The Freight Economist
March 2024
Executive summary
Monthly economic and market update
Dry van spot rates fell
about 20 cents per mile between the third week
of January and the last
week of February.
US economy
Pandemic savings are long gone
Income and spending
Labor market
Freight demand
Merchant
wholesalers
Truck
tonnage
Manufacturing
Consumer spending
Wholesalers' sales fell sharply by 1.7% in January and were 1.5% lower year-over-year. Sales of durable goods fell by 0.7%, despite a 3.3% increase in automotive sales. Sectors that saw the sharpest drops included furniture (-2.7%), lumber and construction materials (-7.5%), and metals and minerals (-3.1%). Sales of nondurable goods also fell 2.5% in January. All sectors saw sequential decreases of more than 1% except for apparel, where sales rose 3%.
Wholesalers’ inventories also fell in January, but the decreases were not as sharp. Total wholesale inventories fell 0.3%, driven by a reduction in nondurable goods inventories (-1.0%). Sectors that saw the largest decreases included paper products (-2.3%), apparel (-3%), farm products (-4.5%), and chemicals (-2.7%). Wholesale inventories were 2.5% lower year-over-year, due to an 8.6% drop in nondurable goods inventories.
Excluding automotive and bulk (such as farm products, petroleum, and minerals), which are not directly relevant to truckload demand, inventories fell 0.3% m/m and were 1.8% lower y/y, while sales fell 1.5% m/m, but were still 0.9% higher than their January 2023 level.
Merchant wholesalers
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 – February
Trucking volume
The Cass Freight Shipments Index rose 7.3% in February. However, seasonal adjustment brings this increase down to 2%. The index was 4.5% lower y/y, reflecting weakness in the LTL and manufacturing sectors. Meanwhile, the American Trucking Associations’ (ATA) truck tonnage index fell 3.5% in January (seasonally adjusted) after rising 1.2% in December. The index was 4.7% lower than its year-earlier level. ATA attributed the decrease to bad winter weather and to drops in retail sales, housing starts, and manufacturing output.
Rail volume and rates
Intermodal and rail prices both fell in February, according to the Producer Price Index data. Intermodal prices fell 5% m/m and were 7.3% lower y/y, while rail prices fell 0.5% m/m, but were still 2.6% higher than the February 2023 level.
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.
Spot rates fell across all trucking modes in February, according to Uber Freight’s data. However, contracted rates rose slightly, mostly due to an increase in diesel prices. As the spot market cooled down, dry van spot volumes fell by 1.4%, and the first tender acceptance rate rose 1.6% to 91%. Meanwhile, intermodal spot rates rose in February after dropping in the prior month, but intermodal contract rates continued to decline.
During the pandemic, consumers saved an estimated $2.1 trillion in excess of their pre-pandemic saving trend. This was mostly driven by the stimulus payments distributed in March 2020, December 2020, and March 2021.
However, over the last two years, consumers tapped into these savings to maintain high levels of spending, and only saved 3% to 5% of their disposable income. Since the second half of 2021, the personal saving rate has dropped below its long-term trend, and remained that way. This was significantly lower than their pre-pandemic saving rate (7% to 8%).
Therefore, total savings fell below their pre-pandemic level, indicating that excess savings have decreased over time. Between October 2021 and January 2024, the cumulative gap between savings and the long-term trend was $2.5 trillion, indicating that the pandemic savings have been completely depleted.
Early indicators of freight demand were mixed:
- Container import volumes fell 6.0% in February, but were 23.3% higher y/y. February’s drop was in line with seasonal expectations; on a seasonally adjusted basis
(and after accounting for leap year), imports were flat m/m. However, February’s imports exceeded their comparable 2021 levels for the first time since July 2022.
- Manufacturers’ new orders of core capital goods, an early indicator of manufacturing activity, remained flat m/m in January, and were also flat on a y/y basis.
- New home sales rose 1.5% in January, and were 1.8% higher than their year-earlier level, but still about 35.8% below their peak seen in August 2020.
- Existing home sales are likely bouncing from the bottom, as they rose 3.1% in January, and were only 1.7% lower y/y.
