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The trucking industry continued to bounce along the bottom of a prolonged freight recession during the first quarter of 2024.

The industry entered a significant period of growth shortly after the coronavirus pandemic hit as market dynamics shifted heavily in favor of the movement of goods over services. This also led to an increase in capacity involving both equipment and smaller players. But about two years ago, freight demand started slowing while capacity remained high.

“Obviously, the market is still overcapacity, rates are still under pressure,” said Daniel Imbro, a managing director at Stephens. “We’ve seen that continue here into 2Q. And so I’d say definitely a more muted demand backdrop is maybe the big takeaway, and we’re bouncing on the bottom here with the overcapacity market that people are hesitant to take trucks out of.”

Imbro noted that demand underperformed seasonality through March and into April. He believes the less optimistic outlooks from public carriers may have to do with the expected seasonal recovery this time of year not materializing as much as they would have hoped.

“The biggest issue in the market is the overcapacity relative to demand,” Imbro said. “We’re two years into this freight recession; historically you’ve seen capacity get pushed out faster than it has. And so the debate now has become how have small carriers kind of stayed in here, and then what does it take for that capacity to pick up.”

that the troubled truckload market continued to push out solid expectations despite modest seasonality heading into spring. The report also concluded that less-than-truckload carriers leaned into pricing despite absent industrial demand. This reflected valuation revisions as investors try to find a new normal after the Yellow Corp. closure.

“I would call it poor and disappointing for the most part,” TD Cowen analyst Jason Seidl said. “There were some favorable moments. But, in general, I think, it came in below already muted expectations for the quarter. And there is that consistent overcapacity we have in the truckload marketplace that is keeping spot rates down, and then it’s been impacting bid season. So that’s the bad news.”

Seidl pointed out there have been some positives to come out of first-quarter earnings. Werner Enterprises and Schneider revealed that their most recent contractual rate agreements were slightly in the black year-over-year. He also has heard that destocking efforts are over, and select restocking has started to occur. There also are signs of typical seasonality occurring.

“I will point out that in terms of a pattern, all carriers had to cope with more difficult winter weather on a year-over-year basis,” Seidl said. “Also, the guys had to cope with lower gains on sale because equipment prices have been declining, both on a tractor and a trailer basis. So there are other things that negatively impacted the quarter other than the overcapacity.”

The found that spending by shippers decreased 27.9% compared to the same quarter last year. It also was down 16.8% compared with the fourth quarter of 2023. The report noted that shipments dropped 21.6% from a year prior. It added that all regions had significant declines in shipments and spending except for the Southwest.

“Coming into the year, our view was that the pressure from the mismatch between contractual rates and continued inflation would drive earnings and margins much worse than investors expected,” Susquehanna International Group analyst Bascome Majors said. “And so far, we believe that the 1Q results of trucking companies largely support that view.”

Majors suspects investors were anchoring expectations in a status quo perspective in the face of some uncertainty. But he also said he believes that investors reassessed their expectations as large one-way truckload businesses face the most challenging margins in over a decade.

“The bad news is it doesn’t look like the supply-demand dynamic and truckload per day is supportive of meaningful rate adjustments to the upside to offset this in the next quarter or two,” Majors said. “But the good news is that the demand backdrop feels somewhat stable, and investor expectations also seem better aligned today.”

Majors added this marks the beginning of the waiting period to see how demand performs in seasonally stronger periods like June and into the holiday season. He noted that the supply-and-demand backdrop will lead into freight pricing discussions next year and whether that will drag the industry out of this freight recession from a profit standpoint.