The year 2023 is officially wrapped up and another year is looming before us. This last year was not easy for anyone in freight, but we made it through. To no one’s surprise, 2023 has gone down as the worst freight recession in history. As such, it seems fitting that we should turn back the pages and recap what has happened as a tribute to 2023.

If you are like many people, you may have started off 2023 in denial. Peak of 2022 was disappointing, with little volatility compared to normal seasonality. But maybe you believed things would turn around. Q2, or more conservatively Q3, was the average prediction for a recovery. Unfortunately, that was not the case. Though by now some indicators certainly point to the hopes of recovery, there is still a long way to go before the end. If the freight recession is a valley, we are still 400 feet below sea level.

Setting the Scene

After a dramatic spike in demand for carrier capacity in 2020 as producers rushed to restock to meet demands after a sudden crash in productivity, we are now seeing the natural end to this artificial boom in demand: a return to the mean. We cannot fully understand the environment of 2023 without first understanding what happened the three years prior.

In 2020 we saw an artificial snap in productivity which caused inventories to drop by a cumulative 5.3% from February to May of 2020, as the infamous “supply chain disruptions” rippled throughout the global economy. As a response to the COVID pandemic, the treasury handed out trillions of dollars through the CARES act and later the Rescue Plan Act, a combined $4.1 trillion dollars.

These artificial disruptions were the powder keg responsible for the freight recession today.

In Mid-2020 the nation slowly reopened, and productivity returned to the economy. From the supply side, inventories were depleted from the lack of production. On the demand side there were trillions of dollars in cheap money freshly injected into the economy. Demand exploded driving up sales and inflation into the stratosphere. With this surge in demand came a surge in freight volumes across modes, as well as a demand for carriers to fulfill them. Capacity was stretched thin by demand causing rates to surge.

This cheap money had to go somewhere. Americans certainly weren’t going to save, especially with historically low interest rates. In March of 2020 the Federal Reserve cut rates by -150 bps hitting a record low of 0-0.25%, a rate not seen since the recession of ’08. It was not until March of ’22 that the Fed would finally begin rate hikes, beginning a long steady trend of hikes throughout the next two years.

Through ‘20 and ’21 the Fed funds rate stayed at 0, allowing interest rates to drop, which encouraged debt spending. That, mixed with cash injections through the CARES and Rescue Plan Acts, made money cheap which temporarily greased the economy’s wheels.

However, when money is cheap and spending velocity is high, inflation is going to creep as more available dollars contributes to a higher level of demand, leading to rising prices. This is exactly what happened, and the rate of inflation from March ’20 to March ’22 was about 11%.

With freight volumes high and rates climbing, the allure of capitalization grows as the profit potential grows. There was cash to be made, and carriers were jumping at the opportunity to throw their hat in the ring. By the end of 2020 new truck orders had ballooned by 58% as fleets expanded their operations and new carriers came on the scene to make money. In mid-21 the net increase in trucking authorities hit an all-time high with thousands of entrants into the sector. Cash was flowing, rates were high, and profitability was headed to the moon.

What Goes Up…

With high demand driven by free money came surging prices for just about everything. According to the CPI, the dollar lost roughly 14% of its buying power from January 2020 through January 2023. With costs climbing and cheap money disappearing as the Federal Reserve began to hike rates, consumers began to cut unnecessary spending. Orders decreased, spurred by this fall in demand. Lower demand mixed with greater carrier capacity caused a stagnation in rates, and by 2H of 2022, SONAR’s National Truckload Index (or NTI) was hovering at around the $2.80 per-mile mark.

By July of 2022 truckload volumes had dropped by as much as 21% from the highest point in 2021 in mid-September, and by December 2022 volumes fell another 17% from July. As volumes begin to decrease, demand for transportation capacity also decreased. Savvy shippers saw the tides turning and pushed spot rates down. The tables had turned, and shippers now wielded the negotiating power in the market as carriers fought over available loads. Rates slumped as we entered the softest market since 2019. The NTI hit as low as $2.58, down from $2.98 at the beginning of 2022.

