The Freight Economist
November 2023
Executive summary
Monthly economic and market update
Over the last year, more than 90K carriers have had their authorities revoked, resulting in a net decrease in the carrier population of 20K. However, despite the recent capacity reduction, truckload spot rates saw a new cycle through.
The carrier population decreased by 20.5K
carriers between October 2022 and October
2023.
US economy
US
macroeconomy
Manufacturing
Consumer spending on goods
Container
imports
Freight market
Supply /
demand indices
Spot rates
Freight
demand
Freight
supply
Income and savings
The US GDP increased by 4.9% in Q3. However, this was mixed news for freight. Consumer spending, imports, and exports all rose in the third quarter. Meanwhile, the private residential investment remained flat, and inventories rose.
Additionally in October, the labor market softened and the manufacturing economy continued to contract at a faster pace.
The US manufacturing economy contracted for the 12th consecutive month, according to the Institute for Supply Management (ISM). The ISM Purchasing Managers Index (PMI) fell to 46.7, indicating the fastest rate of contraction since July. The forward-looking indices of backlogs and new orders also fell to 42.2 and 45.5 respectively, indicating weaker future demand.
Only two sectors surveyed by ISM registered growth in October: Food, Beverage & Tobacco Products, and Plastics & Rubber Products.
Manufacturing
Retail and food services sales rose by 0.7% in September, and were 3.8% higher than a year earlier. Most of the increase (70%) was driven by e-commerce (nonstore retailers), automotive sales, and food services and drinking places.
These three sectors have also accounted for most of the year-over-year growth in sales. Spending on food services and drinking places rose by 9.2% over the last 12 months, and spending on non-store retailers rose by 8.4%. Automotive sales were driven by persistent pent-up demand, while spending on food services and drinking places increased as the services economy continued to recover.
Sectors that saw the largest decrease in sales over the same period were electronics and appliances, furniture, and building materials and garden supplies. The weakness in these three sectors was driven by the ongoing recession in the housing market.
Consumer spending on goods
Truckload demand rose 0.75% in September for the third consecutive month. Meanwhile, supply only rose 0.2% due to a slight increase in long-distance truckload employment, as some of Yellow’s employees likely found jobs among truckload carriers. On a quarterly basis, demand was up 0.4% in Q3, while supply was down 0.3%.
The gap between our supply and demand indices remains near historically high levels, but seems to be closing, indicating that tightening might be underway, or that the market has at least found the bottom. This gap has been strongly correlated with dry van spot rates, which have been decreasing despite rising demand and stagnant supply.
Supply / demand indices
Spot rates
Freight demand indicators were generally positive in September, as real consumer spending, manufacturing, and wholesale sales (in select truckload-specific sectors) all increased.
Freight demand
(1) Retail trade and food services (excluding gasoline), adjusted for inflation using the CPI indices of durable and nondurable goods (September, 2023).
(2) Federal Reserve’s Industrial Production: Manufacturing Index (September, 2023)
(3) US Census Bureau data on Housing Starts and Building Permits (September, 2023)
(4) US Census Bureau data on wholesalers’ sales, excluding petroleum, lumber, metals, and farm products (September, 2023), adjusted for inflation using the PPI: Final demand goods.
(5) US Bureau of Economic Analysis Personal Income and Outlays data (September, 2023)
(6) US Census Bureau data on manufacturing orders: nondefense capital goods excluding aircraft (September, 2023), adjusted using the Producer Price Index: Final Demand - Private Capital Equipment.
(7) Descartes (September, 2023, seasonally adjusted using Uber Freight’s data).
The Federal Motor Carrier Safety Administration (FMCSA) authorized only 4,859 new trucking carriers in October, the lowest monthly count since June 2020. Weak spot rates and high diesel prices are among the top barriers facing potential carriers, as well as existing carriers which continue to exit the market at a rapid pace. Carrier authority revocations rose to 7,433 in October, resulting in a net decrease in the carrier population of about 2.6K in October. Between October 2022 and October 2023, the carrier population decreased by more than 20.5K carriers, the sharpest decline in the history of this data.
Freight supply
Key data points and commentary
Trucking
volume
Rail
volume
Geographic
trends
Routing guide trends
Routing guide trends
Geographic trends
Average m/m and y/y van spot rate index by origin regions – September
Trucking volume
The Cass Freight Shipments index rose for the second month in a row in September by 1.7%. It was up 2.5% from its trough in July, but 6.6% lower year-over-year. On the other hand, American Trucking Associations’ For-Hire Truck Tonnage Index decreased 1.1% in September after rising 0.2% in August (seasonally adjusted), and was 4.1% lower y/y. Both indices seem to indicate that freight volumes have hit their short-term bottom in the last few months, and started to rise again.