Executive
Summary
US
Economy
Freight
Demand
Freight
Supply
The pandemic era savings are long gone
Average m/m and y/y van spot rate index by destination regions – February
As weather conditions improved in February, trucking spot rates fell sharply across all regions. The magnitude of these decreases ranged between 3.5% (for outbound shipments from the Southeast) to 8.2% (for outbound shipments from the Midwest). Spot rates remained lower than their year-earlier levels for all regions except the West, where they were 1.8% higher. This relative strength in the West is likely associated with the recovery of imports at West Coast ports.
1/2
1/2
2/2
Key Data
Points
Sustainability policy updates
Real personal spending on goods (adjusted for inflation) fell by 1.1% in January, its sharpest drop since November 2022. January’s weakness was broad-based, as spending fell across durable (2.1%) and nondurable goods (-0.5%). Sectors that saw the largest decline in spending included motor vehicles and parts (led by new light trucks), gasoline and other energy goods (led by gasoline), and other nondurable goods (led by prescription drugs), according to the Bureau of Economic Analysis.
Despite this sharp drop, real spending on goods was still 1.5% higher than its year-earlier level. This was significantly down from the 4.7% year-over-year growth seen in December. Meanwhile, spending on services rose by 0.4% in January, and was 2.3% higher y/y.
January’s decline in retail sales was likely due to weather conditions. Data from the Bank of America show that spending fell in most regions in the US, but remained resilient in the West, where the weather was significantly better in January.
The Biden-Harris administration released the National Zero-Emission Freight Corridor Strategy this month, which will guide the deployment of zero-emission medium- and heavy-duty vehicle charging as well as hydrogen fueling infrastructure from 2024 to 2040. With growing market demands, the Strategy targets public investment to amplify private sector momentum, seeks to focus utility and regulatory energy planning, and align industry activity. Phase 1 of the strategy will establish priority hubs for electric vehicle charging and hydrogen refueling along our nation’s freight corridors based on freight volumes over the next three years. These hubs will be then connected along critical freight corridors.
The White House’s electrification plan is closely aligned with findings from Uber Freight’s research on the future of nationwide electric truck deployment. Both of these efforts used a similar methodology, which initially identifies key hubs in the US, and then connects them via the US interstate network. Our research identified the I-5 corridor and Texas Triangle as top candidates for early electrification, in addition to three mini-networks with a high density of short- to medium-haul freight in:
1. The Northeast: connecting Washington DC, Baltimore, Philadelphia, New York / New Jersey, Harrisburg,
Allentown, and Richmond.
2. The Great Lake: connecting Milwaukee, Minneapolis, Chicago, Indianapolis, Columbus, Cincinnati, and Louisville.
3. The Southeast Atlantic: connecting Atlanta, Savanna, Greenville, and Charlotte.
Most of these corridors and regions are included in Phase 1 of the White House national electrification plan.
Like most economic indicators, manufacturers’ new orders were weak in January. New orders fell 3.6%, and the value of manufacturing shipments fell 1%, according to the US Census, and both were lower than their year-earlier levels. The decrease in durable goods orders was mostly driven by transportation equipment, particularly aircraft, where orders fell nearly 60% m/m. Excluding transportation, orders for durable goods only fell 0.4%, while orders for nondurable goods fell 1.1%. Shipments of nondurable goods also fell 1.1%, driven by textile mills, apparel, chemicals, and petroleum.
Orders for core capital goods, an early indicator of manufacturing activity, remained flat in January, and were also flat y/y. However, shipments of core capital goods rose 0.9% in January and were 1.3% higher than January 2023. This still points to weakness in the manufacturing sector. These orders are measured in Dollars, and if we take into account the effect of price inflation, both orders and shipments would be lower year-over-year across most categories.
Manufacturing
3/3
Inflation
Following January’s decline, retail and food services sales recovered partially in February, as they rose 0.6% m/m and were only 1.5% higher year-over-year. This was not a complete recovery, as sales remained about 0.5% below December’s level. In addition, February’s increase was mostly driven by motor vehicles and parts (+1.6%) and gasoline stations (+0.9%). Excluding these two sectors, sales only rose 0.3% m/m (+2.2% y/y). Considering that inflation in February was higher than expected, the growth in real spending on goods is likely lower than 0.3%.
