2023 proved to be a difficult year with low freight volumes and rates in both the spot and contract markets. The question now is… where do we go from here?
In this article, we'll give a recap of the year and answer questions including:
The difficult market has certainly washed out some capacity, why haven’t we seen rates improve?
What are the latest trends with miles, rates, fuel costs, and maintenance?
Are ICs making enough to survive?
What has happened to the IC population during this downturn?
What's in store for 2024?
Interested in learning more? Check out our full Independent Contractor Benchmarks and Trends Webinar, where we give a more in-depth recap of how owner-operators have performed in 2023!
Freight Rates
From May 2020 through April 2022, we saw one of the biggest increases in spot market
load volumes and rates in the history of trucking. But in April 2022, while contract rates
remained somewhat stable, spot market rates and load volumes began falling dramatically.
Here are some numbers to illustrate this shift in the market:
Peak- November of 2021
Loads: 240 loads per 1 truck looking for a load
Rates: $2.49 per mile (without fuel surcharge)
February 2023
Loads: 55 loads per 1 truck looking for a load
Rates: $1.80 per mile (without fuel surcharge)
September 2023
Loads: 60 loads per 1 truck looking for a load
Rates: $1.93 per mile (without fuel surcharge)
Today - February 2024
Loads: 61 loads per 1 truck looking for a load
Rates: $1.88 per mile (without fuel surcharge)
While we saw a 77% drop in the number of loads available and a 28% drop in rate per mile (net of fuel surcharge) from February 2023 to September 2023, we have started to find stability in the spot market. Both the amount of loads per truck and the rate per mile (net of the FSC) have remained stable over the last six months. We also continue to see signs of the spot market building momentum towards better rates and load availability.
This didn’t come without pain. Those that remained in the spot market have likely seen cash reserves depleted due to increased fixed costs and a longer than normal difficult market.
Miles
In the beginning of 2023, we finally saw drivers begin to run more miles. We expected to see this sooner, as drivers tend to drive more miles during challenging times. Now, with a prolonged difficult market both in the spot market and with contract rates, we have seen miles increase more on a year-over-year basis in 2023 since the great recession hit us in 2008-2009.
ICs started running more miles, and it’s already positively impacting net income! However, drivers running more miles have had a direct correlation to more capacity, which means the down market has likely been extended by running harder!
Overall, miles have dropped significantly over the past 20 years. In 2003, owner-operators averaged about 140,000 miles per year. At the minimum, in a booming freight market, it dropped to 85,000 miles per year. Today it is up to 91,400 per year. As long as the market stays difficult, miles should continue to trend higher.
Revenue
Owner-operator revenue per mile is down 9.4%, or 20 cents per mile on a year-over-year basis. A significant portion of that has come from the reduced cost of fuel resulting in a lower fuel surcharge. True rates have also fallen simultaneously.
However, due to the increase in miles, total revenue is only down 2.4%. We expect net rates to remain stable through the first half of the year, with the hope that we see a rebound in rates for the second half of 2024.
Fuel
From the middle of 2020 until the middle of 2022, a booming freight market enabled owner-operators to make good money and save up cash while not having to worry about costs. We are now almost two years into the opposite cycle with decreasing freight rates and quickly changing fuel costs. Owner-operators started to focus more on fuel mileage to earn more money.
During the summer of 2023, we saw fuel prices dip significantly. In the last few months, we have seen that price continue to rise again and we could see fuel over $5 per gallon. With this in mind, if you haven't begun making changes to your driving habits to improve MPG, now would be the time to start. Luckily we just recently launched 25 ways for owner-operators to do just this.
Maintenance
Despite miles being up 7.5%, we only saw a 0.3% increase in maintenance. Generally speaking, when we see miles go up, we should also see maintenance go up at a similar rate.
We believe there are two main reasons for this. First, owner-operators have been able to upgrade their equipment more so than at any time in the last three years. Trucks are now plentiful and prices have gone down. Newer trucks mean lower maintenance costs.
Second, we often see deferred maintenance in a down market. When owner-operators are strapped for cash, they put off mechanical issues. This is a recipe for disaster because the number 1 cause of owner-operator failure is a major mechanical issue.
The average IC is paying $1,000 per month for maintenance. This cost depends on the age of your truck, the routes you run, and the mileage you drive. You need a custom maintenance plan to make sure you are covered for the repair, the fixed costs when you are down, and your home bills while not generating revenue.
Fixed Costs
One of the most surprising figures at the end of this year was the 7.8% increase in fixed costs. These costs include items like truck payments and insurance.
Last year we barely saw any increases in fixed costs. This is likely due to people upgrading their equipment as we discussed earlier, but also the ever-increasing costs of insurance. The average truck payment is up roughly $200 per month to $2,900. The inflationary costs we saw in 2023 hit fixed costs for owner-operators.
Net Income
Overall, owner-operator net income is down 2.1% to $62,932. While this might be a tough pill to swallow, net income has actually flattened out over the last six months. Not only that, but we saw net income rise on a year-over-year basis during every month of Q4.
We believe we are at the bottom, but it is still difficult everywhere. That means the grass is not greener on the other side and now is the best time to dig in, earn more revenue, and cut costs where you can!
Average net income is now lower than it was before the pandemic, However, the best owner-operators have not lost much at all. This is because when times got tough, they started to run more and focus on fuel efficiency. We're finally starting to see more owner-operators follow this same strategy.
+1/-10
Incremental and small changes are the best thing you can do today. The two charts above illustrate the top two things the average IC can do to dramatically increase their income, increase their revenue, and decrease their costs. Increasing your revenue could just mean one more load a month, which is illustrated above.
There are many ways to decrease your costs, but fuel is your biggest cost and the one you can control the most. Just one mpg better means taking home $8,000 or more in profit!
If you do one of the two things above, you’ll increase your net income by $150 a week or $8,000 per year. If you do both, you’ll take home nearly $300 more per week, or $15,000 a year.
It might not be possible to run 500 more miles a month or get one mpg better, but if you do a little bit of each, you’ll see drastic improvements to your net income.
2024 Outlook
Revenue per mile slipped almost everywhere but seems to have bottomed out. However, it may not start going up for a while.
Miles are finally trending upward. Increasing your miles can dramatically improve your take-home pay.
Fuel MPG has started to improve. We can do better - slow it down!
The best owner-operators have run more miles and increased their MPG. Their net income hasn’t gone down, and actually is starting to go back up!
Save for maintenance & downtime, it’s the number 1 cause of IC failure.
The best businesses and owner-operators are still doing well. The increased cost of fuel gives drivers the chance to improve fuel efficiency, run a little harder, and continue to succeed in trucking! The bottom line is that owner-operators control their own destiny, and they can make changes today to ensure profitability and success!