The Freight Economist
August 2024
Executive summary
Monthly economic and market update
Containerized imports
hit a record level in July, exceeding the comparable 2021 and 2022 levels.
U.S. economy
U.S. GDP
Income and spending
Labor market
Freight demand
Imports
Truck
tonnage
Manufacturing
Consumer spending
U.S. container imports surged to their third-highest level ever in July, surpassing the comparable volumes of 2021 and 2022 for the first time since the freight recession began. Imports skyrocketed 11.2% from June, far exceeding the typical seasonal increase of 4.6%, and were 16.8% higher than the same month last year.
China dominated import growth, with a record-breaking 1,022,913 TEUs arriving in July according to Descartes. This unexpected surge may be attributed to shippers anticipating potential tariffs and accelerating imports ahead of the U.S. elections.
Imports
What does it mean for truck tonnage?
Consumer spending on goods
Key data points and commentary
Trucking
volume
Rail volume
and rates
Geographic
trends
Routing guide trends
Routing guide trends
Geographic trends
Average m/m and y/y van spot rate index by origin regions – July
Source: DAT
Trucking volume
The Cass Freight Shipments Index rebounded in July, increasing by 3.1% after a four-month decline. Although still down slightly from the previous year (1.1%), the index showed its smallest year-over-year decrease since March 2023. Meanwhile, the American Trucking Associations’ (ATA) For-Hire Truck Tonnage Index fell 1.6% in June after rising 3% in May. While the index marked a 1% year-over-year increase in May, the first such gain since February 2023, it fell 0.4% y/y in June, according to ATA.
Rail volume and rates
Intermodal costs increased by 1% in July, following a small decline in June. Compared to the same period last year, intermodal prices were up 2.2%. This marks the second consecutive month of year-over-year growth after a 14-month downturn. At the same time, carload rates continued to climb, rising 0.5% from June to July and 4.3% compared to July of the previous year.
Mazen’s work focuses on analyzing the freight transportation landscape, and producing short- and long-term forecasts based on supply and demand dynamics. He is also a research affiliate with the Intelligent Transportation Systems (ITS) Lab at MIT, where he completed his PhD in 2019. His work falls at the intersection of ITS, economic modeling, and analytics.
mdanaf@uberfreight.com
By Mazen Danaf, Senior Economist and Applied Scientist, Uber Freight
Featuring insights and contributions from Uber Freight leadership,
technologists and market specialists.
Routing guide performance dipped slightly in July amidst tightening market conditions. First tender acceptance rates dropped slightly to 92%, though remaining near historical highs. Route guide compliance also ticked lower to 94%, with most spot shipments still being intentional or one-off orders. Minimal inflation over primary carriers indicates that the risk of route guide failures is low in this soft market. As peak season in the flatbed market winds down, first tender acceptance for flatbed continued to rise, reaching 92%.
The U.S. economy rebounded strongly in the second quarter, expanding by 2.8% after a sluggish 1.4% growth in the first quarter. Consumer spending, the bedrock of the economy, accelerated, with purchases of goods driving growth and offsetting a modest slowdown in service spending. Spending on goods contributed 0.55% of the total growth in GDP, following a -0.5% contribution in the first quarter.
Inventory investment contributed 0.82% to overall GDP growth in the second quarter. This suggests businesses produced more goods than they sold, anticipating increased demand. This is supported by the Federal Reserve's data indicating a 0.6% rise in manufacturing output during the same period.
Net exports subtracted more from GDP growth in the second quarter compared to the first. This was primarily driven by a surge in imports, which count negatively towards GDP. Goods imports expanded at an annualized rate of 7.7%, accelerating from the previous quarter's 6.5% pace.
Executive
summary
U.S.
economy
Freight
demand
Freight
supply
U.S. GDP
Average m/m and y/y van spot rate index by destination regions – July
Source: DAT
Dry van spot rates increased in July for freight originating in the Midwest and Northeast but decreased for shipments leaving the Southeast as the summer produce season ended. Compared to the same time last year, rates remained unchanged in all regions except the West, where they were 4.7% higher. Inbound rates saw little change month-over-month in most regions. Annually, they were 3.3% lower in the West but 3.8% higher in the Southwest compared to their year-earlier levels.
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Key data
points
Shipper and carrier insights
Consumer spending on goods increased 0.2% in June compared to the previous month and was up 2.3% year-over-year. While spending on durable goods declined by 0.2% in June, nondurable goods spending rose by 0.5%. However, over the past year, durable goods outperformed with a 2.9% increase compared to a 2% rise in nondurable goods spending.
Among durables, purchases of motor vehicles dropped by 5% compared to the previous month, with new automobile sales plummeting by 11.3%. However, spending on electronics increased by 1.8%.
Nondurable goods spending was robust across the board. Consumers increased spending on food by 0.3%, alcoholic beverages by 0.5%, clothing and footwear by 1.1%, household supplies by 1.7%, and personal care products by 1.3%.
