Diesel Prices Could Push More Capacity Out in Q4

Diesel prices could drive more trucking capacity away in the fourth quarter, posing a significant market concern according to RXO's Corey Klujsza. The freight market began Q3 with spot rates nearing record highs, but they have since softened. This appears to be due to traders rebalancing contract contracts, removing volume from spot lanes instead of indicating a drop in demand.

Despite this, Klujsza acknowledges that consumer demand is weakening, mainly due to surging fuel and food prices. The average carrier's operating margin is significantly lower than it was at the end of the previous cycle, and all-in transportation costs are approaching all-time peaks, largely driven by diesel fuel expenses. Klujsza points out that recent growth in goods consumption may be more attributable to escalating energy costs rather than a genuine increase in consumer spending.

Looking ahead to peak season, Q4 indicators suggest a subdued outlook similar to last year's, where freight volumes did not surge until late November. On a positive note, the Cass Freight Shipment Index showed its first year-over-year increase in shipments to the for-hire market in more than 40 months in August, potentially signaling a shift of business from dedicated fleets.

Klujsza notes that shippers who agreed to underpriced contracts in the first half of the year may now need to renegotiate, narrowing the gap between spot and contract rates. He projects contract bids for 2027 to contain double-digit year-over-year increases, indicating that single-digit growth will no longer suffice given the timing of the last procurement event.

Additionally, carriers are trimming their networks due to heightened fraud and compliance risks, opting to work exclusively with vetted partners that meet stricter compliance standards.