Rates end 2022 on a high note, signaling 'bottoming process' underway

Truckload spot rates saw their first significant upswing in the past year from late November into early January, tightening the gap between spot and contract rates.

While market conditions remain broadly loose, there are increasing signs of slowing supply – "key to the bottoming process," said Tim Denoyer, ACT Research vice president and senior analyst.

Slowing supply is key for the U.S. truckload market to transition from the late-cycle stage experienced in 2022 to the cycle-bottom phase, which Denoyer said features a thinning of marginal capacity amid lower rates, preceding an early-cycle market tightening. “Because rates are now far below costs in some cases, the market may experience both the cycle-bottom and early-cycle phases in 2023," he added. 

FTR Vice President of Trucking Avery Vise expects truck utilization rates to drop in lock-step with the economy. The 10-year average for truck use is around 91%, but the market is already below that mark, FTR says, and it’s expected to keep falling to around 86% by late third quarter of this year.

Rates rang in the new year stronger than their exit. The average broker-to-carrier rates based on contributed transaction data through Jan. 9 show van rates at $2.51 a mile, 11 cents higher than the average in December; reefer at $2.95 a mile, 14 cents higher than December; and flatbed at $2.79 a mile, 5 cents higher than December, according to DAT.

The total number of loads on the DAT One network increased by 14% to 2.2 million loads the week of Jan. 1-7, and the posting total exceeded 2 million for the first time since the week after Thanksgiving.

Data from Truckstop and FTR Transportation Intelligence show that the final two weeks of 2022 saw a large increase in broker-posted van segment rates, as usually happens in late December, and the first week of January saw a notable drop in rates as it usually does. Even so, dry van and refrigerated rates started 2023 well above pre-holiday levels. Further moderation in January would be the norm absent a disruption, such as extreme and widespread winter weather, according to FTR. Flatbed rates are basically where they sat before the holidays after declines in the latest two weeks.

Spot volume also largely followed seasonal expectations with a large rebound. Although refrigerated volume eased somewhat, it continued to rise through the holidays unlike dry van and flatbed. Although flatbed load activity is running far below comparable 2022 and five-year average levels, volume in the week ending Jan. 6 was the strongest since early November.

Truck postings rose for the first time in five weeks but were outpaced by the gain in volume. The Market Demand Index increased to 89.3, which is the strongest level since June.

In its latest release of the North American Commercial Vehicle OUTLOOK, ACT Research reported moderating core personal consumption expenditures (PCE), slowing jobs growth and decelerating wage inflation indicate the Fed’s campaign to bring inflation under control may be bearing fruit, and the need for further interest rate increases may be limited.

Yet the critical factor in forecasting 2023, according to ACT President and Senior Analyst Kenny Vieth, is "identifying the point at which lower freight volumes and rates, coupled with higher borrowing costs, compress carrier profits sufficiently to end the cycle."

"Our current thinking is the negatives begin to weigh on [truck and trailer] orders as soon as (the first half of this year), and more meaningfully by (the back half of this year)," Vieth added. "However, with healthy backlogs, early 2023 carrier profitability strength, and the potential for a CARB-induced pre-buy in California, there is a compelling case to be made for production volumes to be sustained at end-of-2022 levels through all of 2023.”