With freight capacity at high levels, when and how will demand find its equilibrium?

In the world of domestic freight, the volume of contracted freight has been on the decline over the past year. This notion is supported by national freight data, through a measurement referred to as the contract load accepted volume index (CLAV). This measurement portrays the accepted volume of loads that are being moved under contractual agreements. CLAV is utilized to calculate the amount of change in contracted freight within the United States, which as of this month is 25% below the highest end values of 2021- a year that saw record highs in rejected tenders. The cause is multifaceted, but industry experts point to deteriorating demand. Such a drop in demand is driven by the fear of the impending effects of inflation, the rising inflation itself, and debt. Another factor that exacerbated such a fall in demand was industry concern regarding the number of workers entering freight and the even higher number exiting the industry simultaneously. The volatility of the freight market is on full display, as complications continue to exist due to not only the logistical data and financial disparities but also the anxiety of which direction these complications will trend. Regardless of how companies will act and react to potential changes, the fact remains that the industry’s key discrepancy to be resolved is between demand and capacity. With this in mind, it’s worth noting that capacity is needed in a higher volume than demand, as just because the capacity exists does not necessarily mean that the capacity is in the ideal place at the necessary point in time. Demand has been falling, which has led to less work for owner-operators and carriers alike, which causes them to either scale back their capacity or exit the market altogether. While the needle of demand changes due to a multitude of factors, changes in capacity are a little more simple to measure and predict. Less available loads mean less work, and less work means less money. For owner-operators and carriers who can barely keep their head above water, this unpredictability of when demand will normalize is daunting. Thus, capacity across the board has been on the decline, and experts predict that this trend will continue throughout most if not all of 2023. With this demand where it is today, shippers certainly have the upper hand when it comes to leveraging and negotiating prices. Although, we have seen the pitfalls of a freight industry that has shippers simply jumping at the lowest rates they can find- it’s helped plummet both contracted and spot rates, swinging the industry pendulum even farther into the shippers’ corner. While there is no one ‘fix-all’ solution to such issues, one of the most important tools the industry can levy is its vast stockpile of information. We are in unprecedented times, and it certainly makes sense that if Shipper X can move shipments for $100, they would. However, the industry proves time and time again that saving money upfront can cost you exponentially more in the long term and on the grand scale. As we near the pricing floor for rates, it is important that there is a higher drive and incentive to work with contracted freight. Of course, if there was substantially low capacity then demand would skyrocket, and an immense surplus of capacity would drive down demand- we’ve seen both occur. This is exactly why it is paramount that the industry operates somewhere in the middle of these two extremes. As we look to recover from such effects of industry volatility, it is crucial to be aware of how it got to this point, and what we can do to avoid such dilemmas going forward.?