The state of the freight economy is always important, especially because it has one of the largest effects on the supply chain as we know it. While the freight economy is known for its cyclical nature, it’s been especially volatile since 2020 with the outbreak of the COVID-19 pandemic. In particular, the COVID-19 pandemic caused major disruptions to global supply chains, leading to capacity constraints and increased freight rates. While the market has recovered somewhat since the pandemic, it remains volatile, with ongoing challenges such as rising fuel costs, labor shortages and geopolitical tensions.  

Trucking has long been the dominant mode of transportation for freight in the U.S., accounting for over 70 percent of all freight tonnage. The trucking industry was hit hard by the pandemic, with freight volumes declining sharply in early 2020. However, volumes quickly rebounded, and by the end of 2020, they had surpassed pre-pandemic levels. E-commerce sales drove this strong rebound in freight volumes, which continued to grow rapidly in 2021 and 2022.  

However, with concerns of a looming recession, combined with hikes in federal interest rates and cessation of stimulus money, consumers began tightening their purse strings again by buying fewer goods – a factor that has again reduced the demand for transportation. Additionally, the transportation market is fragmented, with most drivers working for transportation companies that have seven or fewer trucks in their fleet. This leads to a lot of turn-over among drivers and service inconsistency for customers. 

“In looking at this past year and where we are now in Q1 of 2024, it’s safe to say we are in a ‘soft’ market,” explained Covenant’s Tripp Grant, chief financial officer. “It’s continued to be softer for longer than anyone anticipated. While it’s not clear on when the market will improve, we do know that truckload capacity is currently exiting the market, reducing available supply, and consumers will eventually begin spending more on goods, improving demand. When this happens, history will repeat itself and the supply and demand curve will flip, but some are saying recovery could come as later as 2025, which could mean another tough year.”

Despite the challenges outlined, the trucking industry is expected to continue to grow in the coming years. Additionally, the U.S. government is investing in infrastructure projects, which will boost demand for trucking services. 

“While the short-term economic outlook is uncertain, we are optimistic about the resilience of our business model in a soft market and the industry over the longer term,” said Grant. “For our customers, many are seeing softer volumes and higher costs. To protect their margins, they are laser focused on cost initiatives.” 

While Covenant can’t help client’s de-stock their inventories, Grant pointed out that the company can add value by helping clients optimize their freight spend, improve the efficiency of warehouses, and think more strategically about logistics. 

“Our talented operational teams, combined with our portfolio of service offerings, allows us the ability to step in and develop customized value-added solutions as a one-stop-shop for clients. Because of our portfolio of services, we offer greater flexibility as customers need to scale up or down on their transportation support,” said Grant. “We also price our services fairly and ethically when the market goes up and comes down – that has earned us a lot of trust. We rely on long-term relationships and strive to operate with transparency and mutual respect.” 

To learn more about Covenant’s total transportation solutions that can meet companies’ changing needs in an ever-changing economy, click here.