The Freight Economist
May 2024
Executive summary
Monthly economic and market update
Public truckload carriers’
profit margins fell to 3%,
the lowest since 2010
(ACT Research).
US economy
US GDP
Income and spending
Labor market
Freight demand
Imports
Truck
tonnage
Manufacturing
Consumer spending
Containerized imports at US ports rose 3% in April and were 9.3% higher y/y. Imports in April usually rise about 3% from March’s level. Therefore, on a seasonally adjusted basis, they remained flat. According to Descartes, this was likely due to a very strong March performance rather than a weak April.
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 – April
Trucking volume
The Cass Freight Shipments Index fell 1.6% in April (seasonally adjusted), and was 3.6% lower than the April 2023 level. Meanwhile, the American Trucking Associations (ATA) Truck Tonnage Index fell 2% in March, and was 1% lower than its year-earlier level. In the first quarter of 2024, the index fell 0.8% from the previous quarter and 2.4% from 2023Q1, according to ATA.
Rail volume and rates
Intermodal rates rose 0.3% in April according to the Producer Price Index, offsetting March’s 0.3% drop. Rates were 5.1% lower year-over-year, which is in line with the drop in long-distance truckload prices, according to the same source. Meanwhile, carload prices rose 1.1% in April reaching a record level, and were 3.5% above their year-earlier 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.
The first tender acceptance rate rose to 93% in April for both van and reefer as the market continued to soften. Flatbed tender acceptance rates remained unchanged at 89%, slightly lower than their October 2023 peak. However, this was mostly due to seasonal construction demand. Rate inflation over the primary carrier remained at historically low levels, indicating that routing guide failure is de-risked in this soft market.
GDP growth slowed down. What does it mean for freight?
GDP growth slowed down from 3.4% in 2023Q4 to 1.6% in 2024Q1. Spending on goods contributed negatively to growth, as consumption of durables fell and consumption of nondurables remained unchanged. This was mostly due to January’s freezing weather, which affected spending patterns.
However, the latest GDP report carried some good news for the freight industry. If we only consider February and March, spending on goods rose 0.2% quarter-over-quarter (compared to a 0.4% drop when January’s data are included). In addition, spending on services remained robust. Although the latter drives very little freight demand, it shows that the consumer remained relatively healthy in Q1.
The contribution of net exports of goods and services was negative mostly due to an increase in imports, which count negatively towards GDP. Imports of goods rose by 6.8% in Q1. Finally, after rising 13.9% in Q1, residential investment accounted for 0.54% of GDP growth, the highest since 2020Q4.
Executive
summary
US
economy
Freight
demand
Freight
supply
US GDP
Average m/m and y/y van spot rate index by destination regions – April
Dry van spot rates remained mostly unchanged across most regions in April, except for outbound shipments from the Northeast (-4.1% m/m) and Midwest (-2.4% m/m), and inbound shipments to the West (-2.2% m/m). Compared to their year-earlier levels, inbound rates were 3.5% to 4.8% lower, except in the West region where rates were 7.5% higher, mostly due to the sharp recovery in imports. Unsurprisingly, inbound rates headed to the West fell 9% year-over-year.
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Key data
points
Shipper and carrier insights
Real consumer spending on goods rose a staggering 1.1% in March to a new record level. March’s reading was just above December 2023, which preceded a weather-induced dip in spending in January and February. Real spending on goods rose 3.5% over the 12 months prior to April.
March’s growth in spending was broad based, as most sectors registered growth except Clothing (-0.6%) and Jewelry and Watches (-1.1%). Spending on durables rose 0.9%, and was 4.3% higher year-over-year, while spending on nondurables rose 1.3% m/m and 3% y/y.
Procurement trends
Inflation
Following March’s increase, retail and food services sales were flat in April. A decrease in nonstore and automotive sales was offset by an increase in gasoline stations sales. Excluding motor vehicles and parts and gasoline stations, sales fell 0.1% in April, but were still 3.5% higher than their year-earlier level. Aside from gasoline stations, sectors that saw an increase in sales were food and beverages (+0.8%) and apparel (+1.6%).
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Adjusted to truck tonnage, demand moved sideways in March (and likely in April) as all indicators remained flat: retail sales, manufacturing output, imports, and housing starts.
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While the stock market celebrated April’s CPI print, it still exceeded the level needed to bring annual inflation down to the Fed’s stated target of 2%. As the chances of multiple rate cuts this year become thinner, a surge in freight demand seems even less likely, especially as the manufacturing and wholesale sectors continue to wobble near the bottom, and the housing sector struggles amidst high mortgage rates.
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The last four years saw large swings in sales and inventory levels, resulting in continued supply chain disruptions. Starting in the second half of 2020, high demand for goods resulted in empty shelves. To meet rising demand, retailers and wholesalers increased their inventories to levels unseen before. As the economy reopened and demand for goods cooled down, shortages turned into gluts.
