The Freight Economist
May 2023
Executive
Summary
US
Economy
Freight
Market
Executive Summary
Monthly Economic and Market Update
Shipper Recommendations
Uber Freight
Platform
Key Data
Points
We continue to see signs of capacity correction, as both the number of trucking fleets and employees in the long-distance truckload sector decreased in the last few months. However, this correction is happening at a slower pace than many have predicted, resulting in an extended soft freight market.
The net carrier population
declined by 10K carriers since October 2022, but this was not enough to correct a largely oversupplied market.
US Economy
Inflation and
Labor Market
Manufacturing
Consumer Spending on Goods
Retail and
Wholesale Inventories
Freight Market
Supply /
Demand Indices
Spot Rates
Freight
Demand
Freight
Supply
Shipper Recommendations
The Uber Freight Platform
Price inflation in April was predictably high. Consumer prices rose by 0.4%, according to the Consumer Price Index (CPI). In the first four months of 2023, inflation averaged 4% on an annualized rate, significantly above the Federal Reserve’s target of 2%.
However, the drivers of inflation in April were different from the prior months. The shelter index, which accounts for over 60% of the total increase in core CPI, increased by only 0.4%. As a result, year-over-year inflation in shelter prices decreased sequentially for the first time since February 2021. Similarly, inflation in services prices excluding shelter increased only by 0.2%, but decreased on a y/y basis from 6.1% to 5.2%. On the other hand, prices of durable goods rose by 0.8%, the highest increase since January 2022.
Wholesale prices eased at a faster rate in April. The producer price index (PPI) of final demand rose by 0.2%, but was only 2.4% higher y/y, the lowest inflation rate since February 2021. Although April’s data do not warrant additional rate hikes, it might suggest a tighter-for-longer monetary policy, which will have negative implications on freight demand.
Inflation and labor market
Recent economic data show that consumer spending and manufacturing were relatively healthy in April. However, this did not tilt the needle of freight rates, because of strong seasonal headwinds and continued capacity overabundance.
The US manufacturing sector contracted for the sixth consecutive month, according to the Institute for Supply Management (ISM). The ISM PMI increased slightly in April to 47.1, but remained below the expansion threshold (50.0). The forward-looking indices of backlogs and new orders were 43.1 and 45.7 respectively, indicating shrinking backlogs and weaker orders on a month-over-month basis.
The index of customers’ inventories exceeded 50.0 for the first time since June 2017, indicating that downstream inventories were seen as “too high” by respondents. Raw materials prices increased, according to the ISM Prices index which rose to 53.2, its highest reading in 9 months.
Unlike the ISM PMI, the Federal Reserve’s Industrial Production / Manufacturing index showed a modest increase in output (+1% m/m), which was mostly driven by a strong gain in the output of motor vehicles and parts. However, April’s manufacturing output level was still 0.9% lower y/y.
Manufacturing
Retail sales increased by 0.4% in April, and were 1.6% higher than the same time last year. Excluding gasoline stations, sales were up 0.5% m/m and 3.3% y/y. Considering that the rate of inflation in goods prices is about 1.6%, real retail sales were still higher than the same time last year, but not by much.
Sales at furniture, electronics, and appliances stores continued to decline, which is expected following the weakness in the housing sector. In addition, sales fell at clothing stores, sporting goods, hobby, musical instrument, and book stores, indicating lower discretionary spending. E-commerce sales accounted for almost half of April’s growth in the retail sector.
Consumer spending on goods
Retailers’ inventories rose by 0.7% in March, but this increase was mostly driven by motor vehicles and parts dealers, where pent up demand is still driving restocking. Excluding this sector, inventories were up only by 0.3%, as retailers continue to rationalize their inventory levels.
Merchant wholesalers’ inventories were mostly unchanged in March. However, inventories were still 9.1% higher y/y, mostly driven by increases in durable goods inventories (+13% y/y). Wholesalers’ inventories of nondurable goods only rose by 3.5% in the last year.
Retail and wholesale inventories
The freight market softened significantly in Q1, as the decline in demand outpaced the ongoing supply correction. Despite a strong January, demand continued its downward trend in February and March. Our revised data for March shows that demand was 5% lower y/y, while supply was 6% higher.
On a quarterly basis, Q1 demand was 3.1% lower y/y, while supply was 6.7% higher. Demand increased by 0.4% in Q1, while supply remained flat (seasonally adjusted). The gap between our supply and demand indices is highly correlated with spot rates. Therefore, contracting supply and higher demand in Q1 indicate that spot rates might have found the bottom after declining in 13 out of the last 15 months.
