The end has been a long time coming, longer than many industry officials can remember, but the transportation world is appearing optimistic that the so-called freight recession may be winding down.
Transport Topics, a national weekly that covers the industry, reported this past week that major companies such as J.B. Hunt Transport Services Inc. of Lowell and FedEx Corp. of Memphis were preparing for a recovery in the freight sector.
“This, for us, has been the toughest freight recession — and longest — in terms of depth and duration in my 30-year career,” said J.B. Hunt Transport Services CEO Shelley Simpson during the Baird Global Industrial Conference on Nov. 12 in Chicago. “But I think we’ve done a good job managing through that part of the process. We’re looking forward to turning the chapter and hopefully moving into a better position coming into 2025.”
The freight recession is considered to have started in mid- to late 2022 as the aftereffects of the COVID-19 pandemic began to be felt in earnest.
The pandemic changed the habits of many homebound consumers as to what they bought and how often. After the pandemic, the transportation industry saw an excess of capacity, which drove down the price that companies could charge to transport goods.
That price squeeze was accompanied by a rise in the business costs for companies, and that was accompanied by a rise in inflation.
The good news during the freight recession was that old hands in the industry know all about recessions. They are the normal corrections of a challenging business and they are almost always followed by better times.
Convoy, an industry software company in Seattle, said there have been 12 freight recessions since 1972. The average length of a recession is 10 months; a freight growth phase lasts an average of 31 months, Convoy said.
A good example of the freight recession effects on a company is ArcBest Corp. of Fort Smith. It posted record revenue of $5.3 billion and income of $298.2 million in 2022 but those figures dropped to $4.4 billion and $195.4 million in 2023.
ArcBest reported losing money in the first quarter of 2024 but has recovered to report profits of $75.8 million in the second and third quarters.
Companies that planned and prepared for the freight recession were in much better shape than those that were caught unawares. For many transportation and trucking companies, the freight recession was unsurvivable.
According to the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration, more than 120,000 carriers closed up shop in 2023. The net change — when factoring in how many carriers started operations in 2023 — was more than 24,000.
The drop in the number of carriers has continued into 2024, with a net loss of more than 11,000 through September.
Excess capacity will prune the market of carriers that can’t compete with a drop in pricing. Carriers, especially smaller carriers, which make up a vast majority of the industry, have a harder time surviving when market price drops below their break-even point.
But the signs are encouraging that the recession is winding down even though capacity is still high.
“We are still battling our way through this part of the freight cycle, and I think that’s really important,” Simpson said during her company’s earnings conference call in October. “So we’re going to maintain our focus on excellence for our customers, driving value, and we’re going to battle through the last part of this freight recession.
“There’s still too much capacity in the market. We need that market to really move into more of an equilibrium. We’re looking forward to seeing how that plays out into 2025.”
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