We’ve heard from people that the trucking industry is currently in a freight recession or even that one began earlier this year. A freight recession typically combines falling shipment volumes with flat to negative pricing trends. What some industry participants (particularly brokers) are likely feeling right now is the pain from a collapse in spot market pricing as a greater supply of trucks chases a more slowly growing shipment market. 

While the US economy is in transition to a lower growth rate, we wouldn’t use the term “freight recession” yet for the following reasons:

1) Shipment Volume ⇑ September 2022 vs 2021

• The Cass Freight Index reports September 2022 shipments 4.8% above the same time in 2021: Cass Transportation Index Report.
• At the same time, the Federal Reserve industrial production index shows that manufactured goods are still expanding… for now.
• If we weren’t in a freight recession a year ago, it seems unlikely that we are be in one now with higher freight volumes and expanding manufacturing.

2) ATA Truck Tonnage Index ⇑ Highest Level Since 2019

• The American Trucking Association reports September 2022 for-hire truck tonnage at 5.5% above the same time in 2021. ATA September Report
• The fact that two independent measurements of truck tonnage (ATA and Cass) show expansion during 3Q22 gives us confidence that the overall number of shipments moved during 3Q22 was indeed higher than a year ago. That’s evidence that the market was still expanding in 3Q22, not contracting.

3) 3Q22 Asset Carrier Earnings Releases ⇑

• From JB Hunt (intermodal) to Knight Swift (TL) to Old Dominion (LTL), 3Q22 earnings releases from the largest asset carriers had EPS within or above guidance with companies reporting overall volume and price growth in 3Q22.
• Old Dominion did show negative volumes of 2.6% vs last year, but Old Dominion has a strong focus on yield (i.e., higher prices) with a 17.4% increase in revenue per hundredweight YoY.
• The BLS Producer Price Index for general freight trucking, long distance was also up 22% in 3Q22. Traditionally large asset carriers have more contracted lanes, and those lanes don’t usually reset until 4Q of a year.
• Publicly traded companies may be seeing slowing volume growth, but their combined volumes are still above where they were last year. Pricing (especially contract pricing) continues to show strength, both anecdotally (in Old Dominion’s yield growth) and on a macro level (BLS PPI for trucking).

4) High Inventory Levels Saw Growth in 3Q22

• Across the US economy, inventory levels are at historic highs. Even given that, net business inventories grew during 3Q22 albeit at a slower pace than earlier in the year. Manufacturing inventories levelled off in 3Q22, but retail inventories continued to grow.
• Trucks are needed to move inventory, so growing inventories across the country means trucks were moving in 3Q22 to supply the goods. While the growth is slowing, the inventory portion of the freight market continued to grow in 3Q22. 

5) Institute for Supply Management’s Manufacturing Survey Still Reading Growth

• ISM in August reported 52.8 followed by September’s reading of 50.9. While the survey still showed expansion, this is the lowest figure in over 28 months.
• And look at that downward trend…more on that in our next post.

6) While spot market rates have submarined, contract rates continue to show year over year growth…

• As we mentioned at the top, people may mistake the drop in spot market rates for a freight recession. The below table from DAT (dat.com) certainly makes a convincing case that truckload dry van linehaul spot market rates are falling fast.
• However, based on carrier earnings reports, contract rates in 3Q22 stayed stable and even increased in some cases.
• This divergence cannot be sustained for long – spot market rates have their own economic gravity, and contract rates are bound to reflect the drop.

Nobody is arguing that we were in a freight recession in September 2021, so if the things that drive the trucking sector – shipments, inventory levels and manufacturing – are above the same period in 2021 then you’d have to argue that we weren’t in a freight recession as of September 30, 2022. That’s not to say that we don’t have pain and dislocation in certain sectors, just that it hasn’t coalesced into a full-blown hurricane of bad news just yet. However….

 

Next Week: How can shipments increase but rates decrease? Check back next week for 8 Reasons Why a Freight Recession May Be Right Around the Corner