While some thought that the market would shed a few MCs and return to normal by peak season, it did not. Q4 of 2022 was very soft, with SONAR’s Outbound Tender Rejection Index (or OTRI) hitting the lowest level since mid-2020, showing a dramatic decrease of about 79% year-over-year in December. 2022 came to a close with a freight recession in full swing, but outlooks were still optimistic for 2023.

January: New Year, New Market?

Following New Years, the beginning of January experienced the seasonal squeeze in capacity causing rates to jump from $2.50 in mid-November to a high of $2.82 during the New Years squeeze according to SONAR’s NTI. The elevated rates would not last long, however, as carrier capacity came back online and began scooping up every bit of spare volume possible.

The OTRI dropped from 5.77% on the 1^st to 3.78% by the end of the month. While volumes jumped higher month-over-month it was evident that there was over-saturation of carrier capacity in the market; something that must give way before the freight recession would be over. While truckload volumes would slowly build momentum through the year, this overcapacity pushed rates low as carriers fought for volumes. Over the next five months the NTI washed every cent-per-mile gain in a steady crash from January to the lowest point in May.

Future outlooks were diminished, and companies were starting to feel the cash burn. Amazon saw consumer sentiments drop and announced a reduction of 18,000 jobs. Flexport also trimmed off 20% of their workforce in order to align with volume projections. Uber Freight also saw falling volumes and indicators of a lasting freight recession and laid off 150 employees. These were the first of the bloody ’23, with layoffs, bankruptcies and closures that would define the year.

February Falls

New Years was officially over and with it came a seasonal drop in freight rates. Over the course of the next month the NTI dropped 15% from the New-Years high to a $2.39 level by the end of the month. In February DAT reported a 2.5 Load-To-Truck ratio, which was down from 13.7 year-over-year. Despite the slump, there remained some general optimism around the market concerning volume trends.

Hope was lingering in the air, though, as it seemed there would be a shift toward inventory replenishment at the back half of the year and spot rates seemed to have found the floor. A time frame was thrown around for a recovery around the second half of ’23, or earlier, as some pointed to seasonal trends and a decline of carrier capacity. In the LMI release for February, those surveyed expected growth across the board for the coming 12 months. Unfortunately, those predictions would fall short by the end of the year.

The general optimism did not stop the continuing trend of layoffs among 3PL Freight Brokerages as they began shedding their labor force. Most notably both C.H. Robinson and Coyote Logistics had headcount reductions in February. Convoy too showed early signs of decay, announcing that they were closing their office in Atlanta. FedEx cut its workforce as well, with 12,000 jobs cuts in total since June 2022. In total the transportation and warehousing sector shed 22,800 jobs month-over-month, 5,100 of which were in trucking (seasonally adjusted). Amid all of this turmoil, a hopeful outlook was welcome.

Marching Toward the Floor

With March came free-falling rates. According to DAT the load-to-truck ratio was at a historical low at 2.0 for March, down even further from February. OTVI actually jumped in March, though volumes were significantly lower on a year-over-year basis, with the OTVI posting a drop of 22% since 2022 levels. Meanwhile tender rejections remained unsurprisingly low as carriers accepted as much volume as they could to keep units rolling.

Total business sales showed signs of contraction while inventory levels remained high from the prior restocking frenzy. According to FRED, the total Inventory-to-Sales ratio was 1.41 for March ‘23, up from 1.37 in February and 1.25 in March ’22, a yearly increase of 12%, meaning that there was a long road of de-stocking before it would be time to replenish inventories.

The recession continued to force job cuts, as several firms announced layoffs in March, including Truckstop.com and Ceva Logistics. Meanwhile carriers Flagship Transport LLC and FreightWorks Transport LLC shuttered entirely.