Inventories peaked in the second half of 2022, after which both retailers and wholesalers started managing their inventory levels, this time to meet slowing demand. As of 2024Q1, inventory levels were still decreasing, especially in freight-generating sectors.
To understand the implications of sales and inventories on freight movements, we cannot simply look at the nominal dollar amounts. First, we should look at real sales and inventories, by adjusting for inflation. Second, we need to estimate the corresponding truck tonnage produced by each sector. For example, for the same dollar amount, pharmaceuticals require significantly less trailer space than furniture.
The average weekly intermodal shipments and carloads both fell in April for the second consecutive month. However, the average weekly intermodal shipments were 8% higher than their year-earlier level after an 11% increase in March. Meanwhile, carloads were 3.8% lower year-over-year. Rail and intermodal volumes continue to face significant disruptions due to canal and port closures and fierce competition from the larger truckload sector.
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Shipper and carrier insights
The US economy added 175K jobs in April, the lowest level since October 2023. Similar to the prior months, gains were led by services-providing sectors. The unemployment rate rose slightly to 3.9%, and the labor force participation rate remained unchanged.
While the Employment Situation data still indicates a historically tight labor market, the Job Openings and Labor Turnover Survey (JOLTS) points to softening. The hiring rate fell to 5,500 in March, 7.6% lower than its year-earlier level and the lowest reading since December 2017 (except for March and April 2020). Similarly, job openings fell 30% from their peak and were 11.8% lower y/y.
Labor market
Although April’s CPI print came below the market expectations and below the preceding 2 months, it still exceeded the level needed to bring annual inflation down to the Fed’s stated target of 2%. Prices rose 0.31% in April, significantly above the average m/m growth needed to achieve the Fed’s target (which is 0.17%). Excluding the volatile food and energy sectors, prices also rose 0.3% and were 3.6% higher year-over-year.
Like the previous months, inflation was driven by services and rent of shelter:
- Prices of durable goods fell 0.5% in April, and were 3.2% lower than
their year-earlier level.
- Prices of nondurable goods rose 0.6% and were 1.8% higher year-
over-year, but this mostly due to energy prices which surged 1.1% in April.
- Prices of services excluding shelter rose 0.3%, and were 4.9% higher
year-over-year.
- Rent of shelter rose 0.4% in April, and was 5.5% higher year-over-year.
Inflation
Real personal consumption expenditures rose 0.5% in March and were 3.1% higher year-over-year (y/y). The increase was mostly driven by spending on goods, as spending on services rose only 0.2%.
Despite the robust increase in spending, real disposable income rose only 0.2% in March after dropping 0.1% in February, and was 1.4% higher than its year-earlier level. If the growth in disposable income does not pick up in the coming months, it’s likely that consumer spending will slow down, especially since the personal saving rate has dropped to 3.2%, its lowest level since October 2022.
Income and spending
The US manufacturing economy slid back into contraction in April after the ISM PMI crossed the 50.0 threshold in March for the first time in 16 months. The ISM PMI fell to 49.2, indicating that the manufacturing sector continued to move sideways.
The Production index remained above 50.0 in 4 of the last 6 months, but the new orders index fell back into contraction (49.1), and the backlogs index remained in contraction (45.4), indicating a weaker demand outlook. Only two of the six biggest manufacturing industries registered growth in April: Transportation equipment and Chemical products.
In line with other indicators pointing to a resurgence in inflation, the prices index rose to 60.9 indicating sharp inflation in commodity prices.
Manufacturing
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Both manufacturers’ new orders and shipments rose again in March, by 1.6% and 0.3% respectively. Durable goods orders rose 1.6%, but this was mostly driven by transportation equipment. Excluding this sector, durable goods orders ticked up only 0.2% in March. Orders for nondurable goods rose 0.6%, and were 2.1% higher y/y. Orders for nondefense capital goods (excluding aircraft) rose slightly by 0.1% and were 1.0% higher y/y.
Considering that orders and shipments are measured in nominal terms, inflation accounted for the majority of these increases. Therefore, actual factory orders are expected to be flat or slightly down from their year-earlier levels.
Manufacturing
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Freight supply
Spot rates
Class 8
trucks
Truckload
supply & demand indices
Driver
employment
North American Class 8 truck orders, sales, and builds all fell in March after surging in Q1. Compared to March 2023, these were 8.2%, 14.4%, and 6.5% lower respectively. In the first 4 months of the year, net truck orders averaged 21K units/month, which is lower than the 2023 average of 23K units and the 2022 average of 24.9K units. Meanwhile, truck sales were around the same level as 2023 (27.5K units/month).
Class 8 trucks
Truckload demand rose 0.1% in March and was 1.9% higher than its year-earlier level. Demand has risen by 2.7% since 2023Q2, which was the cycle bottom. Supply also rose 0.1% in March, and was 1.2% higher y/y. The unexpected increase in supply was mostly driven by high truck sales in the second half of last year.
