Due to weaker sales and still bloated inventories, freight volume remains slow ahead of peak.
Key Takeaways
- The holiday season won’t peak for freight operators. Several factors contribute to a depressed freight market
- -17.7% YoY peak season van spot rate drop
- -17.5% YoY peak season flatbed spot rate drop
- -14.0% YoY peak season reefer spot rate drop
The freight industry's pandemic boom is long gone. According to Load Star, volumes declined so much that many expect a slow peak season.
Freight volumes traditionally peak from August to September as brands ramp up for holiday shopping.
But, the typical peak freight surge softened last year, according to the Wall Street Journal, and signs indicate a similar situation lies ahead.
Slow peak season reasons #
Despite several positive macroeconomic signs, freight will experience a muted peak season.
Ocean import volume declines
#
Ocean freight remains at historically low levels, per Freight Waves. Retailers created an inventory bullwhip effect with leftover pandemic stock. As a result, according to the Wall Street Journal, imports slowed and volume expectations remain low.
Excess inventory and right-sizing efforts #
Brands continue to reduce excess inventories, which tempers seasonal volume. Many still hold pandemic-era inventory gluts and don't need to add peak season inventory. Because of this trend, far less volume moved across supply chains, per Intek Freight.
The state of freight #
According to the Wall Street Journal, freight operators brace for a weak peak season. "There's no peak season to be expected in 2023," said Stefan Paul, CEO of Kuehne + Nagel International.
Due to the sustained low volume, shippers spent 2023 locking in low-rate freight contracts. Every mode's rates are down substantially in YoY comparisons, per DAT.
Diversified freight industry leads to longer recovery #
The freight industry is amid a sustained downturn since the pandemic boom. One reason may be due to industry competition. New operators can enter the market more easily than in other sectors and did so in record numbers to match pandemic-era demand, according to industry statistics.
Following recent volume drop-offs, many freight companies closed or consolidated.
LTL market challenges
#
Yellow Corp., one of the nation's largest freight providers, halted its operations and will file for bankruptcy— the largest in trucking history, according to USA Today. The closure affects 30,000 employees. While it may help add more drivers to the labor pool, it could normalize supply heading into peak season, driving up rates.
Future of freight #
Despite a likely underwhelming peak season, freight is poised for a turnaround, per Freight Waves. And freight operators have reasons to be optimistic.
Consumer sentiment rebounds #
According to the University of Michigan, consumer sentiment reached its second-highest rate in 21 months, jumping 19.4% YoY. It's now 39% above historic lows. This improvement will increase spending across the economy and add freight market volume.
Reshoring/nearshoring picks up #
Pandemic supply chain dislocation forced many to reconsider their reliance on international production. And ongoing tensions between the US and China intensify it even more, prompting many manufacturers to relocate factories to North America. The new domestic facility construction effort adds substantial volume to the freight market, per Food Logistics.
Federal Reserve cuts interest rates
#
According to Morning Star, after several years of rate hikes, the Federal Reserve is poised to lower rates in 2024. When interest rates are high, consumer spending decreases. As Q1 2024 begins, expect lower rates and more consumer spending, which adds freight volume.
What it means for peak season
#
While freight may rebound next year, leading brands take advantage of lower rates now, per Yahoo News. Locking in contracts can reduce peak season costs and create more revenue opportunities for shippers.