April Showers

April continued the trend of general softness in the market. Volumes remained somewhat flat, while rejection rates dropped even further to 2.86% overall. With how little volume there was relative to the past two years, carriers had no choice but to take what they could at contract rates, and the spread between spot and contract widened. With demand slowing and contract load acceptance gaining, spot rates continued to tumble.

Meanwhile Ocean freight activity had also showed signs of trouble. The congestion at the ports caused by soaring import volumes the prior year had cleared up due to lack of inbound units, especially on the West Coast. Shockingly, FreightWaves reported that rates from China to the U.S. were down as much as 99.9% year-over-year. It was safe to say that the boom in ocean rates from 2021 was over.

As the freight recession continued, carriers showed up battered and bruised to earnings calls, citing lower freight demands, lack of imports and overcapacity in the market. C.H. Robinson reported a decline of 24.7% in gross profits for Q1. Despite all of the bad news over the past few months there still remained optimism that rates had bottomed out and inventories would be depleted, leading to an upcycle by the end of the year.

No May Flowers

The first half of May was more of the same. The NTI continued to drop steadily as volumes remained stagnant and orders flat-lined. In May ’23 the Inventory-to-Sales ratio was 1.40, up from 1.30 in ’22 and 1.24 in ’21. May saw the absolute bottom in freight rates, and the NTI hit a low of $2.13 per mile toward the middle of the month. Even so, volumes did grow meagerly through May, experiencing a little jump toward the end of the month with the Memorial Day push. The Holiday mixed with DOT Blitz week caused rates to jump back up to $2.25. The floor was found, and the NTI would not drop below the $2.23 level through the remainder of the year. Despite hopeful signals, both trucking and ocean shipping continued to experience pain.

In keeping with the thesis of this article, much of the fault for the freight recession of ‘22-23 can be lain on the anomalous activity spurred by the COVID lockdowns and the artificial expenditures spurred by monetary stimulus. When comparing to pre-COVID levels we see that volumes are actually above historical numbers, confirming that this freight recession is heavily influenced by a surplus of capacity, mixed with a snap of demand from an artificially inflated level.

That snap kept claiming victims, though, as brokers and trucking companies were being rattled. Uber Freight revealed an EBITDA of negative $23 million, citing weak market conditions. A small freight brokerage in Chattanooga, Lipsey Logistics, cut 20-some jobs. C.H. Robinson also laid off more employees, numbering about 300. Carrier U.S. Xpress also announced continued losses and laid off 150 employees. While the worst may have been behind us in terms of rates, there was still a long way to go before normalcy could return to the market.

We Don’t Talk About June-o

Q2 wound down with carriers reeling. The quiet spring season left rates depressed, meanwhile operating costs were increasing. Q2 earnings for many large carriers fell short of expectations as the freight recession ran deeper than was previously expected. Volumes for June trended downward following the Memorial Day weekend with only a slight bump as shippers pushed to move freight prior to the July 4^th holiday.

The NTI peaked following Memorial Day but lost steam as the month slowed. Rates dropped about 2 cents on the mile through the course of the month, from ~$2.25 to ~$2.23, only to jump back up prior to Independence Day.

The wave of bankruptcies and layoffs continued, as small brokerage, Transplus, ceased operations and CloudTrucks, a Tech-based carrier laid off 40% of its workers.

Predictions for a 2H recovery may have been founded after all, as retail expenditure steadily climbed throughout the second half of the year. From March to June retail sales increased by 1.08% percent (seasonally adjusted) and would gain another 2.05% from June to September. Not to be outdone, Manufacturing sales were on a steady climb as well heading toward September.

It looked like the American consumer was boasting an astounding resilience. Demand was strengthening and would push volumes upward down the back half of the year, but rates were left with little change due to the high level of carrier capacity in the market.

