate increases are slowing automobile production and development of single-family homes. While multi-family home starts trended upward, overall materials demand associated with housing and vehicles should continue softening through Q1.
• Diesel prices dropped to lowest levels since early 2021. This eases some of the financial pressures on owner-operators and means excess capacity likely remains prevalent through the beginning of Q2.

What this means for you as 2023 begins

• The Q1 RFP cycle creates an opportunity for best-in-class shippers to review all partners for the value they add and clean their books of non-strategic partners and 3PLs accumulated during the COVID capacity grab. Reducing the number of carriers boosts efficiency (fewer carrier scorecards, updates, reviews, etc.) and helps limit potential liability associated with riskier carriers that worked their way into routing guides.
• Smart shippers are focused on strategic partners who are vested in jointly solving problems and guarding against the illusion of savings through paper rates offered up at this trough of the market. In particular, finding partners who can boost digital capabilities helps hedge against potential productivity declines if headcount reductions become necessary.
• A market tightening is likely coming at some point in Q2. That tightening may come quicker if consumer demand remains elevated and diesel costs rise due to unexpected external events (forcing capacity out of the market). A tightening may come later in the summer if demand falls and if diesel prices go lower.

Freight demand overview

Freight supply overview

More on Freight Market Trends

 Interested in additional freight market insights and trends? To get fully up to speed on macroeconomic trends and their impact on freight, hear what’s top of mind for Fortune 500 shippers, and learn the best planning tips for the peak season, view our 25-minute on-demand webinar.
Watch 2022 Freight Market Update.

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November 2022 freight market summary

• Despite perceived economic headwinds, real consumer spending remains elevated as both goods and services experienced saw upticks from previous months. Spending comes at the continued expense of savings, making it difficult to anticipate how long demand persists. 
• Single family home building fell, although multifamily appears to be relatively unchanged. Combined with a return of automotive production to more typical levels, demand is stronger than previously anticipated.
• Excess capacity (with more on the way based on recent Class 8 truck orders) is still present in the market. While rates may increase slightly during December, the ongoing soft market shows limited sign of changing heading into Q1.

Looking ahead to 2023

• Expect the gap between contracted rates and spot to narrow in early 2023 as shippers reset contracts. Balancing cost and service necessary for weathering any 2023 volatility becomes critical. Best-in-class shippers are contracting static volumes and exploring more elastic solutions for volatile or lower-volume lanes.
• The expected lull in demand cycle presents an opportunity to improve systems and processes. Leaning into data and insights to identify and address bottlenecks / performance issues now can help prevent issues during subsequent freight cycles.
• After a tumultuous past couple of years, shippers get a bit of a mulligan in 2023 for price, cost and capacity. Using this time to modernize supply chains and advance digital adoption allows shippers to enter the future tightening market from a position of strength.

Freight demand

Freight supply

More on Freight Market Trends

 Interested in additional freight market insights and trends? To get fully up to speed on macroeconomic trends and their impact on freight, hear what’s top of mind for Fortune 500 shippers for Q4, and learn the best planning tips for the peak season, view our 25-minute on-demand webinar.
Watch 2022 Freight Market Update.

View our economic commentary disclaimer here.

The post Freight Market Update: A mixed happy and humbug holiday season appeared first on Convoy.

October 2022 freight market summary

• On-going voracious consumer spending helped drive third quarter growth in GDP, with GDP increasing at an annual rate of 2.6%. However, the mix shift in purchases towards services, combined with fluctuating consumer preferences for goods, is resulting in record inventory backlogs for retailers and merchant wholesalers.
• Successive interest rate hikes rapidly depressed home buying and building. Simultaneously, slowing automotive manufacturing and plateauing of oil rig deployment is resulting in lower overall demand outside the retail sector. 
• Market softening persists with the lowest observed tender rejection rates of this freight cycle (rates slipped to 5%) alongside some of the largest spot-contract spread. While some capacity is leaving the market, the early signs point towards lower holiday demand and a continued soft market into Q1.

Freight demand by industry

Consumer retail outlook

• Consumers continue spending at record levels as service purchases reach another new high.

• Expectations on future spending decreased, in part due to (likely unsustainable) historically low savings rates.
• Despite elevated spending, inventory backlogs for retailers and merchant wholesalers set another record.

Food and beverage outlook

• Restaurants and bar spending shows slight softening, although still near historic levels as consumers continue reducing grocery purchases. 

• Interest rate increases are lowering current and future expectations on agricultural business environment.
• The unusually dry fall left two-thirds of the country in moderate or worse drought conditions, putting pressures on late season and winter crop production. 

Industrials outlook

• Current and future business perceptions are predominantly negative and generally continuing a downward trend. 
• Two decade high mortgage rates are depressing interest in housing and rapidly slowing new construction.

• Lagging automotive manufacturing compared with historic levels and slowing deployment of new active rigs for oil production suggest limited demand through end-of-year.

Freight Supply

Labor, fuel, and equipment overview

• Asset carriers now employ a record number of drivers while owner-operators are down 25% from the summer peak, suggesting a driver movement away from self-employment.

• Tractor orders jumped by 30,000 in September, leading to the highest net replacement levels since 2018.
• Trailer production substantially ramped up compared with previous year manufacturing constraints, however prices continue escalating due to inflationary pressures.

