Truckload rates firm as 70,000 drivers leave the market

By Tom Whitfield

Bank of America managing director Ken Hoexter estimated that roughly 70,000 drivers had been taken out of a pool of 1.5 million. Third-quarter truckload rates strengthened as the tighter capacity gave carriers pricing power.

That is a supply-led recovery, not a demand boom. Freight rates strengthened through the third quarter despite soft demand, as a federal crackdown on noncompliant drivers and wider market pressures reduced capacity while driver pay and other operating costs rose.

The truckload market has spent years digesting the pandemic-era surge and correction. Strong freight demand produced an oversupply of capacity, prolonging the downcycle. This year, enforcement and market pressure have combined to support a recovery in pricing.

What does this recovery change for shippers?

Stephens transportation equity research managing director Bascome Majors said: “Heading into earnings season, we said we felt worse about costs, better about pricing and worse about demand for retail-centric truckload. Exiting earning season, our views have only been reinforced, this remains a supply-side recovery for truckload.”

Majors expects contract rates to keep rising alongside driver pay and other inflationary costs. Shippers face higher truckload contract costs, but can convert freight to lower-cost intermodal. Forwarders will have a clearer modal-substitution case, and Majors sees intermodal best placed for meaningful growth as shippers keep converting truckload loads.

Hoexter framed the recovery the same way. “There’s no doubt in our view that this is a supply-driven recovery,” he said. His investors have asked whether the peak in capacity reductions has passed. He expects pressure on capacity to continue, though the pace remains unclear, and he cannot pin down when freight demand will improve.

The rate cycle after the summer peak

R.W. Baird & Co. senior transportation analyst Dan Moore described pricing conditions as constructive for carriers: “Assessed conditions remain pretty constructive, especially as it relates to carriers’ ability to pursue rate increases. The demand environment, I would describe as maybe seasonably a little bit more muted. Keep in mind that in the second quarter, we had some pull forwards.”

Several disruptions shaped that second-quarter backdrop, including stronger Department of Transportation enforcement and closer scrutiny of how brokers select carriers after the Montgomery v. Caribe Transport II Supreme Court ruling.

“All of those things really created a very constructive backdrop for 2Q,” Moore said. “As we got into July and August, the industry definitely experienced weaker seasonality. However, base rates continue to improve, and we did see spot rates begin to inflect in August.”

Hoexter said: “We kind of peaked out on rates during the summertime, and that was evident in the results. You saw that with quarterly results, and you see that in how spot rates have come down.” He added that spot rates remain elevated compared with the last few years and significantly higher than before, but below their summer peaks.

Many carriers have responded to the rebound by focusing on utilization, while managing driver pay that is starting to scale and higher operating costs across the truckload sector. That gives carriers room to recover costs through base rates, even as spot-rate momentum eases.

Moore described weak consumer demand, a lackluster housing market, interest rates weighing on automobile sales and fuel costs as barriers to a robust freight economy. Industrial freight offers a firmer basis for underwriting, he said, because that side of the economy has shown broader strength.

Industrial freight carries the outlook

TD Cowen managing director Jason Seidl said: “Energy prices had been higher for much longer than everyone had thought, and there was concern about the impacts on the consumer.” He found the consumer base stable despite higher energy prices.

“The news on the macro side I would say was slightly better. I’m not hiring a band and marching down the street to celebrate, but I’m saying it’s slightly better,” Seidl said. UPS and Knight-Swift Transportation Holdings anticipate a normalized peak shipping season, he noted.

Seidl also saw broad industrial strength during the quarter, but heard concern about the data-center buildout. “Hyperscalers came up a bunch, which is a concern, given the midterm results,” he said.

He found that many companies are pushing into growth areas or higher-margin sectors, even though they appear to be competing for the same market. Semiconductors and healthcare sit alongside hyperscalers as focus areas. Earlier concerns that concentration might hinder growth have not materialized, as those companies found other opportunities, he said.

Seidl suspects pushback over data centers has been stronger state by state.

Moore identified policy and investment tailwinds: “We have tailwinds related to the One, Big Beautiful Bill, and we have tailwinds related to the buildout of AI. We also have emerging signs of an oil field-services recovery.”

He added that the consumer economy remains weaker than desired, while “the industrial economy is really holding freight up and helping to create a more resilient backdrop.”

The next test is whether continued federal enforcement and capacity reductions keep contract rates rising despite softer spot rates; the timing of a demand recovery remains unclear.