2/2
Freight demand was significantly impacted by weather conditions in January, which affected activity in retail, wholesale, and manufacturing. All of these three sectors contracted, especially the wholesale sector where freight demand fell -2.5% m/m and returned to negative y/y comps (adjusted for seasonality, inflation, and tonnage).
1/2
2/2
In freight, the spot market softened significantly in February as supply chains recovered from January's winter storms, where truckload demand plunged across all three major sectors: retail, manufacturing, and wholesale. On the positive side, February’s imports rose on a y/y basis, exceeding 2021 levels for the first time since July 2022. For-hire trucking employment remained flat last month, but employment in the long-distance truckload sector shed 1.5K jobs, as excess capacity continued to exit the market, slowly but surely.
2/2
Inflation surprised to the upside in February for the second month in a row, indicating that the Fed’s objective to bring it down to 2% might prove harder than expected. Meanwhile, the unemployment rate rose to its highest level since January 2022. Following an abysmal January, retail sales recovered slightly in February, but remained 0.5% below December’s level.
1/2
The White House electrification plan
Uber Freight’s proposed electrification plan: The four stages of long-distance electrification: Initial Deployment (red), Early Electrification (yellow), the Electric Boom (green), and Full Electrification (gray).
Also this month, the Securities and Exchange Commission (SEC) adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. Critically, companies will not have to provide Scope 3 greenhouse gas emission disclosures, which had been previously proposed. Starting in 2025, The rule will require registrants to include material Scope 1 and Scope 2 GHG emissions, governance and oversight of material climate-related risks, as well as material climate
targets and goals.
The average number of weekly intermodal shipments and carloads moving on Class 1 railroads rose 12.8% and 12.2% respectively in February, as the market recovered from freezing weather. Intermodal weekly average shipments were up 9.2% over the last 12 months, while carloads were up 1.5% during the same period.
1/2
2/2
Rates and Market Dynamics
Sustainability Policy Updates
While the rate of inflation, which was coming down, has become more sticky, the labor market, which was fairly resilient over the last year, has started showing signs of weakness. In February, the unemployment rate rose 0.2% to 3.9%, its highest level since January 2022. And while the US economy added 275K nonfarm jobs in February, job openings fell 0.3% in January, and were 15% lower than their year-earlier level.
Wage growth continued to moderate, as the average hourly earnings rose only 0.1% in February, the slowest rate since February 2022.
Labor market
The Fed’s battle against inflation is turning out to be trickier than expected, especially in the last mile. Although year-over-year inflation has moderated significantly, it is still significantly above the Fed’s stated target of 2%. In February, prices rose 0.4% m/m, exceeding expectations by one tenth of a percentage point. This indicated that the annual rate of inflation was 3.2%, and has been hovering around this level since June of last year. Excluding the more volatile food and energy sectors, prices also rose 0.4%, and were 3.8% higher y/y.
Looking at the last few months, it is not clear whether or not inflation continues to come down. The annualized rate of inflation over 6-months has also been hovering around 3.0% to 3.5% since April of last year. The rate implied by the last three months rose in February to 4.0%, its highest level since September of last year, and twice the Fed’s target.
Inflation
Consumers’ real disposable income remained flat in January and was only 2.1% higher than its year-earlier level. A 0.3% increase in nominal disposable income was offset by an increase in consumer prices by 0.3%, according to the PCE price index. In addition, weather conditions likely took a toll on incomes, as retail sales fell sharply.
Meanwhile, real personal consumption expenditures fell 0.1%, driven by a reduction in spending on goods. While January’s weak spending was mostly due to weather conditions, we still expect the slower growth in personal consumption in the coming months. This is because consumers have exhausted all of their COVID-era savings, and incomes have not increased at the same rate at which spending did. As of January, consumer spending was still 1.2% above its pre-pandemic (2017-2020) trend, while real disposable income was 5% below its trend.
Income and spending
The US manufacturing economy contracted for the 16th consecutive month, according to the Institute for Supply Management (ISM). The ISM Purchasing Managers’ Index (PMI) fell 1.3 percentage points in February to 47.8, which was below the expansion threshold of 50.0.
