There's been a monumental decrease in trucking demand since March, says Craig Fuller, Chief Executive of the transportation data company FreightWaves – and he's concerned that this could indicate an imminent trucking recession.
The most in-demand sector in trucking, called the spot market, is experiencing a downturn. The spot market is when commodities and goods are traded for immediate delivery. These rates are current shipping prices contracted on the spot. And rather than a long-term contract, a spot market rate is a one-time fee paid to a company for shipping a certain product.
During the pandemic, there was a spike in the spot market. At its height, the spot market dealt with one million loads per day, says Brent Hutto, Chief Relationship Officer at TruckStop.com – a massive increase over the historical average of 400,000. But now, as buying slows, companies are relying less on the spot market to pick up the slack and more on the one-year trucking contracts they already had with larger firms. So, while some executives are thrilled about their profit margins increasing due to a decline in trucking prices, truckers may end up paying the price.
When demand is low, Fuller says, and the spot market becomes less active, truckers have less work and ultimately less income. While some see this as the market correcting, the combination of the skyrocketing price of diesel fuel and fewer opportunities for spot market work can have a remarkable effect on the larger economy.
DAT Freight and Analytics has called this rapid decline in the spot market a "trucking demand skid" that caused available trucking jobs to "drop off a cliff." This could be an unfortunate indicator of a future recession, says Fuller, as spot rates tumble rapidly. Since 1972, half of all recessions were preceded by trucking recessions, according to data from the trucking company Convoy. In the worst-case scenario, Fuller says that a recession could cause smaller trucking companies to go bankrupt.