Rail volume
Rail volumes including carloads and intermodal loads rose significantly in the last two weeks of September, and were positive year-over-year for the first time since January 2023. September’s increase was observed across both rail and intermodal shipments. Averaged over the month of September, carloads were 1.1% higher y/y, while intermodal shipments were still 4% lower y/y. The recovery in rail volumes is likely due to rising imports, which are also starting to shift back to the US West Coast.
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.
Real disposable income fell by 0.1% in September for the fourth consecutive month. Despite that, it remained 3.5% higher than a year earlier, indicating that incomes rose at a faster rate than inflation during the last 12 months.
Higher levels of spending despite lower incomes indicate that consumers are saving less money. In September, they saved 3.4% of their income, significantly lower than the pre-COVID average (~7%), but slightly higher than the same time last year (3%).
Spot and contract rates (including fuel) fell slightly across van, reefer, and intermodal shipments in October, as diesel prices ticked down. Meanwhile, spot volumes rose for the second month in a row, reaching 16% of total van shipments. Most of the spot volume likely consists of one-off shipments, or optional shipments as shippers try to take advantage of lower spot rates relative to the contract market. Route guide performance continues to be strong, as the first tender acceptance rate is the 90s across all modes.
The US GDP increased by 4.9% in Q3. However, this was mixed news for freight.
Strength was mostly driven by personal consumption. Spending on durable and nondurable goods accounted for 1.1% of the increase, while spending on services accounted for 1.6%.
In addition, imports contributed to -0.75% of the increase, indicating that they actually rose in Q3 (imports count negatively towards GDP). Exports also rose in Q3, accounting for 0.68% of the increase in GDP.
Fixed private domestic investment accounted for only 0.15%, indicating that the housing sector was mostly flat. The change in private inventories accounted for 1.3%, indicating an increase in business inventories that were not purchased or consumed.
Dry van spot rates (including fuel) were mostly flat in October, and 12% lower y/y. Linehaul rates (excluding fuel) fell by about 2 cents/mile from September’s levels, in line with seasonal expectations. If typical seasonality holds, we expect rates to rise by 4 cents/mile in November, and 9 cents/mile by December. Rates were on average $1.10/mile lower than the same time in 2021, and only 6 cents/mile higher than October 2019.
Diesel prices fell slightly in the last week of October, ending the monthly average at $4.51/gallon, 5 cents lower than September’s average.
Executive
Summary
US
Economy
Freight
Market
Shipper & Carrier Insights
GDP
The labor market softened in October as the US economy added only 150K jobs, half of September’s increase. October’s growth was the second lowest since December 2020. The unemployment rate continued to creep up in October to 3.9%, its highest level since January 2022. Meanwhile, wage growth fell to 4.1%, its lowest level since June 2021.
Hiring was relatively weak in September, down 5.7% y/y. Hiring activity was lower than the pre-pandemic level (~6 million per month) for four consecutive months between June and September. And while job openings rose slightly in August and September, they were still 12% lower y/y, according to the Job Openings and Labor Turnover Survey (JOLTS).
US labor market
Despite the UAW strike, manufacturing output rose 0.4% in September according to the US Federal Reserve, but was 0.8% lower than a year earlier. Output moved sideways in the third quarter, as a 2.3% (annual rate) increase in durable goods production was offset by a 2.4% decrease in nondurable goods manufacturing. Sectors that saw gains included wood products, primary metals, and plastics and rubber products. Sectors that saw declines were apparel and leather as well as printing and support.
On a year-over-year basis, only 5 sectors saw an increase in output (primary metals, computer and electronic products, automotive, aerospace, and chemicals), while 14 sectors saw contraction, mostly in nondurable goods production.
Real spending on goods rose by 0.5% in September (+2.4% y/y), according to the US Bureau of Economic Analysis. The increase was again driven by durable goods (+1.1% m/m). On a quarterly basis, spending on goods was up 1.2% q/q.
Consumer spending on goods
Containerized imports in the US increased in October for the 7th time in the last 8 months. Imports were positive y/y, for the first time since August 2022. Imports were up 3.9% y/y, and 4.7% compared to September.
Imports from China increased, but the share of Chinese imports of total U.S. imports fell, according to Descartes. If typical seasonality holds, Q4 imports are expected to fall by 7% - 8% from October’s levels, but remain positive y/y.
Container imports
Driver employment
Carrier population
North American carriers are still adding to their Class 8 fleets despite the soft market. In September, net truck orders rose by 67.4% m/m, but were still 38.8% lower y/y. This increase in orders was not completely demand driven. In 2022 and 2023, September likely saw a supply-driven surge, as OEMs opened their orderboards for the upcoming year.