Supply / demand indices
Dry van spot rates (excluding fuel) declined about 8 cents per mile in April, in line with seasonal expectations. Rates continued to decrease in the first half of May, but at a slower rate. Rates are currently about 22% lower than a year ago, and down 45% from the record high levels seen in January 2022.
The first quarter’s decline in linehaul spot rates (excluding fuel) occurred despite a sharp drop in diesel prices. Diesel prices in the US fell below $3.9/gallon for the first time since February 2022, and were almost 31% lower y/y. This indicates that the decline in all-in spot prices was even sharper than linehaul spot rates.
Spot rates
Economic data relating to freight demand were generally positive in the last month, as all three segments (housing, manufacturing, and consumer spending) showed improvement from the prior month.
Forward-looking indicators of freight demand were mixed: imports continued to recover, but building permits fell. Consumers continued to rebuild their savings, which hit their highest level since January 2022, at 5.1%. However, this is still in the yellow, because it’s significantly lower than the pre-pandemic personal saving rate, which was about 7% of total income.
Freight demand
(1) Retail trade and food services (excluding gasoline), adjusted for inflation using the CPI indices of durable and nondurable goods (April, 2023)
(2) Federal Reserve’s Industrial Production: Manufacturing Index (April, 2023)
(3) US Census Bureau data on Housing Starts and Building Permits (April, 2023)
(4) US Bureau of Economic Analysis Personal Income and Outlays data (March, 2023)
(5) US Census Bureau data on manufacturing orders (total manufacturing, March, 2023), adjusted using the Producer Price Index: Total Manufacturing.
(6) Descartes (April, 2023, seasonally adjusted using Uber Freight’s data).
Although payroll trucking employment hit a new record in April, we believe that capacity has actually declined. Hiring was mostly driven by the local and specialized trucking sectors. Meanwhile, employment fell in the currently oversupplied long-distance truckload sector. In addition, authority revocations rose, outpacing newly granted trucking authorities in 6 of the last 7 months.
This correction is happening at a slower pace than previously expected. The industry added about 125K interstate freight carriers between June 2020 and September 2022, but has only shed 10K carriers since then, despite falling spot rates and rising operating costs. Similarly, employment in the long-distance truckload sector added 50K jobs between June 2020 and October 2022, but has only lost 5.2K jobs since then.
Freight supply
Key Data Points and Commentary
Demand
Indicators
Freight
Volumes
Trucking Supply
Routing Guide Trends
Despite stable spot auction volumes across all modes, spot and contract rates continued to decline. In addition, our routing guide trends indicated more softening in April, as the first tender acceptance ratio increased across all trucking modes. Since the soft market has lasted for longer than a year, Year-over-year comparisons now look more favorable compared to the previous months.
Routing guide trends: costs and service
Spot rates decreased across all five megaregions in April by about 4%-6%. Decreases of this magnitude are generally expected during the month of April. However, steeper declines occurred in outbound trips from the Northeast and the Midwest, where rates plummeted by 7.8% and 6.4% respectively.
Average m/m and y/y van spot rate index by origin regions – April
Average m/m and y/y van spot rate index by destination regions – April
Trucking supply
Class 8 truck orders fell by 34% in April, and were 21% lower y/y. Truck production and sales also fell in April by 11% and 3% respectively, however both were higher y/y ( +10% y/y and +16% y/y respectively) as supply chain constraints largely eased.
The net carrier population contracted again in April, after a small gain in March. In the last 7 months, the carrier population declined by about 10K. However, this decline remains substantially smaller than the number of new carriers added since Jun’20, which exceeds 124K.
Payroll trucking employment hit a new record in April after adding 3K jobs, and was 2.6% higher y/y. However, hiring is not uniform across different trucking sectors. The last few months saw growth driven by local and specialized trucking, while long-distance truckload and LTL saw capacity reductions. In March, long-distance truckload employment fell by 1.3K, but was still 4.8% higher than a year ago, mostly due to increases seen in mid 2022.
Economic demand indicators
Retail sales rose by 0.4% in April. Motor vehicles and parts dealers’ sales rose by a similar magnitude (+0.4%). Meanwhile, sales at gasoline stations fell by 0.8%. As a result, excluding motor vehicles and gasoline from the sales figure results in a 0.6% m/m increase. However, this increase is mostly driven by inflation, as prices of durable goods rose by 0.8% and those of nondurables rose by 0.5% in April.
As real disposable income increased by 4% y/y, consumers continued to rebuild their savings, which increased to 5.1% in March. This was the highest rate since December 2021, but it remains below the pre-pandemic levels, averaging around 7%.