This strong consumer may not have been so strong, however, as credit card delinquencies rose at an alarming pace, showing a yearly increase of 50.54%. With rising interest rates, Personal interest payments had increased by 66.49%. To put it mildly, the increase in consumer expenditure was driven mostly by debt spending. Not only that, but much of the nominal growth in sales was largely due to inflation rather than any real economic growth. When the value is adjusted for inflation we see an indication of contraction from March ’22 to date (-8.33%). American consumers are indeed spending more in nominal dollars, however, they are getting less bang-for-buck in return.

July Fireworks Fizzle Out

Following Independence Day volumes surged to make up for the holiday. Shippers worked to burn off excess inventory levels, with a less-than-favorable outlook toward restocking. The Inventory-to-Sales ratio came in at 1.39, a month-over-month drop of 1.41%. The LMI posted a value of 41.9 for Inventory Levels, the lowest since the index inception. Signs were pointing to a return to JIT inventory planning. While sales indeed appeared to pick up steam toward the second half of the year, it was a slow burn.

In July, FreightWaves reported that CPG companies Conagra and General Mills experienced volume decreases as American consumers were getting pickier with their purchases. Food and Beverage, which are historically resilient in recessions were experiencing pain points. Meanwhile Box shipment demand showed a significant slip from Q2.

While capacity remained remarkably resilient, the trend of carrier exits continued. In one of the biggest stories of ’23, Yellow Corp. announced they were ceasing operations, one of the largest companies to fail year-to-date. Uber Freight’s woes were not over, and they laid off 50 more employees as they continued to report negative EBITDA.

August: They Had Us in the First Half

While July was a bummer following the holiday, August hopes budded as tender volumes grew through the end of the month. Albeit at a slow rate, the rate of growth was positive compared to 2022 levels and followed the general trendline of ’21. While this increase of volume had little effect on truckload rates it was apparent that the low freight rates were wearing down capacity.

The LMI report on Transportation Capacity came in at 60.5 for August, the lowest level since April 2022. Though still indicating growth of capacity in the market, the value was trending downward since January. The number of trucking authorities has been dropping since mid-2022 as capacity is bleeding out of the market, though not nearly at the same rate as the entrants of carriers in ’20 through ’21. Even so, the tides were turning, and the low freight rates were taking their toll. In August OTRI surged to 4% before Labor Day, the highest rate since January of ’23. The NTI posted a 3.6% increase as well, climbing from $2.23 in mid-August and topping out at $2.31 post-Labor Day.

Yellow Corp. filed for Chapter 11 on August 6^th following their abrupt cease of operations, leaving 30,000 employees without jobs. The failure was a boon to other LTL carriers, however, as TFI and SAIA swooped in to gain market share. Parcel shipping showed signs of weakness as FedEx laid off 280 employees in early August. Matheson Flight Extenders, a carrier with a high exposure to postal contracts, also announced layoffs totaling 1,000 employees across several locations.

September Strong

The budding hopes in August showed signs of flowering in September as volumes remained higher despite the holiday. NTI clocked a slight increase over Labor Day, rising from $2.27 on August 31^st to a high of $2.32 on September 13^th. It could not establish a new floor, however, and the NTI dropped again to $2.29 by the end of the month. Tender volumes marched upward toward peak season, and inbound ocean TEU volumes made a substantial crossover, finally rising above 2022 levels y/y. This inflection point would be the first step in a market turnaround.

According to the LMI report, Inventory levels remained on the lower side at 47.4, indicating that inventories were burning off and JIT would return shortly. Meanwhile Inventory-to-Sales ratio for non-durable goods dropped to 0.92 for September. Volumes increased steadily while transportation capacity was fading, albeit at a nauseatingly slow rate.

Per the BLS, Truck transportation jobs actually lifted in September, climbing by some 14,000 persons from August’s yearly low. The net gain for all Transportation and Warehousing was about 13,000 persons, a number that would fall off again in the following months.

