From bankruptcies to price wars, the US freight recession is reshaping the industry

• The freight recession will likely remain drag on into a sixth quarter, according to AFS Logistics.
• Bankruptcies and aggressive competition have defined the industry downturn, the firm told Business Insider.
• Defaults may be a necessary catalyst to cut down on the sector's oversupply, AFS' Tom Nightingale suggested.

There's no end in sight for the freight recession, and the downturn is reshaping dynamics in the industry.

A lack of certainty looms over experts regarding when the trucking industry could recover from its slump, and there was little good news in the second quarter.

According to the recent AFS Logistics and TD Cowen freight index report, truckload rate per mile has continued to slip this year, and the trend is set to continue for a sixth straight quarter.

At the heart of the problem are simple economics. When COVID-era consumption surged, trucking capacity ballooned to embrace it. But a few years later, high interest rates have pressured Americans' spending habits, leaving the industry with a supply-demand mismatch.

"Now you have more capacity, meaning more trucks, more drivers, chasing less freight," AFS Logistics CEO Tom Nightingale told Business Insider. "What that ultimately means is reduced prices across pretty much all [freight] modes."

AFS tracks truckload, less-than-truckload, and parcel modes. Each segment is facing its own set of issue, Nightingale said, and they're all amplifying the current depressed conditions.

Bankruptcies

One of the dominant themes of the freight recession has been a surge in bankruptcies. According to CarrierOK , 88,000 carriers and 8,000 freight brokers shut down their operations in 2023.

The trend isn't over. This month, S&P Global downgraded the credit rating of Accuride, a trucking parts manufacturer. Part of its reasoning was that commercial trucking would remain depressed for two years , squeezing the firm's sales and cash flow.

"As truckload carriers become increasingly stressed, and in some cases, unable to service their interest payments, we start to see the pace of bankruptcies accelerate," Nightingale noted, and cited this as a strong catalyst for conditions to eventually recover: "That's generally what causes an increase in pricing in the truckload side of things."

Consider the less-than-truckload sector. These carriers, which combine shipments from multiple customers, at first benefited from last year's closure of Yellow .

When this century-old firm went bankrupt, it pulled supply out of the sector and buoyed up pricing, Nightingale said.

Chasing demand

Meanwhile, declining consumption is playing out uniquely among parcel carriers, a sector comprised of courier-service shippers.

Here, UPS and FedEx are the dominant players . When parcel volumes started falling, competition picked up between the two players.

Chasing after limited volumes has caused both companies to extend aggressive discounts to small- and medium-customers, AFS found in its report. It cited that the ground parcel rate per package index dropped from 28.8% to 26.8% between the first and second quarter.

At the same time, AFS noted that these companies have looked to boost revenue in other ways. For instance, both carriers have consistently raised fuel surcharges on shipments since August 2021, despite the fact that fuel prices have fallen, the report said.

Shares of UPS plunged more than 12% last Tuesday after the company reported an earnings miss.

Part of the carrier's challenge is that it's still trying to offset cost increases stemming from last year's major wage negotiation reached with the Teamsters union, Nightingale said ahead of the earnings report.

During the earnings call, demand conditions were also a cited factor:

"Our revenue came in just short of the low end given the current volume momentum we are now experiencing in our business," CEO Carol Tomé said . However, she noted that the second quarter was the first in nine in which the company saw US volume growth resume.