The US consumer remains resilient. Real personal consumption expenditures on goods (PCE) declined slightly in February and March, but were still 1% higher y/y. In the first quarter of 2023, spending on goods rose by 1.8%, and was 0.8% higher y/y. This strength was driven by increased spending on durable goods.
Retailers’ inventories grew by 0.7% in April, mostly driven by motor vehicles and parts. Excluding this sector, inventories only rose by 0.3%. Meanwhile, wholesalers’ inventories remained flat across durable and nondurable goods.
The US Federal Reserve’s industrial production index rose by 0.5%, driven by higher manufacturing output. The manufacturing component of this index rose by 1.0% in April, but was still 0.9% lower y/y. Manufacturers’ shipments of core capital goods caught up with new orders, indicating stabilizing backlogs.
Freight volumes
Despite y/y gains in carload volumes, intermodal volumes continued to underperform, as many shippers prefer the adjacent truckload market because of larger price discounts. The decline in imports, and ongoing transition from West Coast to East Coast ports are also negatively impacting volumes. Intermodal volumes were 13% lower y/y in April, as containerized imports were 17.8% lower y.y.
The Cass Shipments index fell by 1.3% on a seasonally adjusted basis, after falling by 3.8% in the prior month. In April, this index was 1.4% lower than the same time last year on weak comps, but a staggering 4.4% lower than the average of the previous 12 months.
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
No matter what you’re shipping, it’s time to plan for produce season.
Between February and July, different fruits and vegetables become ready for harvest, causing a rush in freight demand, especially for climate-controlled shipping and reefers. As a result, rates tend to fluctuate, especially around this time of year. Historical data at the national level shows that rates usually increase by 5% - 8% on average between May and June.
To prepare for produce season, shippers can:
Analyze historical trends across lanes and geographies to understand demand surges and anticipate market
tightening.
Manage volatility by creating an accurate volume forecast and planning for unforeseen scenarios ahead of time.
Take advantage of real-time technology: opt for a transportation management partner that offers real-time data
visibility, flexible procurement solutions and a network of digitally-enabled carriers.
If you are shipping produce, plan shipments around the forecasted demand surges to ensure produce is shipped safely, in the proper packaging and right temperatures. Finally, work with carriers who are compliant with the Food Safety Modernization Act (FSMA).
After experiencing a softer freight landscape in 2023, shippers are preparing for an inevitable reversal in the market. Many shippers have benefitted from a downward market over the last few quarters, but many are starting to look ahead and realize they will face headwinds in year-over-year comps as measured by annual operating plans.
Shippers are also identifying primary market indicators that will signal changes in the market. It’s important for shippers to educate their leadership team on these indicators and have a set course of action once the indices show an uptick in the market. From past experiences, shippers often have indicators established, but fail to socialize with leadership. Or, more importantly, have faced leadership that wants to “ride the market” for another year despite what the indices are saying. Shippers must be resolute in taking action when key market indicators hit a “trip wire” — successful supply chains run on agility. Data has clearly shown shippers that chase an inflationary market pay premiums vs. those that take immediate action when the market turns.
Additionally, since many shippers believe we’re nearing the bottom of the most recent freight cycle (but still seeing savings), they are positioning themselves for a potential reduction in capacity. In the current market, shippers have spent time building robust relationships. Most shippers are keen on saving during bids and chasing the market down as much as possible. The down market is the perfect time for shippers to build relationships with carriers, which can help them through tougher market conditions in the future. Many shippers continue to focus on strengthening relationships with their core or strategic carriers. On the other hand, shippers have used this time to expand their carrier base by utilizing new carriers with small awards on contracted lanes.
Even if rates do not rise significantly in the short term as capacity exits the market, shippers seem to have a bias in bids awarded to carriers who might maintain high tender acceptance. In order to save money and build a core base of carriers, shippers have selectively brought on new carriers to find lower costs.
Featuring insights and contributions from Uber Freight leadership,
technologists and market specialists.
Uber Freight partnered with Randy Cooper, Del Monte Foods Director of Transportation, in a recent webinar discussing the impacts of adopting new procurement solutions. By single-sourcing their low volume lanes (under 24 loads per year) to Uber Freight Market Access, Del Monte was able to save more than $1.9 million on their freight costs since May 2022.
Left Graph: Contract rates were inflated through most of 2022, but Market Access yielded up to 25% monthly savings by securing real-time capacity. While Del Monte’s RFP reset 1/1/23 and contract rates were more competitive than real-time rates, continuing to dedicate low-volume lanes to Market Access enabled Del Monte to sustain high-quality service and also capture savings as markets realized softer in Q1 than initially forecasted.