Bid activity
Inflation
Retail and food service sales climbed 1% in July, primarily boosted by a 3.6% surge in motor vehicle and parts dealers. Excluding this sector, sales edged up 0.4% from the previous month and were 3.1% higher compared to the same time last year. Importantly, this sales growth outpaced the rate of inflation for goods, which actually decreased over the past 12 months.
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Truckload demand rose significantly in June, driven by manufacturing, wholesale, and consumer spending on goods, where truck tonnage rose 0.3%, 0.6%, and 0.4% respectively in these three sectors. Manufacturing-driven demand rose 0.5% from its year-earlier level, the first increase since October 2022.
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The U.S. economy surged in the second quarter, expanding at a robust 2.8% annual rate. Spending on goods contributed 0.55% of the total growth in GDP, following a -0.5% contribution in the first quarter. However, the U.S. labor market weakened significantly in July. The unemployment rate climbed to 4.3%, its highest point since October 2021, triggering the Sahm Recession Indicator. The Federal Reserve’s preferred inflation gauge, the Core PCE Price Index, inched closer to its 2% target in June, coming in at 2.6%. As inflation cools and unemployment rises, the possibility of interest rate cuts in the near future is growing.
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Average weekly intermodal shipments experienced a slight decline of 2.2% in July compared to the previous month. However, these shipments were still notably higher by 8.3% when compared to the same period last year. Similarly, weekly carload volumes decreased by 2.3% month-over-month and were 1% lower than July 2023 figures. The ongoing surge in imports, particularly those destined for West Coast ports, continues to be the primary driver of intermodal demand.
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Shipper and carrier insights
The U.S. labor market weakened significantly in July. The unemployment rate climbed to 4.3%, its highest point since October 2021, triggering the Sahm Recession Indicator. This rule indicates a recession is underway when the three-month average unemployment rate increases by 0.50% or more from its 12-month low.
Job growth also slowed dramatically, with only 114,000 jobs added in July, the second weakest performance since December 2020, after April 2023. Wage growth continued to decelerate, falling to 3.6% year-over-year, the lowest rate since May 2021.
Further signs of labor market cooling emerged from the JOLTS report. New hires plummeted 5.6% in May, marking a 9.4% year-over-year decline, and reaching their lowest level since April 2017. Job openings also decreased 0.6% in May, representing a 10.3% year-over-year drop.
Labor market
Consumer prices continued to cool in July, according to the Bureau of Labor Statistics. The Consumer Price Index (CPI) rose a modest 0.2% month-over-month and 2.9% year-over-year, marking the lowest annual rate since March 2021. Excluding volatile food and energy components, the CPI also increased 0.2% monthly but was up 3.2% annually.
Meanwhile, wholesale prices, as measured by the Producer Price Index (PPI) for final demand, inched up 0.1% in July and 2.3% year-over-year.
The Federal Reserve’s preferred inflation gauge, the Core PCE Price Index, inched closer to its 2% target in June, coming in at 2.6%. As inflation cools and unemployment rises, the possibility of interest rate cuts in the near future is growing.
Inflation
Consumer spending and income growth cooled in June.
Real disposable income edged up just 0.1% after a 0.3% increase in May, lagging significantly behind the pre-pandemic average annual growth rate of 2% to 5%. As a result, consumer spending inched up only 0.2% in June, slowing from May's 0.4% gain. With a personal savings rate of just 3.4% in June, the lowest since December 2022, consumers are still relying on savings to maintain spending levels.
Income and spending
U.S. manufacturing has contracted for four consecutive months, despite a brief rebound in the second quarter.
While manufacturing output grew by 0.6% in Q2 according to Federal Reserve data, the ISM Manufacturing PMI registered 48.5 in July, signaling contraction for the fourth time in five months following a 16-month downturn. Production, new orders, and backlogs all declined, suggesting weakening demand. A sharp drop in the employment index points to potential job cuts in the sector. However, inflationary pressures persist, as indicated by the Prices index remaining above 50.
Manufacturing
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The ISM report also highlighted widespread concerns among manufacturers about declining demand and order levels. Respondents across various sectors expressed pessimism about the near-term outlook.
Manufacturing
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Freight supply
Spot rates
Class 8
trucks
Supply and demand indices
Driver
employment
Truckload demand increased by 0.9% in June, driven by growth in manufacturing, wholesale, imports, and exports. Compared to June 2022, demand was up 2.3%. Over the quarter, demand remained flat from Q1 and rose 1.1% from Q2 of last year. Conversely, supply dipped 0.3% in Q2 and was 0.3% lower in June compared to the previous year. The narrowing supply-demand gap, at its tightest point in 17 months, suggests the market is moving towards equilibrium.
