In February of 2023, transportation prices decreased to a six-and-a-half-year record. The Logistics Manager’s index indicated a reading of 36.1 in February, which was lower than the previous low last December. Any indication over 50 means an expansion, and below 50 implies a contradiction. The Cass Freight Index also reported a drop in costs to ship freight with a 9.7% decrease y/y (year-over-year). Similarly, the Cass Freight Index indicated that cargo shipped fell 0.3% y/y. Recent declines in the domestic transportation industry have led to speculation amongst carriers and shippers about what the future holds.
Why are transportation rates declining?
The National Truckload Index reported that linehaul spot rates were 35% lower y/y compared to 2021 through 2022. One of the beliefs is that the decreasing rates are due to a declining amount of freight moved by an overabundance of truckers. In other words, the demand for moving cargo by trucks has decreased in spot markets. There is a belief that the market will return to its normal conditions in the upcoming months. This is because the trucking industry is said to have a buyer-seller dynamic that is rarely in a steady equilibrium. The industry also has its business cycle with two or three-year periods of inflation and deflation. However, the decline may also indicate a potential recession later this year.
Are declining fright volumes a side effect?
Alongside the declining spot rates in the trucking market has been a concurrent decrease in freight volume moved. The DAT Truckload Volume Index (TVI) listed the dry van, reefer, and flatbed TVI from January to February. Both dry van and refrigerated truckloads fell close to 8%, while flatbeds surprisingly were up 7.9%. It is unclear if the decreasing amount of cargo moved is a direct cause of the lowering of transportation rates. The same can be said vice-versa; however, this can also reflect a deceleration in the trucking industry.
Several circumstances have shaken the international and domestic transportation industries in the last few years. The coronavirus pandemic increased the cargo that needed to be shipped, surging the cost of transporting goods. The war in Ukraine led to inflation, raising shipping prices to unprecedented levels. An effect of the surge was that the demand for shipping started to decrease. Recession predictions also lessened shipping demands and reduced costs to what we see today. While the situation may seem negative, it can also indicate something positive. Decreased rates and volumes can mean a return to normality in the trucking industry.
Despite the slowdown of the shipping industry, the need to move goods is still evident. Businesses and shippers continuously need transportation solutions to achieve their goals, like keeping the company going. Employing a broker to transport for you can help streamline the process. This way, you can focus on other aspects of your business while having your shipping covered. With the general cost to move cargo going down, it can be an ideal time to ship goods. Contact A1 Freight Solutions at 786-375-9420 for a quote to begin moving your cargo anywhere domestically today.