Despite these gains, carrier capacity continued the trend of consolidation and trimming of waste. J.B. Hunt acquired BNSF’s 3PL arm and laid off employees with “duplicative functions.” September saw a number of layoffs in the Transportation sector, between Flexe, a warehousing and fulfillment provider, GXO Logistics, Knight-Swift, Coyote Logistics, and Elmer Butcha Trucking, a carrier with around 230 power units, who filed for Chapter 11 bankruptcy.

Through all of this the environment for the American consumer was looking rocky, with core CPI rising 44 bps from August, and a whole 5% y/y. Consumer credit was continuing to top out at record highs. The total dollar value of motor vehicle loans, for example, hit record highs for Q3, rising at a jaw-dropping pace, with a 29.9% increase since 2020. For reference, it took 10 years for motor vehicle loans to increase $466 Billion from 2010 to 2020, a rate of $46.6 billion per year. In the 3 years since COVID, Motor Vehicle loans increased by $358 Billion, a rate of $119.3 billion per year.

With peak season spending supported largely by debt-spending, signs that demand will continue to grow may be overstated. Projections of a stronger freight market next year have hinged largely on whether carrier capacity will continue to exit the market. However, little has been said regarding the potential for a decline in demand should the bubble of consumer debt burst.

Spooky Scary October

From the highs in September came the lows in October, a sad start to Q4 though not out of touch with historical trends. Tender volumes fell off, washing their steady increases down to July levels. Freight rates slipped further, falling to July’s lows as well, clocking in at $2.22 at the lowest and $2.30 at the highest. DAT’s load-to-truck ratio for Dry Van was 2.1, the lowest since April of ‘23.

Transportation Capacity continued to decline in October registering a 56.7 according to the LMI, though still in expansionary territory. Inventory levels rose to 53.4 (up from 47.4 in September), indicating that restocking had begun in preparation for peak. October was soft, but it appeared to be the lull before a rise to end the year.

In a 13-year-long class action lawsuit, a Judge found TQL in violation of federal laws regarding overtime pay for employees, and TQL will be forced to pay damages to the injured parties.

Convoy, a tech brokerage with a $3.8 billion valuation in 2022, cancelled all of their shipments on October 18^th. The next day Convoy told their employees they were shutting down operations. It was sudden, leaving some 500 employees abruptly jobless and without severance, on top of the layoffs they had already conducted that year. Flexport acquired Convoy’s technology in hopes to use Convoy’s carrier network to service their customers with varied offerings.

Flexport reduced their workforce by 20%, laying off 600 workers, citing falling revenues. Meadow Lark Transport, a carrier with 273 drivers and 337 power units closed shop. Certified Freight Logistics also ceased operations. Carriers continued to exit the market, but overall the carrier capacity in the market remained resilient, keeping freight rates low.

November: Spend Like There’s no Tomorrow

About the first of November something beautiful happened. For the first time truckload volume levels crossed above 2022 levels. This was a marked inflection point indicating that the worst was behind in terms of demand. In terms of carrier health, there was still a long freefall left to endure with no end in sight. In November the number of trucking authorities in the US showed a net loss of -2087, the largest one-month decline in history.

With the meteoric rise in the number of trucking authorities in ’20 and ’21 we are only now beginning to feel the excess capacity burn off. Despite the crossover, volumes for November were light. The pre-Thanksgiving push crammed a higher number of loads into a shorter period of time, but with the holiday break the total volume for November was low compared to October. Still, truckload rates showed a respectable gain. The NTI rose 2.6% (a gain of 6 cents) from the 1^st to the 30^th. Altogether Q4 was proving to be stronger compared to 2022. The year-over-year gap was closing, and things were beginning to look up.

On the 9^th a bill was introduced that would remove an exclusion for truck drivers’ qualification for overtime pay. While truck drivers are generally in support, it presents the question of just how much truckload costs would increase if enacted. According to govtrack.us, there is a 1% chance of the bill being enacted.

