1 st quarter 2023 update – The economic crossroads!

I have had customers and carriers ask me what I think 2023 will hold.  I am on the fence and two relatively opposite and equally likely scenarios that I could see unfolding for the world, and in result our transportation industry here in the US.

But, first, a quick review on the 1st quarter so far.  2022 went out with a whimper.  The typical capacity squeeze and rate spikes just didn’t happen.  It waited until 2023.  The first week of January is more like what we are accustomed to seeing over the Christmas/New Years holiday.  I believe there are a few short term forces behind this.  First, this is a very common time of year for drivers to be off work and be with their families.  I do think this started around Christmas, but freight volume was so muted, the drop in weekly capacity through the US didn’t cause any issues.  As business got back underway at the very end of 2022 and the first week of 2023, the backlog of freight to move has built to the point that it is causing widespread shipping delays.  Another factor is the weather at the end of 2022 and first of 2023.  We saw a number of storms and widespread sub zero temps that hindered the movement of trucks that were on the road, leading to even less freight getting on the road.  It is looking like the weather will be relatively better across the US in the short term and many drivers are getting back on the road after an extended vacation over the holiday.  It looks like the delays and increased freight rates we are seeing usher in the new year will most likely be short-lived.

Which brings me to the crossroads.  We are really in between a rock and a hard place right now.  On one hand, inflation definitely needs to be addressed and brought under control.  On the other, we have a LOT of newer carriers that are over-leveraged from buying equipment at record high prices in 2021 and the first half of 2022 that are hanging on by a thread.  Addressing and taming inflation means lower freight rates and a higher number of trucking companies that don’t survive the year.  On the flip side, ignoring inflation and keeping interest rates low to encourage even more growth may keep a lot of companies in business, but runaway inflation could lead to economic disaster.  

The reason I am on the fence and feel we are at a crossroads is because I am not sure how many companies will survive the taming of inflation.  I could see the transportation industry weathering the storm and keeping enough capacity on the road to keep America moving.  In this scenario, rates will remain sluggish for at least 2023 and the record profits most trucking companies saw in 2021 will be long gone.  This is definitely the option I am pulling for.  Not because of the lower rates, but because it’s the most stable option for the future of our country and the world.  Which leads me to scenario #2…

The other option is increased interest rates and lower freight rates will close the doors for a widespread number of trucking companies.  This is scary for a few reasons.  It will take capacity that will be much needed in the future off the road.  A snowball effect of increasing numbers of trucking companies going out of business will likely overshoot the demand for transportation services, which lands us exactly where we were in 2021.  With not enough trucks to move everything that needs to be moved.  This will lead to drastically increasing rates like we saw in 2021 and have a negative impact on slowing inflation.  Transportation inflation can definitely have an impact on the CPI and could force the Fed into even more interest rate increases than originally expected.  As they moved to tame the uptick in inflation, further increases in interest rates would like put more trucking companies out of business, causing further upward pressure on freight rates.  

So, we are definitely at a delicate point in history that will have an impact for years to come.  Hopefully we don’t end up fixing the inflation problem and creating 3 more in its place.