December 2024 Freight Market Update

Short-Term Expectations

The U.S. is confidently anticipating a year-over-year growth of 2.8 percent in 2024 for its gross domestic product (GDP), effectively dismissing recession concerns. Growth is expected to moderate in 2025, with steady progress projected through the end of 2029.

Typically, every one percent increase in GDP correlates to a 1.5 percent rise in over-the-road truckload volume. Based on these projections, we foresee freight volumes increasing by four to five percent in the coming year.

Conditions are increasingly favorable for a shift towards the carriers. Two key reasons for this optimistic outlook are shrinking capacity and tariffs (either potential or actual), driven by simple supply and demand dynamics.

Balance is on the Horizon

Regarding capacity, the difference between contract and spot rates, which was approximately $0.80 per mile in mid-2022, has now decreased to below $0.50 per mile. It is important to note that contract rates typically exceed spot rates, except during late 2020 and early 2021. 

The gap between contract and spot rates, once $0.80 per mile in mid-2022, has decreased to below $0.50 per mile, mainly due to contract rates dropping from $2.30 in early '24 to $0.15 less. Figure 2.2 shows the net change in for-hire carriers versus the tender rejection rate. Since mid-2022, carriers have exited the market due to higher costs and lower rates.

Shrinking capacity is first evident in tender rejection rates. Carriers may reject guaranteed rate loads due to lack of equipment or better-paying opportunities. Rejection rates exceeding five percent indicate a move towards a balanced market, with eight to 10 percent being ideal. Double-digit rates suggest carriers have more pricing power.

Demand is another factor. Some sectors show slight gains, but the November election could trigger a surge in freight movement as shippers rush to move goods before tariffs increase costs. This surge may be short-lived due to "too much inventory" concerns. Future shifts may focus on moving production to domestic or near-shore locations.

After a stagnant period, the industry is poised for change.