The layoffs continued with Maersk who cut 10,000 jobs, a reduction of 9%. A small brokerage, Elite Transit Solutions laid off 65 employees on the 3^rd, and later ended operations by the end of the month. Additionally, UPS paid out a voluntary severance package to about 200 pilots in response to falling air-freight volumes.

Thanksgiving, the holiday of national expenditure was here, soon to be lauded as the largest yearly increase of online shopping in recent years. The American consumer, everyone said, was back. Per Adobe Black Friday spend hit a record $9.8 billion, and Cyber Monday hit $12.4 billion. Online shopping for the weekend was a record $38 billion. All of this points to one thing: the resilience of the American consumer. However, the record yearly growth is reported in nominal dollars. What everyone seems to forget is that the average American is paying with dollars that are worth less than they were prior to 2020, all while wages have largely stagnated.

Since November 2019 the dollar has lost 16% of its purchasing power. What we see when adjusted for inflation is that spend is indeed up, but only by a mere 1.7% as opposed to the 8% that has been reported, and is actually down from 2020 levels. With a 47% yearly increase in Buy-Now-Pay-Later utilization, soaring consumer credit usage, nauseating credit card interest rates, and rising credit card delinquencies, the question remains: will these short term, nominal revenues really contribute any meaningful growth to the economy, or is it just more air inflating the bubble of debt?

A December to Remember

Seasonal trends this December were somewhat muted, with the first half of December experiencing a fall in freight rates according to the NTI, only for the Christmas pressure to take effect by the middle of the week, around the 19^th. The NTI dropped to as low as $2.24 before finally bouncing due to the holiday. As usual, rates surged through end of month, reaching as high as $2.38 to close the year. After the inflection point for truckload volumes in November, volumes came roaring back following the Thanksgiving holiday, with a level clearly above 2022 volumes. On a year-over-year basis, OTVI was up 11.5%.

As freight rates continue to fluctuate, one headwind bearing good news is the U.S. production of oil. According to the EIA, domestic oil production has steadily risen, breaking an all-time-high in October. The level of production is keeping OPEC in check and is helping to keep the domestic price of retail diesel down.

Even still, oil prices were not to escape all upward pressures, as several attacks on shipping vessels occurred in the Red Sea near Yemen. The Red Sea is a heavily trafficked shipping corridor because of the crossing through the Suez Canal, seeing as much as 30% of global container traffic. Following the attacks, a mass exodus of ships diverted from the Red Sea toward the Cape of Good Hope. Even as container volumes slumped, these attacks placed some heavy upward pressure on shipping rates, which soared as much as +80% according to the Freightos Baltic Daily Index.

Yellow’s auction began with a $1.88 billion sale of their terminals, the largest purchasers being XPO, Estes, and Saia who have already greatly benefited from Yellow’s closure. Meanwhile TFI stepped up their acquisitions, buying Daseke for $1.1 billion with the intention of offering more specialized truckload offerings.

To round out the year December included some more notable layoffs. FourKites announced they were cutting 15% of their jobs globally. In another round of cuts, Coyote Logistics offered a voluntary separation program to those at the director and senior manager levels. While voluntary, Coyote said that those who did not choose to separate may eventually be laid off anyway. TuSimple Holdings, a developer of driverless trucks also laid off 150 employees.

Conclusion

And just like that 2023 is over. It has been a wild year for everyone, and this will certainly prove to be the refining fire for all who work in the sector. While it has been painful, outlooks are appearing brighter; though that is what everyone said last year too. The bubble inflated by the events of 2020 is still popping, and a lot of people have, and will, suffer because of it. While optimistic predictions are being thrown around, with recovery even as early as Q2 with produce season, there still appears to be a long road ahead. But light is indeed at the end of the tunnel. Volumes are growing steadily, finally above 2022 levels, and capacity is burning off. The road ahead is brightening, and the freight market will surely bounce back—someday. After all, as they always say, the freight market is cyclical.