Market update: Key Q1 2023 insights for shippers

Uber Freight’s Q1 market update and outlook report highlights major trends, data, and recommendations to help shippers and carriers navigate this quarter

In 2023, shippers are navigating a more favorable national freight economy. As last year wrapped with falling contract and spot rates, consumer spending and imports declined. Now more than ever, it’s important for shippers to focus on streamlining their logistics program amid volatility to maintain budgets and keep freight moving without sacrificing service.

At Uber Freight, we strive to provide timely, on-demand insights to help inform decision making for supply chain businesses of all sizes. Our Q1 Market Update and Outlook Report offers a snapshot of the current state of the market, analyzing key data points from U.S. and international supply chains in Q4 2022 to help shippers navigate an ever changing industry.

Here are the top takeaways shippers need to know:

Truckload supply continued to outpace demand

As carriers continued to add new drivers and trucks, supply rose by 8% YoY in November 2022*. Meanwhile, demand contracted by 1% YoY, due to plunging imports and lower consumer spending. In addition, following a severe driver shortage which resulted in over-hiring due to hypothetical demand levels that never materialized, employment leveled out in December 2022, with the industry adding about 2,000 jobs.

Despite a seasonally-driven increase in spot rates in December, we anticipate a persistent soft market throughout the first half of 2023, ahead of a potential tightening in H2. There is indication that the market might stabilize, as long-tail capacity is exiting the market at a faster pace.

High costs and decreased volume put pressure on LTL carriers

While retail sales surged during the 2022 holiday season, on a seasonally adjusted basis, they fell for the second consecutive month, resulting in an overall decrease of 7% in US LTL volumes. This decrease led to carriers experiencing available capacity within their networks. However, LTL carriers’ strict pricing discipline has persisted despite softening demand. As a result, we anticipate contractual renewal increases will continue to decline, sitting in the 3-5% range through at least June 2023. 

Despite decreased tonnage, operating ratios remain strong as carriers prioritize improving operational efficiency through technology and accessorial revenue. On-time service levels continue their upward trend, beginning to compare to pre-COVID levels with signs of ongoing improvement. This is due to a heightened focus on technology to more efficiently operate terminals through automation, reducing errors and labor expenditures.

Signs of a stabilizing market emerged 

While we expect little change in supply chain issues over the next several months, there are signs of stabilization. Truck orders were robust in Q4, and diesel prices have dropped from an average of $4.71 in December 2022 to $4.55 in January 2023.

Continuing its upward trajectory in Q4 of 2022, bulk capacity has generally improved. Tender acceptance reached 95% in December 2022, with the primary barrier being carriers’ lack of equipment rather than drivers. Looking ahead to the remainder of 2023, we anticipate that bulk rate trends will continue to be stable. Although contract rates rose slightly, spot rates continue to fall and we expect there will be rate reduction opportunities on favorable lanes.

International and cross-border freight weathered challenging market conditions

Although demand continued to fall, inflationary pressures appear to have peaked in Europe and are expected to ease throughout the rest of 2023. While volatile fuel and high energy costs remain, the European region is expected to see no growth but avoid a recession in 2023, according to findings from The World Bank. 

In Mexico, inflation peaked, closing at about 8% at the end of the year with forecasts to fall in 2023. Due to Mexico’s strong trade and investment ties to the US, economic slowdown in the states is expected to weigh heavily on the country. We recommend shippers diversify and consider alternative options to move cargo through transloading, intermodal and ocean services. As companies look for alternatives to reduce supply chain risks, nearshoring continues to gain strength. According to data from the Mexican Association of Private Industrial Parks, a $25B investment will open 25 new industrial parks in 2023, presenting a $35B opportunity in new exports for Mexico. More than 400 companies are expected to open business in the country this year.

Looking ahead

As we look toward the remainder of the year, anticipated seasonal demand increases and subsequent softening are in the supply chain’s future. 

Shippers must seek out ways to maintain efficiency across their operations in 2023. With automation, shippers can procure favorable rates and optimize capacity, working with carriers to maintain as much stability as possible amid market challenges.

For a comprehensive look at what shippers can expect over the next few months, see our full Q1 Market Update and Outlook Report here.

*All data is generated by Uber Freight internal indices using a weighted combination of truck and driver availability for supply, and manufacturing output, goods consumption, imports and exports for demand.

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