Article Summary
The trucking industry is experiencing its strongest market rebound in years with spot rates projected to grow 35% year over year, driven by declining capacity and increased freight demand from AI data center construction. However, carriers face ongoing challenges from high operating costs and regulatory enforcement that could limit the industry's recovery potential.
- Spot rates are forecasted to grow 35% year over year, marking one of the strongest upcycles on record for the trucking industry
- Active truck utilization is expected to reach 99% in 2024 before moderating to 97% by 2027, driving elevated freight rates
- Flatbed rates rose for 24 consecutive weeks, largely due to increased demand from AI data center construction projects
- Regulatory enforcement has removed approximately 28,000+ drivers from roads through CDL non-domicile violations and English Language Proficiency enforcement reducing the driver pool for when the market rebounds
- Despite rate recovery, carriers continue battling high diesel prices, insurance premiums, equipment costs, and elevated driver wages from the prolonged freight recession
The economy has been the trucking industry’s top concern over the past three years, but it has yet to be determined if the economy will lose its No. 1 spot on the American Transportation Research Institute’s list of Critical Issues in the Trucking Industry this year.
Operators are finally seeing some relief as market conditions for trucking companies reached their strongest level ever (20.4) in May, according to FTR Transportation Intelligence’s Trucking Conditions Index. That is because of a rise in freight rates following a multiyear slump, with spot rates recently surpassing contract rates for the first time since early 2022.
Rates are very strong and will remain strong, Avery Vise, vice president of trucking for FTR, said during last week’s State of Freight webinar, which explained how a decline in trucking capacity has led to this market rebound.
“The forecast right now for spot rate growth is roughly 35% year over year, excluding fuel (and continued contract rate increases). That's actually stronger than 2021, which was roughly 30%,” Vise said.
This is one of the strongest upcycles on record.
Elevated rates
That is driven by FTR’s volume forecast for active truck utilization, which is the share of all seated Class 8 trucks engaged in hauling freight. Active truck utilization, FTR’s key metric for its rate forecast, is expected to rise to around 99% this year before leveling off around 97% in 2027.
According to the RigDig database, the U.S. carrier population has seen a net loss of more than 50,000 prospects in the last 12 months, even as more than 28,000 verified vehicles came online. RigDig is owned by Fusable, the parent company of CCJ.
“Our current utilization forecast, we do expect that to sort of settle down really pretty soon and moderate,” Vise said, noting that it will moderate at a “pretty high” level.
And rates already appear to be plateauing following this substantial recovery, he added.
The spike in rates has already been attributed to tightening capacity, but Vise attributes it partially to the construction boom surrounding AI data centers. This is highlighted in FTR’s tracking of the all-in weekly broker-posted rate per mile for dry van, refrigerated and flatbed sectors.
Vise noted that dry van and refrigerated spot rates rise and plateau in a “little stair steps” pattern, whereas flatbed rates—more heavily utilized in the construction of these data centers—rose for 24 consecutive weeks before recently leveling off.
This recovery could help carriers rebound after a four-year freight recession, but they continue to battle high operating costs, including diesel prices, insurance premiums, more expensive equipment and elevated driver pay.
“It's not like carriers are going to be doing as well at the peak here as they were doing in 2021,” Vise said.
Capacity shortage and recovery
Though the recovery is positive and much needed, Vise said capacity is still very disrupted, which he thinks is largely setting the stage for all three equipment types. And recovery won’t be easy.
“You can see that there's been a lot of drain in capacity, and I think that's important to keep in mind because one of the discussions that has been going on for the last [six months] is regulatory enforcement,” he said.
He said English Language Proficiency (ELP) enforcement has the potential to make a significant impact on capacity.
The number of drivers put out of service for ELP violations has been roughly 24,000 in the past year. Though not an insignificant number, it is not a market-moving number, Vise noted. But a change to guidance surrounding ELP calls for drivers operating in the border zones to be placed out of service (OOS) if they are traveling to or from other locations in the U.S., which Vise said will contribute to higher OOS rates and tighter capacity.
Additionally, OOS violations for non-domiciled CDLs have grown as California this year began enforcement, quickly becoming No. 2 behind Texas in putting drivers OOS. Transportation Secretary Sean Duffy said back in May that at least 28,000 drivers have been taken off the roads in this instance, but Vise said it can be presumed that there have been tens of thousands more because this has not been a transparent operation.
He noted that these numbers do not take into account drivers who are “self-deporting.” He called it the “deterrence effect,” in which many drivers leave the industry because it is not worth the trouble.
Vise said this—and recruiting resources lagging because of the rate downturn lasting so long—could lead to trouble recovering capacity when the market rebounds enough to demand it.
Including the drug and alcohol clearinghouse, he said this is a bigger issue because undocumented drivers—with very limited exceptions—are not in control of whether they get to remain in the market. Their only option, he added, is to become naturalized, which is not an easy thing to do and something many do not want to do.
“So this is a different situation because it involves drivers who literally have been targeted to not be available for the turnaround,” Vise said. “… If this turns out to be a very strong headwind, along with other things that are going on in terms of chameleon carriers and all those things, then we could look at a situation where we have almost no growth over the next year and a half or so.”
