James Menzies: Welcome back to our next installment of Five Minute Deep Dive: Five Minutes of What Matters Most, featuring FTR. I’m James Menzies. He’s Eric Starks. And today, we’re going to be discussing everyone’s favorite subject — freight.

So, Eric, I think you made a really interesting comment last year at the FTR Transportation Conference. You said that the longest running freight recession on record isn’t so much a freight recession at all. It’s more of a rate recession. ‘Rate stink’.

Explain what you mean by that.

Eric Starks: Yeah. I mean, the freight market has basically flattened out. It hasn’t gone down dramatically, but COVID kinda threw everything off. We saw a huge surge in rates when COVID hit, and it went up in that period, but that was a demand-driven issue.

Supply was low, so demand was high, and so there was clearly things happening. As things settled down, we’ve been just seeing freight plugging along, and so the rates have adjusted. There was too much capacity in the marketplace as a result of a lot of the trucks that were added and the equipment that was added—not just trucks, trailers too—into the system. And so now they’re trying to rebalance that, and the rates came down dramatically, and they finally have started to normalize.

Ultimately, that’s the thing that I’ve been talking about more and more—less about the freight recession, because people like to talk about it that way as an easy shorthand. But when you say it’s a rate recession, then everybody’s like, oh, people are just whining. But that’s not the case. This is a rebalancing of the overall market. And I think that’s an important distinction as we understand where the market’s gonna go because if the freight market does turn, then the rate environment can catch up fairly quickly.

Menzies: Where are we in that rebalancing process, and what’s your outlook for rates for the remainder of 2025?

Starks: So, as we entered this year and in the first part of 2025, we were coming back into more of an equilibrium, where we were very balanced from a utilization standpoint. One of the things we look at is active utilization, and the most important thing is to understand—are we at equilibrium or that historical norm, or are we above it or below it? And we were starting to move above it. And so that was telling us that when you’re above it, usually, there’s pricing pressure into the system.

Now as we have moved into the middle part of this year, we’ve actually started to see it easing back and kind of staying near that historical level. So that means that there’s no significant upside pressure on the rate environment and no significant downside pressure on the rate environment. So as we start looking out over the next year for rates, it’s really not until, say, next year that we start to see rates starting to pick up. So through the balance of this year, we would expect that the rate environment is gonna be very similar to the historical norm. It’s gonna kinda follow that, that traditional pattern that we would see. We don’t have an expectation that’s gonna fall off, but we don’t have an expectation that’s going to accelerate heavily.

If we start looking about risk though, the risk is that rates could be a higher than what we’re currently suggesting. Part of that is trying to understand, do we see more capacity coming out of the system? The longer this goes, the the more likelihood that people finally just say, ‘I can’t continue to hang on, and I can’t I can’t do that’. So, so right now, we have an we do think that rates will slowly start to pick up, but it’s not gonna be anything dramatic. So we’re really gonna be more along an inflationary type of of growth in that 2%-2.5% is a more likely type of situation as we move into the first part of of next year.

Menzies: Okay. We’ve been hearing for a couple years now that fleets aren’t going to be able to hang on. Why has capacity been so stubborn and persistent and failing to exit the industry at any large numbers?

Starks: Yeah. So I don’t know. I don’t. We have thoughts. We have theories on what’s happening. One is exactly what we talked about with the freight. It’s not a freight recession. There is freight to move. It’s a rate recession.

And so when they’re trying to balance and say, ‘Can I continue to haul freight at this particular level?’

And the other part of that then is when they start looking at trying to get rid of equipment.

You know, banks are not overly excited about taking back equipment and shuttering people and saying, ‘I I’m gonna take that back.’ That has not been happening this time. They basically said, ‘Just hang on to it. We’re not gonna take it take it back.’

The other part of that though, too, is the residual value of that equipment has come down dramatically, but it hasn’t collapsed. And so that’s the interesting thing — usually when there’s significant amount of overcapacity to the level that we’ve kind of talked about up to this point, then it then you see a collapse in that residual value of putting into the secondary market. It’s just kinda come back to normal levels is kinda how I would say it. Maybe at the lower end, but it hasn’t collapsed where they’re upside down on the equipment specifically.

So, there’s just a lot of things that are really going on that it’s very hard to make sense of it. And one of the things we do look at is we look at how many additional fleets are being added, how many carriers are getting authority, and how many are losing authority.

And during during COVID, that thing went up, and we were seeing more and more coming into the marketplace. We did see stuff come out, but it was not a one-for-one. If you added one, then one came out. No.

It it was it was maybe, you know, a two-to-one type of thing, where if you added two, you only took one out. We didn’t get a a getting back to that equilibrium. And now we’re basically if we’re adding one, we’re we’re taking one out. So it’s basically just holding the fleet steady.

So it’s just been really interesting. There’s no good reason why this is the case. We only have theories.

Menzies: There is a good reason to go to the FTR transportation conference because you’re gonna be talking about rates and volumes in much more detail. Just give us a quick overview of what what to expect?

Starks: Yeah. So, depending on which side of the equation you’re on. You know, if you’re a shipper, if you’re a carrier, if you’re doing trucking, if you’re doing rail, or motor, we’ll hit all of those different aspects. We’ll talk about what the what the freight market is going to be doing, what type of freight is actually going to be moving, what commodities will be driving those particular markets, and then how does that impact capacity, so that you can understand then what the rate environment is going to be doing.

And we can look at what’s happening in the contract rate market, what’s happening in the spot rate market, and what the outlook is for those. So you can actually start making some better decisions on what’s gonna drive costs for your for your business. And, also, part of that is trying to decide will there be capacity available? If you’re a shipper, will you be fighting for capacity or not?

And so we’ll be able to give you some visibility into that so you can start to understand those markets.

Menzies: Good stuff. I’ll see you there.