Indicators to Watch Ahead of the 2024 Holiday Peak Season

Supply is high while demand and rates are low, so an inflationary market flip in the near term is highly unlikely unless an unforeseen and severe black swan event occurs.

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It’s been mostly smooth sailing in the freight market for shippers this summer: Predictable periods of seasonal demand, supply and rate volatility came and went, with conditions quickly easing back to levels typical of the last 18 months after each bout.

Short-lived surges aside, spot market demand has been low but steady. Meanwhile, many carriers have hung on despite persistently low spot rates and high operating costs, prolonging the supply surplus and the market’s slow march toward equilibrium.

Now as summer turns to fall across the country, freight market stakeholders are speculating about what the 2024 holiday season has in store. Several factors in the market and beyond are complicating the picture but understanding and tracking a few key indicators can help shippers stay ahead of (most) holiday curveballs.

Economic Indicators and Consumer Sentiment

Recession rumors, sticky inflation, sky-high interest rates — the last few years have been an economic rollercoaster for consumers, but they have remained optimistic. In its latest Consumer Checkpoint, Bank of America suggests current consumer behavior should stay on track through year-end. Here are a few trends to watch in the coming months:

  1. Spending: Bank of America's aggregated credit and debit card spending per household rose by 0.9% year over year in August, bouncing back from a 0.4% decline in July. However, total card spending per household fell by 0.2% from the previous month. Spending on services continues to outpace goods, adding over a percentage point to the year-over-year growth in total card spend. Despite the month-over-month decline, this data suggests consumer spending is normalizing rather than weakening. If spending on goods increases even slightly in the coming months, the chance of volatility during the holiday season could rise.
  2. Inflation: The overall U.S. inflation rate has declined from a peak of 9% in June 2022 to below 3% in July 2024. Prices for many card-centric spending categories are falling, and the Fed could soon start cutting interest rates. Together, these trends should spur new housing activity and goods spending growth, which could generate more volume and could contribute to spot rate volatility in the coming months.
  3. Labor Market: Bank of America's data did not show a significant rise in joblessness despite a slight year-over-year increase in unemployment income growth in July 2024. It’s possible that Hurricane Beryl temporarily exaggerated signs of labor softening, but the market also appears to be cooling overall. A strong labor market is vital for consumer spending — while recent wage growth should support consumer spending for now, any prolonged weakening could eventually impact wages, spending and freight volumes heading into the holidays.

The State of Supply

Supply trends will also influence how the market fares during the holiday peak season. Given the ongoing surplus, only a significant volume surge or severe weather disruption would cause meaningful supply volatility. Still, a few trends are worth discussing: Year-over-year rejection rates, the spot-contract rate gap and recent attrition data from the Bureau of Labor Statistics (BLS).

  1. Rejections and the Spot-Contract Gap: Tender rejections and the spot-contract rate gap are the best indicators of the market's vulnerability to disruption. Historically, rejection rates moving into the 10% to 15% range indicate that routing guides are failing due to disruption or seasonal spikes — this leads to increased spot market demand and rates and a closing spot-contract gap as primary carriers fall off their commitments. Tender rejections rose year-over-year in August but remain below the threshold of concern for shippers. Though this is a positive sign for the market’s recovery, the trend has yet to meaningfully impact spot rates. However, should rejection rates rise around the holidays, we expect spot rates to follow suit.
  2. BLS Data: The BLS July trucking jobs report highlights the significant impact this prolonged period of low spot rates has had on the industry. Employment fell by another 2,400 jobs in July on a seasonally adjusted basis, marking four consecutive months of seasonally adjusted job losses. A total of 30,000 jobs have disappeared since July 2023, including 12,000 since April alone. The latest spike is likely due partly to another lackluster summer peak season that forced more carriers and drivers out of the market. Though the spot market has recently shown signs of recovery, it remains unclear when it will become consistently profitable again. Should challenging conditions persist and force more carriers and drivers to exit before the holidays, capacity could tighten significantly as seasonal demand increases.

External Market Influences

In addition to the above market and economic trends, the following factors might influence this year’s holiday peak season trajectory.

  1. Short Holiday Shopping Season: 2024 has only 27 days between Thanksgiving and Christmas, making this the shortest holiday season since 2019. Though most inventory restocking is already underway, there is almost always a surge of shipping activity during this stretch. Significant disruption is unlikely with how much capacity remains on the roads. However, if supply shrinks significantly in the coming months, the short shopping window and factors like winter weather and drivers taking holiday time off could lead to volatility.
  2. Port Strikes: If a new contract is not in place, the International Longshoremen’s Association (ILA) plans to strike on October 1, 2024. A strike would create significant disruption at East and Gulf Coast ports that could leave many shippers in a tough spot during this critical period, especially since the West Coast is already somewhat backed up with volume.

Recommendations for the Road Ahead

Overall, I believe any impact from these risks will be relatively muted and short-lived due to the state of the market today. Supply is high while demand and rates are low, so an inflationary market flip in the near term is highly unlikely unless an unforeseen and severe black swan event occurs. That said, being proactive against potential volatility is still the most prudent path. Here are a few actions you can take today to set your business up for a successful holiday season:

  1. Offer Sustainable Rates to Reliable Carriers: Given the current environment, it can be tempting to renegotiate for the lowest possible rates ahead of the busy season. Instead, I recommend playing the long game by offering rates that will encourage carriers to honor their contractual commitments should spot rates surge. You may pay marginally more for great service during the holiday season, but the goodwill you create now will pay dividends when the market eventually flips.
  2. Lock-In Reefer Capacity: All signs point to reefer being the most volatile mode this holiday season. So, communicate your volume and capacity needs with carriers now to ensure you have affordable coverage available where and when you need it.
  3. Track Indicators and Plan Around Risks: Staying informed about the risks outlined above and preparing contingency plans will help you mitigate any business impact should they come to fruition. Also, remember that the market is cyclical, so historical data can be particularly helpful in understanding and navigating current conditions    
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