Updated May 8, 2024

As we round out the first half of this year, the freight market continues to remain stable and in shippers’ favor. Consumer spending has recovered from a winter slowdown, and the manufacturing sector has expanded for the first time in 16 months—factors that illuminate a resilient economy. 

However, a market turn is still possible later this year, as spot-to-contract rate spread normalizes and carriers rightsize their headcount. Now is the time to build proactive, data-driven logistics strategies to ensure your team is prepared to address future disruption. Our latest Quarterly Market Update and Outlook Report shares data and insights from our experts around the impacts of leading economic and supply chain trends. In Q2, these include the state of rates and route guide performance in the U.S. truckload sector, capacity constraints in Mexico, and new sustainability policies designed to reduce our industry’s carbon emissions. Read on for a snapshot of what to expect and how to prepare: 

U.S. trucking: While cost and capacity pressures ease, the market could tighten in H2

The truckload market is continuing its journey to supply-demand balance. After the U.S. manufacturing sector grew for the first time in 16 months—with the ISM Manufacturing PMI index rising to 50.3 in March—the demand for truckload recovered following a slowdown in early 2024. 

On the supply side, for-hire trucking carriers added 4,100 jobs in March, the highest increase since June 2022 (excluding the hiring of Yellow’s laid off workers last September). 

The state of spot and contract rates should be of particular interest to shippers, especially as they seek to plan and manage their budgets for the second half of the year. Spot and contract rates fell in February, March, and April; and contract rates, specifically, remained flat and were 14% lower year-over-year. Historically, when contract rates fall, carriers reduce headcount, and eventually shippers could face rising spot rates and lower First Tender Acceptance (FTA) rates. 

Our recommendations:

• To maintain high FTA, build strong, productive relationships at the lane level, as carriers are more likely to accept a tender the longer a rate has been in place, and benchmark your network to pinpoint underpriced or overpriced lanes. 
• Improve visibility by developing a plan to integrate carriers into your preferred method of communication and tracking. For example, Uber Freight’s scheduling API empowers seamless integration between logistics technology platforms and carrier scheduling systems.
  

The latest in Mexico: Carriers seek long-term commitments as capacity tightens

After surpassing China as the lead trading partner for the U.S. last year, Mexico remains a cornerstone of economic progress. The total trade value between both countries reached $745.6 billion in 2023, and 81% of Mexico’s exports were shipped to the U.S. 

There is massive potential for growth and success of cross-border transportation programs this year, but logistics teams must have plans in place to navigate future volatility. Mexico carriers are beginning to experience capacity constraints as shippers increase volumes, and the country is also experiencing a driver shortage, with 56,000 unfilled driver positions—a 9% year-over-year increase. 

Cargo theft also continues to escalate. During January and February, the country reported 1,381 theft incidents. Members of the Mexican Alliance of Carrier Organizations (AMOTAC) responded by holding a national strike on the central federal highways.

Additionally, Mexico continues to capitalize on the benefits of nearshoring. Last quarter,  the Secretary of Economy identified 73  investment announcements, representing $31.5 billion and 39,000 new direct employment over the next two to four years.

Our recommendations:

• As more manufacturing facilities are installed in Mexico due to nearshoring’s growth, capacity will tighten. Prioritize forming long-term commitments with carriers to ensure capacity during high demand periods. 
• To address driver shortages, develop processes to improve their working conditions. Tools like facility ratings technology can help uncover driver frustrations and improvement opportunities. 
• Prioritize fighting cargo theft with fraud prevention solutions including real-time shipment tracking to catch suspicious activity.
  

Sustainable logistics: New policies spark consideration for green solutions

The transportation industry is responsible for as much as 11% of worldwide carbon emissions, emphasizing the need for logistics teams to build greener supply chains. Making sustainable choices not only helps fight climate change, but it can also save your business money and enable your transportation operations to stay ahead of changing sustainability regulations. 

