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According to the latest analysis by FTR, the FMCSA approved 5,187 new carriers in March while revocations came in at 5,034 resulting in a net increase of 153. While it’s a small increase and only one month, this marks the first time since March 2023 that the number of companies increased. Overall, the pace of capacity attrition has decelerated in 2024, with 1Q24 seeing the fewest carrier exits since 4Q22. At the same time, the ISM emerged from 16 straight months in contraction territory, led by Production and New Orders. These two components are drivers of freight demand.  
 
What does this mean? 

  • Shippers: Continued uncertainty! Carriers exiting the market generally lead to higher spot markets, so if the carrier population stabilizes, we expect rates to not increase as fast. However, if manufacturing increases the number of shipments on the market, then we have more demand and stable capacity, leading to higher prices. 
  • Rates: Broker-posted spot rates have risen for four straight weeks in the Truckstop system for the first time in two years. Of course, the rate increase was 6 cents, so not a hockey stick. Still too early to call this a shift in the market.
  • Existing Carriers: Strong operators are hanging in there and finding opportunities with strong shippers and 3PLs like Synchrogistics.

Overall, uncertainty continues to govern the freight market. Continued shipment growth may yet push rates up, but it feels like forecasters have been saying that for over a year now…. For regular updates and freight industry insights, follow us on LinkedIn!

References:

  • FTR Data Analysis

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Odds of a US recession are now at 96% as the economy transitions to slower growth and grapples with inflation (over 8%) and rate hikes (Fed rates at ~4.71%). Even if we avoid an economy-wide recession, we believe that a freight recession (meaning negative trucking shipment volumes for two or more consecutive quarters) is highly likely. If a freight recession is coming, it will be due to the following reasons:

1) 3Q22 Shipment volume still shows growth over 2021, but the rate of growth is falling quickly
  • Spot market rates are falling by double digits, with contract rates expected to follow suit in 4Q22 and 1Q23 bidding negotiations. In our previous posting we showed that overall truck miles are up, so how can total miles be up 5% but rates drop like a stone? Supply. The belief is that companies ramped up supply chain capacity over last two years and only now are disruptions (generally) settling down. Load to truck ratios have plummeted. For example, rates were dropping before Hurricane Ian. For a couple weeks, rates jumped due to the disruption. Normally, rate elevation would have lingered; however, rates were back on a downward trajectory within a couple weeks.
2) Two negative GDP quarters in a row (up until 3Q22!)
  • With GDP being negative for two quarters (Q1 and Q2 2022), this activity means that overall economic activity in the US decreased YoY. In addition, the goods component (i.e., things that move on a truck) has shown less strength than the overall economy generally since Q3 2021. While you may take solace in the fact that the economy showed a 2.6% increase in 3Q22, the reasons for the increase are not unambiguously good. First, government spending boosted GDP. We all know that the government is borrowing heavily to support spending, and that borrowing ultimately leads to inflation and higher interest rates. However, the biggest boost to GDP came from a smaller trade deficit – meaning that the US imported fewer goods and exported more. The strong dollar (caused in part by the Fed’s increase in interest rates) will serve as a brake on exports in the future as US goods and services (priced in strong dollars) cost relatively more than competing goods and services.
3) Many economists are calling for a recession starting in 4Q22 (despite 3Q22 earnings looking robust)
  • The Conference Board predicts a 96% likelihood of a recession in the next 12 months, caused by the Fed’s interest hikes in response to excess liquidity in the US economy. S&P Global Market Intelligence calls for a mild recession beginning 4Q22 and ending 2Q or 3Q23 with a contraction of ~1% expected.
4) Record inventory levels – $732 billion as of July 2022
  • Because of expected peak retail season, inventories are high and were still growing as of 3Q22. When inventories are high, businesses order fewer products, meaning less freight moves by truck. Inventories grew in August 2022, but the rate of growth (which is seasonally adjusted) is below historic trends (2.9% vs 3.4%). If demand dries up (i.e., rate hikes causing higher debt service for consumers), significant inventory needs to be worked down to get back to the mean.
5) Dow Jones Transportation Index down more than S&P 500 or DJIA
  • The DJ Transportation Index is down 9.6% YTD versus 7.7% for the S&P 500 and 0.2% for the Dow Jones. The market anticipates that the rate “rot” that’s happening in the spot market will spill over to the contract rate market for truckload carriers. At the same time, LTL stocks are providing support as the market is not yet calling for LTL stocks to suffer the same pain as the Truckload sector.
6) Fed rate tightening continues to raise costs in economy, reducing overall demand, and taking money out of consumption while applying it to interest expense
  • After keeping Fed Funds rate near 0% during the pandemic, the Feds have increased rates 6 times beginning in March 2022. Fed Funds rate is now between 4.50 – 4.75% vs 0.08% last year. The long-term average rate has been 4.60%. The highest rate ever was 22.36% in 1981. The impact of monetary policy tends to act with a 9 – 12 month lag, meaning the impact of recent rate increases will not be fully felt until 2023.
7) Housing market cooling down
  • With the housing market softening, a negative impact has been felt across many industries. Real estate accounts for 17% of US GDP, and the National Association of Realtors estimates that each home sale at the median price generated $113,000 of economic impact in 2021. Mortgage rates are hovering around 7% with new single-family home sales dropping by nearly 11% from the prior month of September and prices reporting the 2nd straight month of decline. New single-family homes sold reached its lowest level in July since March of 2016. This decrease will impact everything from lumber and concrete to furniture and appliances.
8) Consumer spending cooling down
  • Consumer spending drives 70% of US GDP. Inflation is built into consumer spending – consumers are getting less for each dollar of spending due to inflation. Even though consumer spending has remained strong, the goods received for every dollar are falling. As consumer spending / the goods purchased decrease, businesses ramp down production and hiring, leading to further reductions in consumer spending and, ultimately, less need for trucking.
9) Class 8 truck orders hit historic highs
  • Fleets are adding new capacity and upgrading what they have. In 2021, chip shortages led to depressed truck deliveries. Manufacturers are making up for lost time regarding filling out their order pipelines. The majority of the time that a fleet takes a new truck, it sells the replaced truck on the secondary market. Secondary market buyers are small fleets and owner operators, who have much higher spot market exposure. This new capacity hitting the spot market while demand is moderating means oversupply of truck capacity, which has led to spot market rate declines.

While we are navigating uncertain economic times, our full-service managed transportation clients are benefiting from recent declining spot market pricing through our transparent model. Please contact customerservice@synchrogistics.com today to learn about a managed transportation partnership, the Synchro Way.


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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….