Right Graph: Del Monte’s buy to market on low volume lanes is, on average, 17% lower than other shippers’ buying power on low volume lanes in their network. Keeping a competitive and consistent buy to market on low volume lanes enables Del Monte to build capacity tailored to their network, mitigating the impact of major cost swings as markets shift.
10K
Price inflation in April was predictably high. Consumer prices rose by 0.4%, according to the Consumer Price Index (CPI). In the first four months of 2023, inflation averaged 4% on an annualized rate, significantly above the Federal Reserve’s target of 2%.
However, the drivers of inflation in April were different from the prior months. The shelter index, which accounts for over 60% of the total increase in core CPI, increased by only 0.4%. As a result, year-over-year inflation in shelter prices decreased sequentially for the first time since February 2021. Similarly, inflation in services prices excluding shelter increased only by 0.2%, but decreased on a y/y basis from 6.1% to 5.2%. On the other hand, prices of durable goods rose by 0.8%, the highest increase since January 2022.
Wholesale prices eased at a faster rate in April. The producer price index (PPI) of final demand rose by 0.2%, but was only 2.4% higher y/y, the lowest inflation rate since February 2021. Although April’s data do not warrant additional rate hikes, it might suggest a tighter-for-longer monetary policy, which will have negative implications on freight demand.
Market Access: Del Monte Foods Customer Spotlight
Mazen Danaf
Senior Economist and Applied Scientist at Uber Freight
Uber Freight partnered with Randy Cooper, Del Monte Foods Director of Transportation, in a recent webinar discussing the impacts of adopting new procurement solutions. By single-sourcing their low volume lanes (under 24 loads per year) to Uber Freight Market Access, Del Monte was able to save more than $1.9 million on their freight costs since May 2022.
Left Graph: Contract rates were inflated through most of 2022, but Market Access yielded up to 25% monthly savings by securing real-time capacity. While Del Monte’s RFP reset 1/1/23 and contract rates were more competitive than real-time rates, continuing to dedicate low-volume lanes to Market Access enabled Del Monte to sustain high-quality service and also capture savings as markets realized softer in Q1 than initially forecasted.
Right Graph: Del Monte’s buy to market on low volume lanes is, on average, 17% lower than other shippers’ buying power on low volume lanes in their network. Keeping a competitive and consistent buy to market on low volume lanes enables Del Monte to build capacity tailored to their network, mitigating the impact of major cost swings as markets shift.
After experiencing a softer freight landscape in 2023, shippers are preparing for an inevitable reversal in the market. Many shippers have benefitted from a downward market over the last few quarters, but many are starting to look ahead and realize they will face headwinds in year-over-year comps as measured by annual operating plans.
Shippers are also identifying primary market indicators that will signal changes in the market. It’s important for shippers to educate their leadership team on these indicators and have a set course of action once the indices show an uptick in the market. From past experiences, shippers often have indicators established, but fail to socialize with leadership. Or, more importantly, have faced leadership that wants to “ride the market” for another year despite what the indices are saying. Shippers must be resolute in taking action when key market indicators hit a “trip wire” — successful supply chains run on agility. Data has clearly shown shippers that chase an inflationary market pay premiums vs. those that take immediate action when the market turns.
Additionally, since many shippers believe we’re nearing the bottom of the most recent freight cycle (but still seeing savings), they are positioning themselves for a potential reduction in capacity. In the current market, shippers have spent time building robust relationships. Most shippers are keen on saving during bids and chasing the market down as much as possible. The down market is the perfect time for shippers to build relationships with carriers, which can help them through tougher market conditions in the future. Many shippers continue to focus on strengthening relationships with their core or strategic carriers. On the other hand, shippers have used this time to expand their carrier base by utilizing new carriers with small awards on contracted lanes.
Even if rates do not rise significantly in the short term as capacity exits the market, shippers seem to have a bias in bids awarded to carriers who might maintain high tender acceptance. In order to save money and build a core base of carriers, shippers have selectively brought on new carriers to find lower costs.
10K
Despite stable spot auction volumes across all modes, spot and contract rates continued to decline. In addition, our routing guide trends indicated more softening in April, as the first tender acceptance ratio increased across all trucking modes. Since the soft market has lasted for longer than a year, Year-over-year comparisons now look more favorable compared to the previous months.
Shipper Recommendations
Data on the US labor market were mixed. The unemployment rate fell again to 3.4%, a multi-decade low in April, as the US economy added 253K jobs. However, March’s JOLTS data indicated more weakness in the labor market: job openings fell by 3.9% to their lowest level since April 2021, and were 20% lower y/y, and the hiring rate fell by 6.5% y/y.