The gap between our supply and demand indices is closing, but at a slow pace. This has been mostly driven by gradual demand recovery, as capacity remains abundant and near record levels. If this trend continues in H2, we expect truckload spot rates to rise, especially given upward seasonal pressures.
Truckload supply and demand indices
For-hire trucking carriers shed only 300 jobs in April according to the US Bureau of Labor Statistics. Trucking employment was 1.3% lower than its year-earlier level, which was mostly attributed to the YRC bankruptcy in August 2023. Since then, carriers have added 14.7K jobs despite widespread expectations of an imminent capacity correction.
In the long-distance truckload sector, carriers added 500 new jobs in March. Employment in this sector was flat y/y due to easy comps, as March 2023 saw a 3K reduction in long-distance TL employment. Employment in this sector remains within 1.4% of its all-time high seen in October 2022.
Driver employment
Dry van spot rates fell 2 cents per mile in April to $1.63, the lowest level of this cycle. Spot rates were 2.3% lower than the same time last year, up from -5.8% in March. April saw the 25th consecutive y/y decline in spot rates, the longest since the Great Recession.
April’s decrease was expected due to strong seasonal headwinds. However, this trend usually reverses in the second half of May as International Roadcheck day causes many drivers to stay off the roads, and Summer produce shipments hit the market. This usually results in a surge in spot rates, which usually rise by 5-6% from April’s level.
Spot rates
Freight supply and demand both moved sideways in March and April. Retail sales, manufacturing output, and imports barely moved from March’s level. However, Class 8 truck orders, an early indicator of freight capacity, fell sharply after counter-cyclical strength in the preceding few months.
Finally, even though spot rates saw a new cycle low in April, they are expected to start creeping upwards, boosted by seasonal strength.
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Bid Activity
- After record activity in 2023, RFPs are starting to slow coming out of 2024 RFP Peak
Strategic Trends
- Shippers are beginning to insulate themselves ahead of a predicted upturn in the contract market, and are increasingly willing to bid on entire networks versus select lanes
- There is a growing focus on modeling around the initial data set, including lane hierarchy, bid structure, and the accuracy of
volumes.
Carrier Behavior
- Truckload carriers continue to cast a wide net in bid, but are starting to narrow focus to preferred volume versus. any volume
- Brokers continue to be aggressive in an attempt to capture market share
- Incumbent carriers are initiating efforts to secure rate increases within the business
Carrier Pricing Q2
- The savings range for truckload is trending in the mid-single digits as incumbents strive to implement price increases
The two charts above show sales and inventories in both sectors, adjusted for inflation and tonnage, and indexed to their respective levels in January 2020. We observe that retail inventories have fallen by 4.3% from their peak, and wholesalers’ inventories have fallen by a staggering 9.4% from their peak. By 2024Q1, retail and wholesale inventories have reached their lowest levels since 2022Q1.
Market conditions
Market
conditions
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Early indicators from the JOLTS survey point to lower employment in transportation and warehousing. Job openings fell 42.4% y/y in Q1, reaching their lowest level since Q4’2020 (seasonally adjusted). Hiring in these sectors has also slowed down, reaching its lowest level since 2019Q3, and 25% below 2023Q1.
However, it’s possible that this decrease was mostly driven by warehousing rather than trucking. Over the last two years, employment in warehousing fell 8.6% from its peak, while trucking employment fell less than 2% from its peak.
Driver employment
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Shipper best practices for ROY 2024
Carrier Management
- 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
- Understand your carrier base’s tracking and technology capabilities and set clear expectations
- Meet carriers where they are in their own tech journey and find the best solution while pushing them to your preferred
connectivity method
- Understand where your rates are relative to the market
- Work with your carrier base to understand their network and cost pressures
- Work with strategic carriers for 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
Will inventory destocking turn the market?
1 For that, we use the US Census data on real wholesale trade to adjust nominal wholesale inventories, and the CPI of commodities to adjust retail sales and inventories.
2 For this, we use the Freight Analysis Framework (FAF5) data, which includes the dollar values and tonnage for various goods in the US. In addition, we consider only truckload freight-generating industries. Therefore, we exclude gasoline, motor vehicles, and other bulk goods that move on specialized trucks or trailers.
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2
In addition, the inventories to sales ratio in the wholesale sector has fallen back to its pre-pandemic level, while in the retail sector, it was 4.4% lower as of 2023Q1, indicating leaner inventories than what we had in 2019.
Despite this significant destocking, the freight market continued to soften throughout this period, as truckload spot rates hit their lowest level this cycle in April 2024. Therefore, excess inventories cannot be the main driver of the current freight recession, and we should not expect destocking alone to drive the anticipated market tightening.