The Biden-Harris Administration in March released the National Zero-Emission Freight Corridor Strategy, which will guide the deployment of zero-emission medium- and heavy-duty electric vehicle (HDEV) charging, along with hydrogen fueling infrastructure from 2024 to 2040. Phase 1 of this strategy will establish priority hubs for HDEV charging and hydrogen refueling along U.S. freight corridors over the next three years, based on freight volume. 

Additionally, the Securities and Exchange Commission (SEC) has introduced new requirements for carbon footprint disclosure. Beginning in 2025, public companies must report Scope 1 and Scope 2 GHG emissions, how they’re addressing climate-related risks, and their climate targets and goals.​

Our recommendations:

• Connect with your logistics partner to figure out if and when electrification makes sense for your business, and how to adopt and deploy HDEVs in the future. 
• Gain better visibility into emissions estimates with tracking technology such as the Uber Freight Emissions Dashboard to help identify your biggest carbon contributors.

These are just a few of the findings from our new report. For a comprehensive outlook of what logistics teams can expect this quarter, including an overview of global supply chain events, see our full Q2 Market Update and Outlook Report.

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April 2024 freight market update: Key insights

Updated April 24, 2024

Both inflation and the labor market seem to be more resilient to the tightest monetary policy seen in decades. Consumer prices in the US have surprised to the upside for three months in a row. The unemployment rate fell to 3.8% in March as the economy added 300K payroll jobs, the highest increase since January 2023 (tied with May 2023). The recent rise in inflation and employment indicate that the Fed is likely to keep the Federal Funds Rate higher for longer. Despite that, freight demand is back to growth mode. Retail sales rebounded in March and manufacturing output expanded for the first time in 16 months. However, the freight market unexpectedly added more capacity in March. For-hire trucking carriers added 5.1K jobs, the highest increase since June 2022, except for September 2023, when carriers rushed to hire YRC’s laid off workers. In addition, the number of new trucking carriers authorized by FMCSA exceeded authority revocations for the first time since March of last year, and the second month only since October 2022.

Impacts and recommendations from the Baltimore’s Key Bridge crash – The Port of Baltimore handled more than $80 billion in international cargo in 2023. It’s the top port for the nation’s farm and construction equipment, and the closest East Coast port to the Midwest. – Prior to the accident, nearly 4,900 trucks passed over the Francis Scott Key bridge per day. – Overall, there will be minimal impacts to container traffic. The majority of volume is being diverted to the port of New York/New Jersey or the port of Virginia. So far, this has generally not caused any major congestion or increase in pricing other than diversion fees charged by carriers for specific Baltimore-designated origins or destinations. Salvage crews have started unloading containers from the Dali, and Unified Command announced they will re-open the main channel by the end of May. – Uber Freight will continue to provide additional visibility in the region, and until the confirmation of the channel opening will continue to reroute shipments to alternate, nearby ports.

Read the detailed report here.

*All data is generated by Uber Freight internal indices using a weighted combination of truck and driver availability for supply, and manufacturing output, goods consumption, imports and exports for demand.

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However, while shippers have enjoyed low spot rates and abundant capacity for the past two years, it’s never too early to prepare for a market turn. First tender acceptance (FTA)—the frequency with which first-awarded carriers accept shipment tenders—should be a KPI of focus. In a market turn, unprepared shippers could face an abrupt decrease in FTA rates, resulting in higher procurement expenses and a degradation in service.

To help logistics teams better prepare for a potentially tighter market this year, our research team at Uber Freight reviewed industry data and our historical network data to conduct predictive and prescriptive research about how the state of the market impacts FTA. Our findings provide insight into how a market shift could impact shippers’ networks, and actionable steps for teams to improve their FTA rates and maintain high-quality service.

Will the market actually turn in 2024?

Economic forecasts initially communicated that the freight market would turn in the last half of 2023. However, as of May 2024, we’re still seeing spot rates bottoming out and routing guide compliance at an all-time high. 

