Overall outlook for the transportation market in 2025
Overall outlook for the transportation market in 2025
The demand side of the transportation market
Manufacturing is a significant driver of transportation demand. If you look at the Manufacturing PMI Output Index for the Eurozone, a reading above 50 indicates a growing manufacturing economy, while a value under 50 indicates a shrinking manufacturing economy. As the chart below shows, the major European economies have a Manufacturing PMI Output Index below 50, with Germany being the biggest drag on factory performance.
OCTOBER 2024
Manufacturing PMI Output Index
According to the press release:
'The euro area’s largest manufacturing sector, Germany, recorded its most pronounced worsening of factory conditions for 12 months.'
'The euro area’s manufacturing sector slid deeper into contraction at the end of the third quarter [2024], as key barometers of factory strength such as production, new orders, employment and procurement activity all declined at quicker rates. Eurozone goods producers also downwardly adjusted their inventories as business growth expectations slumped to a ten-month low.'
Simply put, when you have big economies like Germany and France, and big industries like automotive, all struggling from a manufacturing perspective, that is going to have a big impact on the transportation market.
US ISM Manufacturing PMI (I:USPMI)
A similar situation exists in the United States. As illustrated in the chart above, the US ISM Manufacturing PMI has been below 50 since November 2022, with the exception of March 2024, when it was 50.3, before declining again in April.
The climb up has been slow and difficult as manufacturing activity remains flat, but the trend is up, not down.
Meanwhile, the American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 2.1% in September 2024.
As quoted in the press release, ATA Chief Economist Bob Costello commented, 'Freight has been very choppy this year, but despite the latest drop, tonnage is up 1.8% since hitting a low in January. No doubt, the climb up has been slow and difficult as manufacturing activity remains flat, but the trend is up, not down.'
Another data point: The shipments component of the Cass Freight Index fell 1.7% from August 2024 to September 2024. Per the research report, 'After rising 13% in 2021 and 0.6% in 2022, the index declined 5.5% in 2023. With normal seasonality, the index will fall about 3% year-over-year in October and 4%-5% in 2024.'
The supply side of the transportation market
On the supply side, the main issue is that there is still too much capacity in both the US and EU markets. However, capacity is starting to tighten.
NOVEMBER 2024
Forecasting European transport capacity
In the EU, as the chart above from the November 2024 Transporeon Market Radar report shows, the average Capacity Index level in 2024 is below the average in both 2023 and 2019. This has been driven by several factors, including carriers reducing their fleet sizes and carrier bankruptcies.
This capacity tightening is expected to continue in 2025.
In Germany, for example, despite the relatively weak economy, there has been a significant increase in transport rejections in 2024, which is indicative of a tightening capacity environment.
If or when the German economy turns around and freight demand increases, adding more capacity won’t be quick or easy considering the driver shortage problem, as well as the costs and challenges associated with meeting new regulations, e.g. alternative fuel trucks.
As Christian Dolderer comments in an October 2024 Freight Perspectives blog post,'The levels reached in Germany are particularly concerning, as 2024 shows exceeded levels compared to the most challenging phase in the first half of 2022. Germany is the only market showing such a significant increase in rejections, even when compared to Spain —currently Europe's most thriving large economy.'
'From a logistics perspective, the market in Europe is consolidating. We see fewer service providers in the market and that aligns with my view [on how to establish relationships with partners]. We are now working with key business partners, making sure we get the services we need for us to develop logistics as a differentiator, and for us to really work together as a team on sustainability, digitisation, and safety.'
Suzanne Roodenberg, Director of Operations at Shell Chemicals Europe
OCTOBER 2024
Transporeon Market Insights
This gradual tightening of capacity is putting upward pressure on both spot and contracted rates. As the Transporeon Market Insights chart from mid-October 2024 shows above, spot rates have been above contracted rates for the past seven months. Contracted rates began rising in Q3 2023, due in part to the incorporation of toll increases and other regulatory changes. The Transporeon Contracted Rate Index was 5.4% higher in September 2024 compared to September 2023.
Meanwhile, spot rates have been increasing for most of 2024 due to capacity tightening (as shown in the chart below, the Spot Price Index is up 12% year-over-year and the Capacity Index is down 6% year-over year). With spot rates above contracted rates, we’re also seeing an increase in contracted load rejection rates.
In the US, a record number of new carriers entered the market between July 2020 and March 2022.
According to FTR Transportation Intelligence, from January 2014 to May 2020, monthly new carrier registrations ranged between 2,212 and 4,273. In July 2020, however, new registrations climbed to 5,396, and it kept increasing until reaching a peak of 10,904 new carrier registrations in March 2022.
Although a growing number of carriers are exiting the market due to higher operating costs (most notably insurance costs), as of July 2024, there were still 93,000 additional carriers in the market compared to the start of the pandemic.
Monthly new carrier registrations
in July 2020
in March 2022
additional carriers in the market
in July 2024, compared to at the start of the COVID-19 Pandemic
Carriers are optimistic, while shippers expect to face tightening capacity in 2025
The gradual increase in freight demand and rates, coupled with the gradual reduction in capacity, is giving carriers on both sides of the Atlantic good reasons to be optimistic about the year ahead.
For shippers, maybe 'optimism' is not the right word to describe their outlook for 2025, since the current trends spell increased rates and tighter capacity in the year ahead. Yet, barring some unforeseen shock to the market, the shift won’t be quick and dramatic, giving them time to adjust their plans and strategies accordingly.
© 2024 Trimble Inc.
This gradual tightening of capacity is putting upward pressure on both spot and contracted rates. As the Transporeon Market Insights chart from mid-October 2024 shows above, spot rates have been above contracted rates for the past seven months. Contracted rates began rising in Q3 2023, due in part to the incorporation of toll increases and other regulatory changes. The Transporeon Contracted Rate Index was 5.4% higher in September 2024 compared to September 2023.
Meanwhile, spot rates have been increasing for most of 2024 due to capacity tightening (as shown in the chart below, the Spot Price Index is up 12% year-over-year and the Capacity Index is down 6% year-over year). With spot rates above contracted rates, we’re also seeing an increase in contracted load rejection rates.