The indices of Backlogs and New Orders were also below 50.0, indicating contraction in demand. The Employment index registered 45.9, falling below 50.0 for the 5th consecutive month. This indicates layoffs in the manufacturing sector, which contradicts data from the US Bureau of Labor Statistics, showing an increase in manufacturing employment since November of last year.
Despite the negative headline, the ISM report carried some good news to the manufacturing economy. Of the 18 industries surveyed by ISM, eight reported growth in February (Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Miscellaneous Manufacturing; and Transportation Equipment).
Manufacturing
1/3
Meanwhile, seven sectors saw contraction (Furniture & Related Products; Machinery; Wood Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; and Electrical Equipment, Appliances & Components).
According to ISM, only 40% of the manufacturing GDP contracted in February, compared to 62% in January. In addition, the share of sector GDP with a PMI below 45 was only 1% in February, compared to 27% in January and 48% in December.
Manufacturing
2/3
Freight supply
Spot rates
Job openings
and hires
Truckload
supply & demand indices
Driver
employment
An interesting data point from the report, which shows how oversupplied the market is, is the weekly work hours of non-supervisory employees in long-distance trucking. This fell sharply over the last year to 40.3 hrs, almost the same level as April 2020, when the economy was completely shut down. Excluding April 2020, we have to go back to 2003 to find a value lower than that.
Driver employment
Job openings in transportation, warehousing, and utilities hit their lowest level since January 2021, according to the JOLTS survey. Job openings and new hires both fell sequentially in January, and were 48.9% and 27.9% lower than their year-earlier levels respectively. In addition, job openings were 32.2% lower than the 2023 average, and hires were 8.9% lower.
Note: While the Bureau of Labor Statistics does not provide a breakdown across the three sectors (transportation, warehousing, and utilities), these figures should be dominated by transportation and warehousing, as utilities employment constitutes only 8% of total employment across these three sectors, according to the Employment Situation Survey, also published by the BLS.
Job openings and hires
Truckload demand fell by 0.3% in January as adverse weather conditions impacted activity in manufacturing, wholesale, and retail. Truckload demand was 0.8% lower y/y, and 4.8% below the Mar’22 peak. Meanwhile, supply fell only 0.2% in January due to lower employment in the long-distance truckload sector.
Our index shows that truckload supply has been mostly flat since the second half of 2023, indicating that the long-anticipated capacity correction has not taken place yet. As the gap between supply and demand remains near historically high levels, we do not expect spot rates to rise sharply over the next few months.
Truckload supply and
demand indices
Uber Freight’s data show that the downward pressure on spot rates has been driven by brokers rather than carriers, unlike early 2023, when large carriers were bidding lower. This could be another sign that current spot rates are not sustainable.
Spot rates
Rates and market dynamics
2/2
On a seasonally adjusted basis, trucking employment has been flat since September. The non-seasonally adjusted data fell 40.6K over the last 3 months, in line with what we saw last year and in the 2019-2020 post-peak season.
Looking at specific sectors, long-distance truckload employment continued to decrease after shedding 1.5K jobs in January. On a non-seasonally adjusted basis, employment in this sector fell 10.4K, its largest drop since last January.
Employment in this sector fell in January despite it being a relatively good month in this downcycle. Spot rates rose about 11 cents/mi on a seasonally adjusted basis. However, since January’s tighter than expected market was only due to freezing weather across the US, rates resumed their downward trend as weather improved. This will cause more carriers to reduce their headcount, as the freight recession extends longer than many have expected.
Driver employment
1/2
Dry van spot rates fell sharply in February as the market recovered from January’s freezing temperatures. Spot rates fell by about 20 cents/mile between the 3rd week of January and the last week of February.
Rates averaged $1.72/mi in February, about 11 cents per mile lower than January’s average. Although this was the largest month-over-month drop since February of last year, it was expected. First, February is usually a slow month for freight, as spot rates usually decline by about 4% - 5% from January’s average in a typical year. Second, the market was unseasonably tight this January due to freezing weather across the country.
In the first two weeks of March, spot rates averaged $1.67/mi. This was only 2 cents per mile higher than the cycle low seen in October 2023.
Spot rates
1/2
2/2