2023 Truckload Market Outlook



Jan 22, 2023

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Which factors will have the biggest impact on the freight industry in 2023?


Recession? No recession? The experts certainly can’t agree on whether we’ll hit a true recession in 2023, but we can expect to see softening markets across many business sectors, both in North America  and globally. Most indicators show that economic growth throughout most of the world will slow in 2023.

The following economic indicators will play a major role in how business plays out in the transportation industry.

1. Inflation

Inflation levels appear to finally be on the way down, but what will that mean? The Federal Reserve has been raising interest rates across 2022 to combat 40-year high inflation rates, and it seems to have finally had an impact. The consumer price index (CPI) dropped from 8.2% in September to 7.7% in October, indicating a turning of the tides.

Since the target inflation rate is just 2% for a healthy economy, we’ve got a long way to go to normalize. Inflation levels will continue to impact the cost of doing business across the supply chain and the cost of living throughout 2023.

Consumers have been relying more on credit and dipping into savings as the cost-of-living crisis has worn on, though they mostly kept spending. However, experts expect that will change in 2023. Consumer spending is likely to slow down. That translates to fewer orders from retailers and, in turn, lower freight volumes.

2. The Labor Market

Though some companies have initiated layoffs and hiring freezes at the tail end of 2022 due to the bleak economic outlook, research from top jobs sites Glassdoor and Indeed show that the labor market will remain tight for several reasons. The aging workforce is one of the factors sustaining the labor market, with more workers retiring or leaving the labor force due to age than are entering the labor force. That aging workforce affects the truckload market particularly. ATA research tells us that the average age of OTR truck drivers is 46, substantially older than the workforce at large.

However, in the event of a 2023 recession, labor supply and demand will likely begin to level off as a result of the combination of fewer job openings and job loss rather than increased participation in the labor

3. Housing Market

The housing market is both the result of and a good indicator of the state of the economy at large, and the market going into 2023 reflects the economic slump. High mortgage rates that are likely to spike even higher as the Fed raises interest rates to try to bring down inflation levels have left home sales sputtering. Sales of previously owned homes were selling at the slowest rate in a decade. Current economic uncertainty and high interest rates are likely to guarantee that trendline continues.

Despite the looming economic crisis and high cost of living, many experts don’t expect to see much of a decline in housing prices throughout 2023 due to low housing inventory levels.

4. Inventory Levels are Still High

Because companies still have inventory sitting around from what we like to call the Great Covid Overstock, order levels are lower than we might expect. This naturally translates to lower freight volumes. However, all that overstock may help to keep freight volumes steadier throughout 2023 as companies shift this stock around to other warehouses or sell it off to wholesalers or resellers.

 5. Fuel Prices

With fuel costs being an integral expense in the movement of freight, it’s obvious that diesel prices will affect the freight market in 2023. According to the US Energy Information Administration’s (EIA) latest projections, the average price per gallon for diesel in 2022 will be $5.09. In 2023, current projections show diesel at an average of $4.65 per gallon.

Though fuel costs are likely to recede slightly in 2023, this particular cost of doing business will continue to impact rates.

6. Labor Strikes

We’ve watched with bated breath for months to see if rail workers’ unions would come to an agreement with their employers. People involved in the supply chain, whether they’re shippers, carriers of whatever mode, or 3PLs, are aware of the potential implications of a strike, even if it doesn’t last long. Despite that the US Congress will likely step in to avert a full-on labor stoppage, this crisis has opened eyes. We also must keep in mind that rail workers aren’t the only link in the supply chain with the ability to upset the apple cart. As inflation rages on and it’s becoming more difficult for the average blue-collar worker to pay the bills, other supply chain unions may follow rail workers’ lead in 2023.

Companies may begin to spread out their shipments over multiple modes, even more so than before the strike threat, as they seek to insulate themselves from supply chain disruptions. 

What Do These Economic Factors Mean for the 2023 Freight Market?

1. Freight Volume Forecasts Are Varied

Given the economic uncertainty we’re currently facing, it follows that freight volume forecasts would be mixed. Forecasts from industry experts range from -4% to 1% freight volume growth in 2023. Regardless of whether we wind up in the negative or not when it comes to freight volume, it’s apparent that freight volume growth is likely to slow in 2023. Businesses across the industry, from carriers to brokerages and other 3PLs, will have to fight harder for their piece of the pie.

This outlook may seem particularly grim after a couple of record-breaking years, but breaking down predictions on some of the factors that go into freight volume forecasts offers clarity.

