Uber Freight predicts impacts of carrier service on narrower market – Talk Business & Politics

According to a recent report, as supply and demand in the freight market balances out, shippers can expect freight costs to rise and fewer tendered cargoes to be accepted. However, the timing of when the market will recover remains unclear, possibly in 2025.

A Uber Freight The report shows that carriers are beginning to prepare for the changing freight market. Carriers are bracing for how a tighter market will drive up costs and affect service levels.

According to the report, industry forecasters expect spot rates to rise in the second half of 2024. However, one forecaster predicted spot rates to fall 2% in 2024 from 2023. However, another expects rates to rise 13%, reflecting a 30% increase in the fourth quarter of 2024 from existing levels.

Uber Freight recently used its historical data to show how carriers’ service levels would be affected in a tightening market. Uber Freight used the data to create a model to predict whether a carrier would accept a shipment tendered by a shipper. The model was used to predict acceptance rates in multiple scenarios and for different types of carriers and carriers.

The report shows how market tightening will affect carrier networks, including at the lane level. It also provides insights into improving tender acceptance rates and maintaining better service levels.

According to the report, most forecasters predicted a tightening in the market that would come as a result of a “capacity correction rather than an increase in freight volumes.” However, as of March, spot rates had yet to recover from their lows. According to DAT Freight & Analyticsdry van spot rates fell 2.1% in May from the same month in 2023. However, rates rose 1.5% in May from April.

In 2022, most operators had record revenues. Earnings were weaker in 2023 but still historically strong. In 2021, 2022, and 2023, carriers’ revenues were 21%, 43%, and 27% higher than 2019 levels, respectively. According to the report, carriers accumulated enough profits in 2021 and 2022 to allow them to ” weather the storm and make it this far.”

According to equity research released Tuesday (June 4) by equity analyst Stephanie Moore and equity associate Joseph Hafling, both of Jefferies, the market remains oversupplied as trucking capacity continues to exit the market. They expect the second half of this year to “look better” than the first half, but “we think expectations on the recovery slope should be tempered.”

In 2023, trucking bankruptcies accelerated throughout the year. In the first half of the year, they were up 46% year-on-year, increasing to 56% in the second half. Between January and April 2024, bankruptcies rose by 60% year-on-year. In April, filings were up 68% from the same month in 2023. Most of the bankruptcies can be attributed to small trucking companies with less than $1 million in annual revenue.

According to Equity Research, rental fleets continue to see soft demand following a significant increase in private fleet capacity over the past few years. Private fleets are competing more actively for the transport of goods in the country to fill the empty transport.

“Looking ahead, although the data continues to trend in the right direction as capacity continues to tighten, demand remains healthy and rates are beginning to improve, a full and robust recovery in (the second half) looks increasingly unlikely possible with each passing month,” Moore and Hafling said. “As we think about the timing of a recovery (part two), we continue to push the narrative that this is likely to be a late 2024/early 2025 event.”

Uber Freight’s report highlighted some of the signs that the market may be tightening. The first is that carriers’ revenues have fallen. Carrier revenue is important to capacity. When contract rates fall, carriers typically cut staff, with an average lag of about 10 months.

In the third quarter of 2023, contract rates fell 18% year over year. If the historical correlation between rates and staffing remains, companies are expected to cut staff by about 2% to 5%. According to the report, this “could have substantial effects on the spot market”.

Spot and contract rates fell in the first half of 2023 and remained unchanged during the first quarter of 2024. Meanwhile, operators’ operating expenses remained high. The report shows that as a result, carriers’ margins “virtually evaporated” because they are paying more to run their fleets while earning less per load. “It seems likely that more carriers will continue to exit the market until supply and demand balances out.” For shippers, this could mean higher costs in the spot market and lower tender acceptance rates in the coming months.

Uber Freight data shows that tender acceptance “is highly correlated with spot rates, as both are indicators of how tight the market is at any point in time.” Carriers accept less cargo when rates are high “because they can find better opportunities elsewhere, especially given their limited capacity.”

The data also show that shippers are more likely to accept shorter and longer loads “because long trips, which can keep a truck busy for days, are associated with higher opportunity costs, especially during narrow markets”.

According to the report, carriers are more likely to accept cargo from contracts that have been in place for a longer time and offer more cargo. Tender acceptance is typically more than 90% for a rate that remains in place for more than six months. Carriers are also more likely to accept loads when the rate is higher than the average spot rate in a lane.

Uber Freight’s model offered different tender acceptance rates based on whether spot rates rose, fell or remained flat. If flat, the acceptance rate will remain at around 90% for the next 12 months. If rates rise by 4% this year from 2023, the acceptance rate will drop to 87%. If rates rise 12% this year from 2023, the acceptance rate would drop to 79%, or about 12 percentage points lower than its current average.

The model also predicted that small or niche carriers are less sensitive to market changes. As a result, “carriers should expect the performance of traditional brokers to deteriorate significantly if the market tightens, compared to other types of carriers,” the report shows. “If the market tightens, the medium and long-term will be affected more than the short-term, as their tender acceptance rates will fall at a sharper pace.”

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