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January 2 2023

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80 Journal of Commerce | J anuar y 2, 2023 Surface Transportation Surface Transportation Clearer roads Excess US truckload capacity to bring contract rates back down to earth By William B. Cassidy A look ahead: Although thousands of small truckload carriers exited the market last year as spot rates plummeted and fuel costs rose, many more carriers entered the market. At the end of the third quarter, there were 2,057 more trucking companies running one to 100 trucks than there had been in January, according to Tucker, a signal that truckload capac - ity will be readily available in the first half of 2023. Thanks to strong orders for Class 8 trucks and tractors in the fall of 2022, more vehicles will roll off production lines and hit the highway this year, but many of those trucks are meant to replace older vehicles rather than increase overall counts. Truckload carriers in late 2022 were still having difficulty getting enough equipment and holding onto truck drivers, and most analysts expect these shortages to continue well into the new year. A new normal: Lower rates and abundant capacity should promote stability in the truckload market, but any semblance of normality is con - ditional, at best, until the broader US economy is on a more stable footing. The use of "mini-bids," rather than annual contracts, and the trend toward dedicated truck- ing and private fleets that emerged during the pandemic are likely to endure, though how they are used will continue to evolve. Shippers have learned to take a more granular approach to contracting, dividing and subdividing their business to better manage costs, and with more volatility ahead, they're unlikely to backtrack. Those solutions come at a higher cost but with a promise of the control shippers want and need. JOC email: twitter: @willbcassidy and truck driver wages also remained elevated, and that's backed carriers into a corner when it comes to rate cuts. The largest truckload carriers remain well capitalized, they're more profitable than they were prior to the pandemic, and they're naturally reluctant to return to single-digit operating margins. A look back: From May 2020 through May 2022, average costs for long- distance truckload service, as measured by the US producer price index (PPI), rose an astonishing 60.4 percent, according to data from the US Bureau of Labor Statistics (BLS). The truckload PPI then fell 10 percent from May through October. The PPIs measure a "selling price" to shippers that includes fuel surcharges and other fees, not just rates. In late 2022, the truckload PPI was still 35 percent higher than its pre-pandemic peak in December 2018. Shippers negotiating annual truckload contracts in the second half of 2022 gained year-over- year rate decreases of 8 to 15 percent, according to DAT Freight & Analytics. "Supply chains haven't settled yet, but the freight market has," Jeff Tucker, CEO of freight broker Tucker Company Worldwide, told the Journal of Commerce in November. Truckload rates were still high by historical standards at the end of the year, but so was the cost of equipment, from trucks to trailers to tires. Fuel costs US truckload costs come down from early 2022 peak US long-haul truckload producer price index (PPI) 120 120 140 160 180 200 L L Jan 2022 Jan 2021 Jul Jan 2020 Jul Jul TL PPI TL PPI Oct 2022: 189.9 Y-o-Y: 9.2% Oct, 2022 ul 131 Source: US Bureau of Labor Statistics data, JOC analysis © 2022 S&P Global Average truckload costs fell 8 percent from May through September aer spiking more than 60 percent in the previous 24 months. The big picture: A spot market pricing correction battered the US truckload sec- tor in 2022, helping shippers claw back some of the high double-digit percentage rate increases carriers imposed from mid-2020 through early 2022. Large truck- load carriers are in position to rebound as the US economy improves in 2023, and they're looking for a market turnaround, perhaps by midyear, that will boost spot pricing and bolster contract rates. That turning point may not be visible yet, but signs that it is ahead should bring some solace to shippers aer two years of truckload price hikes during the COVID-19 pandemic. ANNUAL REVIEW & OUTLOOK 2023

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