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What goes up, must come back down. The freight industry follows the rules of gravity, or more accurately, supply and demand.
The number of carriers operating in the US—a figure that peaked during the pandemic—is coming back down to Earth because demand from retailers has slowed as they have shored up inventories. Although new fleets are being added across the country in aggregate, new operators declined 17% in April compared to March, according to fleet management company Motive.
- The major caveat is that the industry saw 27% year over year growth in 2021, which was nearly 5x the 10-year average of 5.6%.
The traffic going in and out of distribution facilities is still significantly lower than in the past two years, but this might be a sign that the market is stabilizing, a potentially positive sign for retailers and consumers, Hamish Woodrow, head of strategic analytics at Motive, told Retail Brew.
“The other thing that’s helping a lot is supply chains being more efficient because there’s more capacity in the market,” he said. “It means you can delay decision making.”
The top 50 retailers by revenue had slightly more visits from carriers to their distribution facilities in April compared to the first three months of the year, but that’s typical coming out of Q1—the slowdown after the Q4 holiday rush. What’s not usual is that retailers are not going out of their way to stock inventories, which should continue throughout Q2, according to the report.
- Decreased freight costs have led small businesses to reduce prices 25% while still reaching a 15% increase in margins, according to a Freightos survey of 500 small businesses.
But that doesn’t mean prices and profit margins are about to return to pre-pandemic levels. Woodrow said Q2, particularly during the major sales holidays, will be important in assessing the health and long-term stability of the industry.
“Do we continue to see stability or do we see degradation or improvement?” he said. “How do landmark holidays over the next couple of months give an insight into where the US consumer’s at? I think those will be important, important dates, and then I think that also will set the tone for H2.”
Zoom out: As for the freight industry itself, a contraction in the market means many (smaller) carriers will be squeezed out. Motive reports seeing a net 4,000 decline in the number of carriers per month dating back to October 2022.
- The Owner Operator Independent Drivers Association surveyed 300+ of its members, and more than half (54%) forecasted a negative economic outlook for 2023, pointing to increased fuel costs, inflation, and “a cooling economy.”
“The states that saw the highest growth rate during the ’21–2022 period are the ones that are seeing most carriers leave the market now,” Woodrow said. “We haven’t yet seen the floor, but we’re basically normalizing to probably where we should be as if this spike didn’t happen.”