Truckload Prices Are Still Scraping The Bottom In 2023

Commercial Trucking Operating Costs Mid-Year 2023-Q3 Update

Truckload costs—and the corresponding market prices—are still at or near the lowest threshold that the market can support. Any further downward pressure on prices could have a major impact on the supply side of the equation, with the resulting attrition quickly pushing prices right back to where they are now. We stressed this in our previous update, but it is worth repeating: be cautious about pushing too hard for discounts with your Carriers and continue paying your Private Fleet Drivers reasonable wages. 

While predicting the next year of pricing and cost changes is always difficult, our 'crystal ball' sees the most likely scenario being a gradual rise in truckload rates due to demand increasing incrementally and capacity slowly-but-surely keeping pace. This may be a bit optimistic, as it assumes balanced, medium-paced economic growth. 

If you are interested in the updated numbers, below are the highlights that you need to know for the mid-year 2023-Q3 update. 

Truckload Breakeven Price Per Mile is now above $2.50 for the first time.

• Our updated Total Costs Per Mile estimate when using new equipment is $2.210 (very close to ATRI’s updated value based on 2022 data). Given our typical (generous) 12% empty miles, that leads to a Breakeven Price Per Mile of $2.514. 
• This aligns closely with the current market Contract Rates, which are hovering around $2.60 per mile   

Most cost factors remain unchanged—or are only slightly higher—from data pulled in 2023-Q1.

• Pricing pressure in 2023 has kept Driver wages (and Carrier margins) relatively flat over the past four months, though expect those costs to increase if the traditional levers of rising demand rising and/or dropping Carrier supply take effect. 

As predicted, Spot Rates appear to have indeed bottomed out. 

• Fuel is up approximately 10% from May, adding $0.07 per mile, but prices have changed minimally, meaning that Carriers and Drivers have essentially absorbed this cost—at least for now. Additional increases in fuel costs will most likely not be absorbed and lead to higher market rates. 
• Accounting for the increase in fuel prices, the Spot Rate market is unlikely to drop lower than $1.90 per mile, at which point most operating models are no longer viable. Any lower, at least with current fuel prices, will lead to a large wave of Carrier and Driver attrition. 

Before we dive in, note that the following analysis is for national average pricing for traditional fifty-three-foot tractor-trailer moves. Regional—most certainly specific lanes—can vary wildly in price depending on the supply-demand equation and local fuel prices. Expect to see higher prices for refrigerated, flatbed, and other more specialized equipment within the industry, as well.

In the end though, the overall pricing is limited by costs and thus the ability to generate a long-term profit. And, yes, to almost no one’s surprise, the breakeven costs have gone up from the $2.17 average that we predicted back in October 2021. 

• Here is our previous 2023 update.
• Here is our assessment in 2021, which has proven all too true!

Items that could INCREASE costs: 

• Aging equipment has to be replaced—and the replacement rate accelerates 
• Taxes—could see higher gasoline and/or road taxes 
• Production shifting back to United States, thus reducing overall miles for finished goods—this has materialized in certain sectors of the economy 
• Driver shortages continue to get even worse 
• Owner-operators close down their business due to non-profitable market rates 

• Ocean, rail, and intermodal rates continue to rise, which brings up truckload rates 
• Demand for durable goods continues to grow, outpacing supply 
• Regulatory mandates, such as increased  
• Global events (large-scale military conflict, pandemic, etc.) 
• Technology upgrades—investment in technology with upfront costs and long-term benefits 

• Additional gas and/or usage taxes for infrastructure 

Items that could DECREASE costs: 

• New wave of drivers joins the workforce 
• Electrification of tractors decreases demand for diesel fuel 
• Domestic inventory continues to shift closer to end consumers 
• More production shifts back to United States, thus reducing overall miles for finished goods 
• More effective TMS planning reducing empty miles and increasing cube/weight efficiency 
• Recession drives down overall production and demand for goods 
• Consumer demand shifts towards services that require fewer durable goods 
• Regulatory mandates, such as an increase in DOT driver hours or maximum gross vehicle weights 

What can be done to mitigate potential price increases?

There are multiple ways to counteract the rising costs of transportation. For companies with a solid working relationship with their carriers, it is a good time to negotiate short-term rate reductions that align with the market—but be cognizant of your carriers’ operating costs. You do not want to alienate them and lose the capacity, so have a plan to deal with price increases when market rates inevitably rise again.

We stressed this in our last update, and again in this article: be cautious about pushing too hard for discounts with your Carriers and continue paying your Private Fleet Drivers reasonable wages.

If you have access to a private fleet and/or dedicated contract carriage, targeted lane selection for your dedicated drivers can lead to significant savings.

The key is to identify the high-demand lanes, leverage your fleet assets to service them, and save the common carriers for lower-priced lanes. While this may sound simple, in practice, it takes a robust planning process—preferably combined with a well-designed Transportation Management System solution—to take advantage of the constantly shifting rates landscape. More advanced systems can dynamically take advantage of mode selection, zone skipping, and multi-trip routing, while simultaneously maximizing fleet utilization.

Every company has a unique combination of challenges and opportunities.

If your business could use extra support in identifying where to spend your limited time and money, reach out to a trusted partner and have them take an objective look at your current situation.