In hindsight, it’s clear that those forecasts underestimated the impact of high profits that trucking firms accumulated during the pandemic. Carrier revenue momentum from the tight market carried over to the past two years, with profits hitting record highs: long-distance trucking firms earned their highest revenue ever in 2022 at $252 million.

Our research tells us a market turn in 2024 is very possible, with the telltale sign being a recent, significant drop in carrier revenue and contract rates. In Q3 of 2023, contract rates dropped 18% year over year. Historically, when contract rates fall, carriers reduce their headcount—and shippers could face skyrocketing spot rates and lower FTAs.

These factors impact FTAs

To maintain a high level of service, shippers must make proactive changes to routing guides and carrier partnerships. We used half a million loads that took place on the Uber Freight network to develop quantitative FTA forecasts under different scenarios, considering a few key variables that are readily available to shippers.

First and foremost, a tight market will cause FTA rates to plummet. When spot rates are high, carriers are more likely to reject tendered loads because they have leverage to weigh the most financially beneficial opportunities when there’s limited capacity. When the market was tight in January 2022, FTA rates averaged 60-70%. The rates gradually increased to more than 90% as the market softened over the next two years.

Rate-to-market, the tendered rate divided by the spot rate on a given lane during the same month, is a key predictor that influences FTA rates: tender acceptance usually increases when the rate-to-market is higher. The rate duration and tender frequency on a given lane also impact FTA, as carriers are more likely to accept tenders from contracts that have been in place for longer and include a higher number of loads.

Scenario planning helps forecast FTA rate changes

The smartest way to prepare for a market turn is to consider how certain realistic scenarios will impact FTA rates. Our team used predictive modeling to forecast three potential outcomes:

1. A scenario where spot rates remain the same for the next 12 months

2. A baseline, probable scenario where spot rates rise by 4% year-over-year over the course of 2024, with larger increases in Q3 and Q4.
3. An inflationary (albeit unlikely) scenario where spot rates rise by 12% year-over-year 

In the flat scenario, the FTA rate consistently remains at 90%. In the base scenario, the FTA drops to 87%. Finally, in the inflationary scenario, the FTA rate plummets to 79%.

Companies that aren’t ready for the baseline and inflationary scenarios could experience a deterioration in service and higher expenses, especially if they have to resort to the spot market to transport their freight. In these scenarios, medium and long hauls will likely be more impacted than short hauls, as their tender acceptance rates will fall at a more drastic pace.

In an inflationary scenario, service levels could fall drastically across all lanes with aggressively priced lanes (those whose rate to market is less than 100% as shown above) being impacted the most (with a 16% decrease in FTA). 

Rates that have been in place for more than six months will experience less of an FTA drop than rate durations of less than six months. 

Strategies to keep FTA high—no matter the market conditions

While the market is soft, it’s vital for shippers to analyze their supply chain vulnerabilities and pinpoint the most beneficial changes to their transportation budgets, routing guide structure, and carrier relationships:

• Price lanes accordingly. Compare your contracted rates to spot rates, and use that information to offer more attractive pricing for lanes at risk of tender rejection. Focus on long hauls, as there will be fewer carriers willing to spend days moving a load at the expense of more profitable opportunities. 
• Budget for involuntary spot volume. If tender rejections increase and routing guide compliance decreases, spot rates will increase—and so will the likelihood of shippers having to resort to the spot market to move their goods. 
• Build productive carrier relationships at the lane level. Carriers are more likely to accept a tender if the rate has been in place for more than six months. Consistently vet carriers and communicate service feedback when necessary. 

Whether the market turns or remains the same in the coming months, start preparing for any scenario today with actionable insights from our tender acceptance whitepaper.

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The cost to operate a truck surged by 21% in 2022, according to the American Transportation Research Institute (ATRI). In a report published in June, ATRI concluded that costs rose above $2.00/mi for the first time, and by a significant margin. The increases were mostly driven by fuel, driver wages, and rising equipment costs. In the truckload sector, the operating cost was $2.15/mi.

