After nearly two years of declining freight rates, the U.S. trucking industry is starting to see signs of a much-anticipated recovery. For the first time in 27 months, the average cost of moving goods by truck is set to rise, indicating a potential end to the prolonged recession that has plagued the sector.
But that’s not all about it. Trucking freight rates are expected to increase by 0.2% year-on-year this month and experts are optimistic about this positive trend, anticipating a stronger market as their stock prices also show signs of improvement.
“If the trends over the past few months continue, we should see demand building as we exit the third quarter and some return of seasonal activity for the fourth quarter for the first time in years,” said Adam Miller, CEO of Knight-Swift Transportation Holdings Inc., during a recent earnings call.
Investor sentiment has mirrored the optimism of industry leaders. The Russell 3000 Trucking Index, which includes major players like JB Hunt Transport Services Inc. and Old Dominion Freight Line Inc., surged by 9% this month, recovering from an almost 8% decline in the first half of the year. This rebound reflects growing confidence that the trucking industry, one of the last to recover from pandemic-era disruptions, is on the mend.
The trucking industry’s downturn began in early 2022 when just after COVID-19-related restrictions ended, consumers shifted their spending from online shopping to services, travel, and experiences. This sudden change left retailers with excess inventory and reduced demand for trucking services to transport new orders. This change was felt by the trucking sector across the globe.
Industry experts say that retailers are finally working through their surplus inventory, and some have even accelerated shipments to avoid potential delays due to congested ports in Asia and the Mediterranean and dockworker strikes in the U.S. A double-digit percentage increase has also been witnessed in intermodal volume i.e. the transfer of freight from train to truck in Southern California during the second quarter.
Despite the positive indicators, some industry experts and analysts remain cautious. They warn that while the industry is showing signs of recovery, it is unlikely to return to the peak profitability levels since the pandemic. Manufacturing activity is still low and consumers are facing financial challenges.
An added challenge is an oversupply of trucks in the U.S. According to freight consultancy FTR Trucking, there are 14% more truck drivers on the road in the U.S. compared to March 2020, while freight volumes have only increased by 4% in the same period. Additionally, retailers continue to favor rail transport over trucking due to its lower cost.
While the U.S. trucking industry is showing signs of recovery, the Indian trucking sector is also navigating a path toward growth amid unique challenges and opportunities. India’s trucking industry, a crucial backbone of its economy, has been grappling with its own set of pandemic-induced disruptions and is now looking toward a more stable future.
The revival of economic activities, coupled with the government’s push for infrastructure development, has spurred the growth of the sector in India. For instance, the Bharatmala Pariyojana and the development of dedicated freight corridors are expected to significantly enhance the efficiency and capacity of the trucking industry. These initiatives aim to reduce logistics costs and improve connectivity across the country, thereby boosting the demand for trucking services.
As the global and precisely U.S. trucking industry navigates its path to recovery, the upcoming months will be crucial. The anticipated rise in freight rates, coupled with increasing demand and a cautious yet optimistic outlook from industry leaders, suggests that the sector may finally be turning a corner. For now, the slight rise in freight rates and the renewed optimism among executives and investors offer a glimmer of hope for a sector that has weathered significant turbulence over the past two years.