While net orders rose in September, truck production and sales both declined. Truck builds fell by 4.2% m/m, and sales fell by 5.3% to their lowest level since November 2022. The active Class 8 tractor population in the US has grown by 3.8% over the last 12 months, but is only expected to grow by about 1.7% in 2024.
In the US, the sleeper truck market saw similar trends. Net orders rose by 187% in September (from 3,606 units in August to 10,335 units in September), but were still 53% lower y/y in 2023. Sales and builds of new trucks fell by 11% - 12% in the third quarter, and were also 10% - 11% lower y/y.
Equipment
Average m/m and y/y van spot rate index by destination regions – September
Dry van spot rates decreased across all regions in October except for outbound shipments from the West, where they rose by 3.6%. The sharpest declines were observed in the Southeast (-4.0%) and the Northeast (-4.4%). The reasons behind these trends include seasonality and the recent rise in imports headed to the US West Coast. Inbound spot rates also fell across all regions, and the sharpest declines were observed in the Midwest (-3.2%).
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Key Data
Points
Aside from September's partial recovery in housing starts, other early indicators of future demand were weaker. September’s increase in spending came at the expense of lower savings, which fell by 0.6%. Manufacturers’ new orders of core capital equipment were mostly flat (adjusted for inflation), and imports increased, but at a slower rate than seasonal expectations.
Shipper and Carrier Insights
After falling for 5 consecutive months, carriers’ operating costs surged by more than 6.7% in August and 1.1% in September due to the sharp increase in diesel prices. We estimate the marginal truck operating cost at about $2.10/mi, which is slightly higher than August’s spot rates ($2.08/mi, including fuel).
However, the cost per revenue mile (CPRM), which accounts for extra expenses due to deadheading, is significantly above spot rates. Assuming 15.7% deadhead (according to ATRI), we estimate August’s CPRM at $2.49/mi, about 17% above the national average dry van spot rate.
Inefficient carriers with more than 30% deadhead in their networks could be losing on average more than $1.00 for each mile they drive in the spot market, after accounting for all short- and long-term costs such as truck and trailer depreciation, maintenance, and implicit/explicit driver compensation.
In addition, August’s average dry van contract rate was only 6 cents/mile higher than the CPRM of large carriers, indicating that carriers’ margins have significantly contracted.
Carrier
The Yellow bankruptcy has had a substantial effect on less-than-truckload rates, but no significant effects on truckload rates. According to the Long-distance truckload PPI produced by the BLS, truckload costs (including fuel) fell by 1.4% and 0.1% in August and September respectively, and were 19% lower y/y.
Meanwhile, LTL costs rose by 4.4% and 0.9% in these two months, and were almost flat y/y. Although LTL rates were the highest they have been since September 2022, they were still about 6% below their peak seen in June 2022.
Shipper
Shipper
Carrier
Trucking employment shed 5K jobs in October after adding 13.4K jobs in September. September’s strong gain in hiring was most likely due to Yellow’s employees finding jobs among other carriers. Trucking employment was 1.7% lower y/y, mostly skewed by a large drop in LTL employment, which fell by 14.2% y/y following Yellow’s bankruptcy.
Meanwhile, employment in the long-distance truckload sector was 2.1% higher than a year earlier on easy comps (as September 2022 saw a temporary drop in long-distance truckload employment of 13.5K employees).
1
Approximate estimates based on a figure by ACT Research.
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The Uber Freight Platform: Dialed into Sustainability
With one of the largest networks of shippers and carriers, paired with world-class technology solutions, we’re leading the way towards transforming supply chain sustainability.
This month, we publicly announced our sustainability commitments as the urgency grows to address freight’s impact on global emissions. By 2040, we pledge to shift 80% of our global brokerage shipments to clean transportation.
While this will be accelerated by emerging zero emissions technology like electric trucks, we’re also doubling down on network optimization strategies to eliminate empty miles and transition shipments to more sustainable, cost-effective modes of transportation (e.g. road → rail).
To help customers gain a bird’s eye view into their own emissions and inform their sustainability journey, we also launched a new
Emissions Dashboard. Available in both the Uber Freight TMS and as a standalone tool, the dashboard provides unparalleled visibility into emissions across a company’s logistics network to empower more sustainable decision-making. Using the Global Logistics Emissions Council (GLEC) framework, the Emissions Dashboard tracks carbon intensity performance, which represents the amount of carbon emissions released across all modes of transport – from road to sea to sky.
The path towards a more sustainable future is complex and requires immense collaboration, which is why we’re creating a roadmap with pragmatic goals that will guide industry decision-making. We’re confident that with the technology, scale, capacity options and consultation, we can turn sustainability into a valuable business opportunity for shippers.