2. Retail Predictions

Despite economic pressures and uncertainty throughout 2022, retail sales continued to grow as we push through the end of the year. However, holiday sales don’t seem to be peaking as we would normally expect them to peak. This could be due, in part, to many retailers’ strategies this year. Sales began earlier as retailers pushed to snag sales before the competition, cutting into their excess inventory in the process.

Trading Economics’ projections show reduced growth in retail sales over the first 3 quarters of 2023, but no shrinkage in sales, with 6% growth in Q1 sales, 4% growth in Q2 sales, and 2% growth in Q3 sales.

3. Manufacturing Outputs

Manufacturing outputs play a large role in freight volumes. One economic indicator we can look at to determine manufacturing outputs is the Institute of Supply Management’s Purchasing Manager’s Index (PMI). A PMI of 50+ indicates growth, and Trading Economics’ projections for 2023 are sitting at 49 in Q1, 51.7 in Q2, and 51.8 in Q3. 

These projections show that, despite an almost inevitable overall economic slowdown in 2023 that may result in low to no growth in freight volumes, the freight industry isn’t likely to take a huge volume hit in 2023.

4. Capacity is in an Oversupply Phase 

There are several indicators showing an oversupply of trucks currently. For one, load-to-truck ratios have been trending downwards for several months and have been below 5-year averages for a sustained period. Another indication that capacity is oversupplied is that fleets are growing faster than freight volumes as manufacturers finally catch up on all those truck orders placed but unfulfilled during Covid.

5. Rates Will Continue to Drop

With an oversupply of capacity, freight rates generally drop. Spot rates have been falling since January 2022 and will likely continue to drop along with the demand for trucking as consumer spending flattens out. Contract rates, though they’ve stayed proportionately higher than spot rates, will almost certainly begin to follow the trendline of spot rates in 2023. 

Some signs show spot rates will rebound toward the end of 2023. Carriers can’t operate for long losing money with every mile they run, and if or when per-mile spot rates fall even with per-mile operating costs, available capacity will drop off. When supply and demand level off, we can expect to see the market cycle begin to circle back around.

6. High Costs and Low Rates Mean Trucking Profitability Will Drop

With diesel and other operating costs high and rates low, trucking profitability is likely to take a substantial hit in 2023. Profitability dropped over Q1 and Q2 of 2022, and carriers can expect more of the same before the economy levels off and an abatement of high inflation levels offers them some relief. 

This is Causing Owner Operators to Shelter from Volatility

We’re seeing a migration of owner-operators to employee trucking positions. They’re likely taking shelter from pricing volatility and the high cost of doing business. 

High costs associated with providing transportation services over 2022 and 2023 like fuel costs and employee pay increases made necessary by high inflation are leaving many smaller trucking businesses in peril. Already we’re seeing smaller carriers preparing to close their doors before they’re in too deep, financially speaking.

As smaller carriers opt out of the market due to financial pressures, we may see an impact on capacity imbalance, creating a more balanced market later in 2023.

Despite Favorable Rates, 3PL Profitability is Likely to Drop 

The bad news? Profitability is likely to fall in 2023 for 3PLs, too. This prediction comes courtesy of falling rates, either stagnant or falling freight volumes, and high overhead costs for carriers that are cutting into profit margins across the board. The good news? That profitability is falling from record-high profitability levels. The market has been so hot for such a sustained period that we’ve kind of gotten used to it. However, profits that are lower than record-breaking aren’t necessarily going to break the brokerage industry.

There will still be freight to go around, even if it’s not as plentiful as it was during the great Pandemic bounce-back. And, there will still be money to be made on loads, even if margins aren’t at 2021 averages. 


How Can Freight Brokerages Prepare to Win in 2023?

1. Negotiate Carefully During Contract Season

In business, we’re always looking at the big picture, but the big picture looks pretty blurry during the economic uncertainty we’re experiencing. With that in mind, contract rates will need to be carefully negotiated in 2023. With carriers’ cost of providing transportation services and rates potentially intersecting this year, there will be little margin for error.

2. Build and Maintain Strong Partnerships

As markets soften and an economic downturn is potentially waiting just over the horizon, brokerages that have developed strong relationships with both shippers and carriers will have an advantage (and so will their partners at either end of the freight cycle). They can count on one another to provide great service at fair prices. 

3. Lean on Technology to Find Efficiencies

Making choices that save your brokerage money and ultimately help you earn more each day is complicated and time-consuming, eating up brokers’ time and brain power. By employing technology that helps make some of those decisions easier and automates repetitive and transactional steps in the freight cycle, brokers can reap the rewards: ROI on the technology itself, plus employees with more time to do important things that automation can’t do.

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