Data released by Bank of America shows that the trucking industry continues to face both cyclical and structural headwinds. In the fourth quarter of 2024, the U.S. freight market continued its downward trend. According to the latest Bank of America Freight Payments Index, freight volumes fell 4.7 percent from the previous quarter, the 10th consecutive quarterly decline. Spending by shippers also declined, albeit at a slower rate of 2.2 percent.

Bob Costello, senior vice president and chief economist at the American Trucking Association, said: "As we look to the trucking market for recovery, cyclical and structural challenges clearly remain. For example, weak factory output - which has had a particularly severe impact on truck freight volumes - is currently weighing heavily on our industry."

From a cyclical perspective, the continued weakness in the manufacturing sector is the main reason for the continued weakness in the freight market. Total factory production declined 0.3% to 0.6% sequentially and 0.5% to 0.9% year-over-year. Even this small decline would have a disproportionate impact on truck volumes.

The report adds: "U.S. factory output has a greater impact on truck freight volumes than any other sector of the economy. For example, finished products imported into the U.S. retail industry by cargo ship, depending on the product and specific supply chain, may be transported by truck only one to three times before a consumer purchases them."

Another factor contributing to structural challenges in the market is the growth of private fleets since the outbreak of the pandemic. During the COVID-19 pandemic, many shippers have expanded their internal shipping capacity in response to capacity constraints and high freight rates. "As a result, the carriers operating these private fleets ended up reducing the volume of traffic in their rented fleets to keep drivers and trucks busy during this period," the report added.

Despite the overall market contraction, there are still signs that the market may be stabilizing. Shipments fell 15.7 percent in the fourth quarter from a year earlier, the smallest decline in 2024. In addition, the interaction between shipments and spending suggests that capacity could tighten, as spending fell less than shipments despite lower fuel surcharges.

"For example, the Bank of America's National Freight Index contracted more than spending, suggesting that spending per truckload actually rose," the report adds.

Freight prices are mixed

An analysis of freight rates provides more detail. Spot market freight rates, excluding fuel, rose 0.5% from the third quarter - the first back-to-back increase since the first quarter of 2022. On a year-over-year basis, spot freight rates fell only 1.9%, the best performance since 2024. Both of these results point to a reduction in the number of trucks operated by the remaining fleet as motor carriers exit the market, leading to a reduction in capacity and a squeeze on capacity.

However, contract rates continued their downward trend, down 1% sequentially and 5% year-over-year. This is the sixth consecutive quarterly decline in contract rates. Such discrepancies are not unusual, as contract rates typically lag behind spot market movements. Notably, the 1% quarterly decline was the smallest since 2024, which could signal a slowdown in the rate of decline.

Fuel prices fell sharply, with DAT's average fuel price per mile down 6.7% from the third quarter and 23.6% from the same period last year. The decline in fuel costs impacted the overall spending figures, but masked the underlying trend in base rates.

Regional differences paint a complex picture

The shrinking freight market is being felt in all regions, but there are clear differences:

Southeast: The worst affected by the market downturn was the Southeast, with the largest quarterly declines in shipments and spending, both down 6.7 percent. These sharp declines were exacerbated by the impact of Hurricanes Helen and Milton in late September and early October, resulting in business closures and damage to infrastructure. The slowdown in the automotive sector has also played a role, as the region has huge car production capacity.

Midwest: Shipments declined 5.2 percent sequentially, while spending declined 1.7 percent. The region's heavy reliance on manufacturing, especially for cars, has led to lower spending. Weak factory output and housing construction have further crimped freight activity.

Southwest: Shipments in this region were down 5.1%, but spending was flat sequentially (0.0%). While this was the third consecutive quarterly decline, the report noted that it was the smallest decline over the same period.

There are some positive signs for freight prices in the southwest, particularly in relation to Mexico. "Not only did Texas, Arizona and New Mexico import more goods from Mexico by truck than in the third quarter, but they also increased from the same period last year." In fact, year-on-year growth could exceed 10 per cent. However, imports from Mexico have grown faster than exports, which has led to some imbalance in equipment for U.S. motor carriers, "the report added.

West: After two quarters of growth, freight volumes fell 2.1 percent in the West. However, spending edged up 0.1 per cent, suggesting possible capacity constraints. While port throughput in Los Angeles and Long Beach provided some support, weakness in agriculture, retail sales and housing starts weighed on overall freight activity.

Northeast: This region saw the smallest decline in quarterly shipments, at 1.2 percent, while spending increased the most, at 0.9 percent. The difference points to a significant squeeze on capacity in the Northeast, likely due to the region's dense population and traffic congestion that has severely affected trucking routes.

Challenges and opportunities

As the freight market continues to be volatile, manufacturing output, housing starts and retail spending will continue to impact freight demand. But despite the drop in spending, early signs of optimism point to an inflection point.

Bobby Holland, director of Freight business analysis at Bank of America, said: "While this quarter's index shows that overall spending on trucking continues to decline, we do see some signs that per-truck spending is increasing. Even with the reduction in fuel surcharges, freight volumes have fallen more than spending, which indicates that capacity is tight."

Continued weakness in manufacturing, the impact of private fleet expansion, and regional disruptions from factors such as bad weather are all key factors to watch in the first quarter.