Economists and other market watchers often look at signals from the transportation sector, especially trucking (which carries a significant majority of US freight) for insight into the direction of the broader economy.
Supply Chain Digest Says...
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| Truckstop.com data also indicates an inflection point in US freight demand. The peak came in late February, and then began to move downward in early March |
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It makes sense of course – a healthy economy will always be moving more freight than one headed in the opposite direction. For some reason, moves either way in freight volumes often precede and thus can predict which way the economy is headed.
In mid-2008, for example, many truckers were signaling that freight demand was slowing even as the overall US economy seemed to remain strong, only for the stock market to crash and the Great Recession to begin towards the end of the year.
Now, after a two year run starting not long after the pandemic began in early March of 2020, with soaring trucking rates and often great difficulty securing a truck to move a load, the data is telling a different story: the current up cycle for US trucking may have peaked – and with that comes concerns about the strength of the economy.
That according to Dr. David Simchi-Levi of MIT and Noel Perry and Brent Hutto of digital load board Truckstop.com.
Writing on the Harvard Business Review online’s web site, the authors note that “Real-time data suggests that one major cause of supply chain headaches in the United States — a shortage of available trucking — is coming to an end. But it also is signaling that the economy could be at an inflection point.”
As the result of its business matching shippers with carriers at an agreed upon price, Truckload.com generates millions of monthly data points – and a rich database for analysis.
The Truckstop.com data shows that there was a dramatic increase in spot freight (non-contract) market rates immediately following the pandemic breakout.
The Truckstop data shows the up cycle peaked in early January 2022, when rates began to decline. The trend has continued since despite the fact that historically the spring season sees rates and volumes increase.
“This data is the first indication that the two-year-long trucking crisis is almost over,” the authors say.
Also interesting, data suggests that heavily cited driver shortage is also diminishing.
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“Shippers no longer have to compete aggressively price-wise in the spot market to get truckers to move their products to market,” the authors note.
Truckstop.com data also indicates an inflection point in US freight demand. The peak came in late February, and then began to move downward in early March. Brokers, the people who post these loads, are apparently getting fewer requests for trucks from shippers.
That point is generally supported by data from the American Trucking Associations. Its Freight Tonnage Index for April was up 1.8% versus 2021 – but down 2% versus March. The ATA also notes that its index data is dominated by contract freight, with minimal amounts of spot market loads. It adds that it sees the spot market having softened more than for-hire contract freight.
What’s more, the monthly Shipments Index for April from Cass Information Systems also fell 2.6% from March.
So are trucking rates going to head significantly lower?
While the extraordinary US trucking capacity crisis of the last two years and related major increases in trucking rates appear to be ending, “prices are unlikely to return to their pre-pandemic levels due to cost increases, such as higher driver wages,’ the authors say.
And what about the overall economy Will it simply return to normal - or is this the beginning of a recession? Too early to know, the authors say – but given the level of inflation they appear not optimistic.
Any thoughts on whether we've seen a peak in trucking rates and volumes? Let us know your at the Feedback section below.
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