Truckload supply and demand indices
The trucking industry continued to shed capacity in July. Carriers responded to the short-lived post-Fourth of July spot rate surge by further reducing their fleets. Trucking employment declined by 11,700 over the past four months, representing a 0.75% decrease and a 2% year-over-year drop. This trend was even more pronounced in the long-haul segment, a more reliable indicator of market conditions, which saw a 3-month decline and is now 1.7% lower year-over-year. Despite these reductions, the market remains oversupplied, as evidenced by long-distance TL employment levels still exceeding the 2019 peak.
Truck driver hours and wages offer additional insights into market conditions. Average weekly hours worked by long-haul drivers fell to 40.9, the lowest level in five years outside of pandemic-related disruptions. Moreover, long-haul truck driver wages have declined for two consecutive months, reaching a point 2% below their peak and showing negative year-over-year growth. These indicators suggest a significant oversupply in the market.
Driver employment
Dry van spot rates declined in July after a brief seasonal uptick. Following two consecutive rate increases in May and June, linehaul spot rates averaged one cent per mile below June’s level, as post-Fourth of July market softness set in. While still slightly higher than 2023 levels, this marks the end of a 26-month streak of year-over-year decreases. The post holiday softness continued into the first half of August.
Overall transportation costs remained relatively stable in July. Although linehaul rates fell, a 2.4% month-over-month increase in diesel prices offset some of the decline. However, diesel prices have since retreated for four straight weeks.
Spot rates
- The trend of annual full-network RFP events continues, with supplemental mini-RFPs used to support routing guides as needed
between bid cycles.
- After seeing record activity in 2023, RFP events have been generally flat through H1 2024.
Market conditions
Market
conditions
In freight, truckload demand rose 0.9% in June, driven by manufacturing, wholesale, and consumer spending on goods. Contrary to pessimistic manufacturer reports in the ISM survey, manufacturing-driven truckload demand rose 0.5% from its year-earlier level, the first increase since October 2022. Meanwhile, the trucking industry continued to shed capacity in July. Trucking employment declined by 11,700 over the past four months, representing a 0.75% decrease and a 2% year-over-year drop.
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A decline in truck and trailer orders typically foreshadows weaker sales in the coming months. Tractor sales, on a six-month moving average basis, were 28.7% lower year-over-year and 14.2% below the ten-year average. Trailer sales, averaged over the past six months, were 15% lower compared to the previous year and slightly below the long-term average (2.6% lower).
Class 8 trucks and trailer orders
The US GDP rose in Q2 despite growing fears of a recession
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Tractor and trailer orders and sales serve as leading indicators for freight prices, though their fluctuations can be significant. By smoothing out these fluctuations through six-month moving averages, we can identify potential trends in the market.
Recent data suggests a tightening market in the coming months. Compared to the previous year, six-month moving average tractor orders increased by 19.9%. Nevertheless, these orders remain 37.1% below the ten-year average, highlighting persistent weakness in the market. Similarly, trailer orders, when averaged over six months, declined by 29.8% compared to the previous year and were significantly lower, at 62.2% below the ten-year average.
Class 8 trucks and trailer orders
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Strategic trends for shippers
- Shippers are beginning to insulate themselves ahead of a predicted upturn in the contract market.
- Shippers are willing to bid the entire network vs. select lanes.
- Most shippers are trying to keep their incumbents in place if possible through the RFP cycle.
- Volume cutoffs remain a key strategic discussion while preparing to release an RFP event.
Carrier behavior and pricing
- TL carriers continue to cast a wide net in bid, but are starting to narrow focus to their preferred volume vs. any volume.
- Brokers continue to be aggressive in an attempt to capture market share.
- Incumbent carriers are trying to stay whole in RFPs. Some even push pricing increases with little success.
- TL savings trend to mid-single digits as incumbents try to hold on price.
Current procurement headlines
Carrier management
Best practices for Q3 2024
- Establish strategic relationships with key providers in your network.
- Create symbiotic, long-term goals with key partners.
- Partner with carriers on company initiatives around technology, best practices, and ease of doing business.
- Develop formal processes to address service and performance improvement plans.
Navigating volatility
- Work with carrier bases to understand their network and cost pressures.
- Work with strategic carriers to achieve cost and price transparency within your network, and create an action plan for out-of-
process lanes.
- Stay close to your incumbents on critical lanes to understand price trends and capacity changes.
- Understand your carrier base’s tracking and technology capabilities, and set clear expectations for potential onboarding and
deployment.
- Meet carriers where they are in the tech journey and find the ideal solution for their business, while pushing them to your
preferred connectivity method.
Seasonal trends are the primary driver of market movements
August is typically a quiet period for the truckload spot market. Demand softens in southern regions as the summer produce season winds down, while northern markets have yet to ramp up for the fourth quarter peak. Market conditions are relatively tight in only a few regions, primarily California, where summer produce and increased imports are driving demand, as well as Texas and some markets on the East Coast.
We anticipate tightening conditions in northern U.S. markets, including the Midwest and the Pacific Northwest (Oregon, Washington, and Idaho), starting in October when Christmas tree shipments commence.