Uber Freight report: Yellow shutdown is expected to increase LTL rates

Truckload demand rose for two months in a row after hitting the bottom in April

Following several months of decreased demand, the tides have begun to turn as consumer spending increases and imports follow suit. Though carrier supply remains elevated despite trucking employment flattening out, we anticipate reductions in the near future. The manufacturing sector, meanwhile, continues to contract and is expected to remain in contraction territory in the coming months.

As the market shifts, shippers and carriers must optimize their strategy to stay ahead of demand. Our Uber Freight quarterly market update analyzes the most pressing trends across the industry to inform key decisions for the road ahead. Here are the top takeaways as we head into Q3:

Truckload demand appears to have hit the bottom, at least temporarily

In the second quarter 2023, truckload demand was 2.3% lower year-over-year, seemingly bottoming out in March before rising throughout April and May. This increase in demand is likely a result of rising containerized imports and consumer spending, with real spending on goods up 0.2% in Q2 and 1.5% year-over-year. Durable goods, specifically, appear to be responsible for a majority of this increase, where spending rose by 1.7% quarter-over-quarter.

On the supply side, overall trucking employment remained relatively flat and was only 0.4% higher year-over-year in July. At the same time, long-distance truckload employment fell slightly in June, but was still 1.5% higher year-over-year. Though the total number of carriers fell by 15k over the last several months, struggling carriers are opting to enroll with larger fleets rather than exit the market entirely.

The spot market remains soft across the board

Despite increasing in June and July, spot rates underperformed seasonally, and current supply levels point to ongoing weakness in the coming months. However, many rates are significantly below operating costs, so current levels are unsustainable for the long-term. Intermodal spot rates, in particular, remain at the lowest levels since 2016 and we expect this will persist through the remainder of the year. We anticipate competitive balance will be restored in 2024 when pricing power and pressure increase.

In US bulk, overall utilization remains down amid the continued soft market, with carriers focused on regional and short haul freight to meet costs. As a result of safety, health, and environmental concerns, shippers are remaining with incumbent carriers, putting upward pressure on contract rates. This is also keeping spot usage low, despite soft capacity.

LTL absorbs the shock of the Yellow shutdown

When Yellow ceased operations in July, it had represented 9% of LTL market share. As a result, LTL carriers are faced with the challenge to absorb its volume. Currently, the LTL market has excess capacity to absorb Yellow’s volume due to nearly a 10% drop in volume from 2021/22 highs, mitigating all excess supply. Assuming no unexpected increase in demand, we expect it will take several months for the market to adjust to the shock.

All carriers are in the process of quickly ramping up capacity in order to secure Yellow’s volume while maintaining service levels, resulting in high costs. Because Yellow had represented the lowest cost national carrier, its shutdown is expected to result in less competitive pricing from remaining national carriers. While some national carriers are avoiding pursuing new opportunities, others are using this situation to grow their customer base.

How shippers and carriers can prepare for Q3 and beyond

With easing cost and capacity pressures paired with plentiful supply in full-truckload, shippers should take advantage of this opportunity by prioritizing FTL routes before the market turns. On the LTL side, it’s essential for shippers to build flexibility into their networks to prepare for market shifts due to expected service deterioration and delay. With ongoing challenges in LTL, shippers should look to opportunities in intermodal, where capacity is plentiful and spot rates are low.

Mexico became the top ranked US trading partner in Jan. through May, shippers can also look to expand their nearshoring operations. With imports up 3.5% year-over-year, low costs, and high capacity, cross-border has finally turned to a shipper-dominated market after three years. However, shippers should work alongside a logistics partner to navigate complex Carta Porte requirements to ensure compliance with import laws.

Meanwhile, carriers should be prepared to ramp up capacity following Yellow’s shutdown in July. Carriers must closely monitor additional volume flowing within their network to ensure profitability and service don’t deteriorate while combating rising costs across the board. With trucking employment flattening and loosening capacity, carriers should seek to optimize where they can to account for declining spot rates and rising demand.

For a comprehensive outlook of what shippers and carriers can expect in the coming months, see our full Q3 Market Update and Outlook Report here.

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