This raises an important question: are current spot rates sustainable?

While the cost per mile (CPM) is calculated based on all the miles driven by a carrier, carriers are usually compensated for loaded miles only. Empty miles, also known as deadhead, add to the costs of trucking. Therefore, if we want to compare costs to freight rates, we need to calculate the cost per revenue mile (CPRM).

According to the ATRI survey, 15.4% of the miles driven by fleets were non-revenue generating, or deadhead miles. This implies that the CPRM for truckload carriers was about $2.54/mi in 2022. In comparison, the average dry van spot rate was $2.49/mi in the last quarter of 2022, slightly lower than this CPRM.¹

To make things worse, spot rates continued to decline in the first half of 2023, while operating costs remained elevated. Therefore, the gap between carriers’ costs and revenues increased further to levels unseen even during the 2019 freight recession.

To demonstrate this, we augmented the ATRI findings with data from the Bureau of Labor Statistics (BLS) and Environmental Protection Agency (EPA) in order to calculate the CPRM by month, and compare it to spot rates.²

The current spot market is unprofitable, even to large carriers

We first considered the operating costs of large carriers, which are about 3.3% lower than those of small carriers, according to ATRI ($2.223/mi compared to $2.300/mi). The results indicate that spot rates were $0.29/mi lower than the CRPM in April 2023 ($2.14/mi vs $2.43/mi). These large carriers are still able to make positive margins on contract freight (about 9%). However, these margins are much thinner than where they were a year ago (about 30%).

These results might not apply to all carriers, because the operating costs and rates depend on the average length-of-haul of each carrier. However, they provide directional insights on an aggregate level.

What about smaller carriers?

The current environment is definitely more challenging for smaller carriers. First, the operating costs of these carriers are higher. For example, many do not have access to wholesale diesel prices. In addition, their insurance and maintenance costs are also higher, according to ATRI. More importantly, these carriers might neither have the scale nor capabilities to optimize their operations, and therefore, drive more empty miles. Finally, these carriers are more dependent on the spot market, where rates have fallen more sharply in the past 18 months.

The figure below compares the operating costs of a large carrier to a small one with 30% deadhead in its network. Under these assumptions, the smaller carrier pays about 28% more per revenue mile than a large carrier does. The CPRM of this carrier would also be 46% higher than the current spot rates (including fuel).

What’s next?

Based on the above results, one can only conclude that the current spot rates are not sustainable. Keep in mind that the above costs only include the marginal costs of operating a truck, and therefore, they do not even include the costs of carriers’ facilities, dispatchers, and management, all of which can exacerbate carriers’ already negative margins. 

These negative margins indicate that capacity correction should be underway. Data from the Federal Motor Carrier Safety Administration (FMCSA) show a record number of revocations of trucking operating authorities in the past 8 months. This has resulted in a reduction in the net carrier population by 12.3K carriers. We expect this trend to continue in the coming months, until supply returns to levels that are consistent with the current demand.

What does it mean for carriers and shippers?

Shippers

Many shippers are currently looking to benefit from the depressed spot market. This should be fine, as long as they do not commit to rates that are unsustainable. For example, shippers must be careful not to negotiate contractual rates that are below carriers’ operating costs, because this will put their service levels at risk when the market recovers.

Carriers

Carriers of all sizes must watch their operating costs and empty miles. They can also reduce these expenses with network optimization, and benefit from Uber Freight’s bundles and personalized rankings to cut their deadhead.

With the Uber Freight marketplace, shippers and carriers have the transparency needed to plan and execute around market fluctuations, price loads dynamically, and continuously improve operational efficiencies across supply chains.

¹ According to UF’s analysis of DAT data.

² We estimated the month-over-month change in each cost component using relevant adjustments from the Producer Price Index (PPI) and Consumer Price Index (CPI) of different commodities, drivers’ earnings data, and diesel wholesale and retail prices.

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