More on Freight Market Trends

 Interested in additional freight market insights and trends? To get fully up to speed on macroeconomic trends and their impact on freight, hear what’s top of mind for Fortune 500 shippers for Q4, and learn the best planning tips for the peak season, view our 25-minute on-demand webinar.
Watch Q3 2022 Freight Market Update.

View our economic commentary disclaimer here.

The post Freight Market Update: A holiday humbug begins taking shape early in Q4 appeared first on Convoy.

September 2022 freight market overview

• Overall consumer spending remains near historic highs. However, that spending comes at the expense of savings, which reached lows not seen since the run-up to the 2008 financial crisis. This suggests the spending is becoming unsustainable.
• Continued rising interest rates are impacting home and automotive purchases. There is significant likelihood that softer demand from these sectors lowers demand further. It is possible oil production begins ramping up, though not enough to offset the freight impact of slowing housing and automotive. 
• Owner-operator capacity is leaving the market as elevated diesel prices persist and spot-contract pricing spread widens. With tender rejection rates sitting just below 6%, ample capacity appears present. Barring a major holiday surge, it seems likely the soft market persists through Q4.

Freight demand by industry

Consumer retail outlook

• Overall real spending is still near record levels even as the mix shift continues away from goods and more towards services.

• Elevated spending continues to come at the expense of decreased savings, with rates now near pre-financial crisis lows. 
• Merchant wholesalers and retailers are experiencing record inventory levels as a result of inflationary pressures on spending and changing consumer tastes.

Food and beverage outlook

• Consumers continue biasing spending towards restaurants and bars versus groceries. 

• A downward trend of agribusiness investments suggests interest rate hikes are creating pessimism for current and future conditions.
• Major commodity price declines moderated, although the expansion of severe or greater drought conditions may make this temporary if lower crop yields occur.

Industrials outlook

• Current and future business perceptions are predominantly negative and generally continuing a downward trend. 
• A persistently wide gap between vehicle production and sales points towards the potential for excess inventory within the automotive sector.

• Decade-high interest rates depressed both immediate and 6-month forward-looking housing interest.

Freight Supply

Labor, fuel, and equipment overview

• Owner-operators are moving more aggressively to the sidelines with a 26% decline compared to the July peak (and with a 2% increase for company drivers).

• Owner-operator capacity declines are likely influenced by elevated diesel prices (even as crude spot prices decline).
• Tractor and trailer production are trending lower with tractor orders net replacement still quite negative.

More on the Freight Market Update

 Interested in the full freight market insights and trends? Then catch our 25-minute on-demand webinar, supplemented with our source data and commentary in PDF form for easy sharing with your internal teams.
Watch Q3 2022 Freight Market Update.

View our economic commentary disclaimer here.

The post Freight Market Update: Slowing demand and falling capacity appeared first on Convoy.

August 2022 freight market overview

• Both current consumer spending and future expectations are dropping. Combined with continued lower savings, it seems consumers may be past a financial tipping point and we’ll potentially experience a decrease in holiday season demand.
• Mixed signals exist for consumer appetite on large purchases. Rising interest rates and inflationary pressures dampened both current and future expectations of home purchases. However, auto sales increased and production is back to well above historic averages.
• Tender rejection rates and the spot-contract pricing spread reached new lows. Owner-operators and company operators are leaving the market, though it is unclear if this is a temporary response. This means early signals of holiday spending become critical for understanding if the market pushes even lower.

Freight demand by industry

Consumer retail outlook

• Expected spending decreased for all income groups. Reduced expenditures drove lower total spending on goods and services, potentially signifying broader slowdown in consumer purchases.
• Savings rate has hovered near 5% over last few months, indicating lower spending is not translating into increased savings.
• Manufacturing inventories began inching downward. The decline in manufacturing inventory may be the first sign of an overall decline in goods being created in response to inflation and reduced spending.

Food and beverage outlook

• Consumers cut back even more on food and drink: Consumers appear more cautious in their spending, reducing food and beverage purchases, particularly in grocery stores.
• Commodity prices continue their precipitous decline. Despite widespread drought, commodity prices for wheat and corn fell as some global supplies (e.g., Ukraine) began re-entering the market.
• Persistent drought is affecting agricultural centers. With two-thirds of farming still under severe drought, the persistent megadrought implies some pricing pressure on the horizon due to reduced crop yields.

Industrial outlook

• Current manufacturing perceptions remain mostly negative, although some optimism exists for future conditions.
• Automotive production and sales rebounded slightly, with manufacturing capacity utilization back near historic average.
• Housing demand and interest continue their decline as interest rate hikes continue to cool demand.

Freight Supply

Labor, equipment and fuel outlook

• Market conditions finally hit owner-operator supply. Company drivers, office staff and owner-operators employment all saw declines, suggesting capacity is beginning to leave the market.
• Slowing hourly wage growth and high gas prices likely contributed towards the sidelining of some capacity. 
• Reductions in tractor orders and trailer production suggest companies are hedging against a longer deflationary period.

More on the Freight Market Update

 Interested in the full freight market insights and trends? Then catch our 25-miute on-demand webinar, supplemented with our source data and commentary in PDF form for easy sharing with your internal teams.
Watch Q3 2022 Freight Market Update.

View our economic commentary disclaimer here.

The post Freight Market Update: The summer of spending winds down appeared first on Convoy.