How today's carrier overcapacity could resolve in 2025

LOUISVILLE, Kentucky—The freight recession rolls on. Average for-hire rates remain below the average cost to operate a truck.

Fleets preparing for the future want to know how long this bleak environment can remain. On the bright side, experts anticipate capacity to drop and rates to climb as the market recovers in 2025.

“This is the largest freight downturn that isn’t tied to a macroeconomic recession,” Ryan Hammett, director of market intelligence and insights for C.H. Robinson, said in one of the last presentations at Wabash Ignite this year. “Most of these largest freight recessions are somewhere from 18 to 24 months … We’re currently in month 30 of a freight recession—and it’s not done.”

On the bright side, depressed rates and carrier overcapacity are signs of a market imbalance that, over time, should resolve to regular patterns, Ryan Reed, Wabash’s VP of corporate development, investor relations, and financial planning and analysis, told FleetOwner.

“This is all self-correcting, and the longer it goes on, the more confident we are that we’re closer to the other side of it,” Reed said.

Capacity to drop

The COVID pandemic brought major disruptions to countless markets across the nation. For truckload operations, the pandemic introduced a long-lasting overcapacity problem.

“A lot of capacity entered the market, kind of post-COVID, and it’s taking longer than usual for capacity to come out,” Reed explained.

The number of available trucks exploded, and consequently, carrier pricing power plummeted.

Why has freight capacity been so high for so long?

Dramatic shifts in freight demand and a sudden influx of funding across 2020 and 2021 incentivized a large number of carriers to enter the freight industry at once.

“Prior to the pandemic, we were talking 180,000 carriers,” Hammett said. “It doubled overnight as everyone raced into the market to chase after this unprecedented demand—driven by government stimulus and everybody being at home trying to spend. What we saw was just this massive amount of carrier creation.”

An excess carrier capacity generally resolves over time. Overcapacity brings downward pressure to rates, which limits the number of trucks that can remain profitable.

However, this pandemic-spurred overcapacity has been very slow to decline. That drawn-out decline took much of the transportation industry by surprise.

“What we’ve seen is that the exit of carriers has been really, really slow compared to what it feels like it should,” Hammett said.

A wealth of economic and technological variables contribute to this stubborn overcapacity. The relevance of capacity issues also varies by region and industry. Broadly, owner-operators—representing a strong majority of recent capacity growth—have been highly resilient to the current rate volatility.

Capacity to come down, rates to come up

The current overcapacity challenges may be stubborn, but they drive an unsustainable rate environment that will eventually turn the market. Average for-hire rates have remained significantly below the costs of operating a truck for an extended time.

“We’re going to end up in two to three straight years where carriers are accepting rates on the market, on the whole, well below the average cost to operate a truck,” Hammett said. “That cost to operate a truck is finally going to become a new floor … The carriers are just going to go, ‘I can’t do it anymore.’”

Freight market conditions are already beginning to stabilize. Monthly average rates this summer reached long-awaited year-over-year improvements. Many firms see a modest, slow turn upward for freight rates in 2025.

“A lot of folks are looking at 2025,” Reed said. “We’ve already stabilized in ’24, and in ’25, we'll probably start to see some uplift.”