Thank you so much for taking the time to read the December Truckload Market Update! This is a monthly newsletter, released the first week of every month, be sure to subscribe to be notified when the updates are released!
Student loan payments returned in October for the first time in more than three years. Student loans had been in forbearance for years as part of the Covid relief program. This topic made it’s way into the October market update report and as a follow up to that it seems that the impact of those payments resuming has not been very significant. Joseph Politano does a thorough write up of this saying:
“Pulling back, the effect of the end of student loan forbearance on spending has been noticeable but modest. That should not be particularly surprising—when asked, the average borrower expected to spend about $56 less per month as a result of the student loan resumption, much less than their actual average payment size. Plus, even if you unrealistically presume the entire increase in student loan payments resulted in a 1:1 decrease in discretionary spending, the impact would have only reduced October retail sales by about 1%.”
Speaking of retail sales numbers, Christmas shopping is in full swing and retail sales data has been living up to expectations. Consumers have been showing signs of a more cautious approach to spending for some time, but overall consumer spending has remained strong.
“E-commerce sales on Friday increased by 8.5% year-over-year as consumers shopped for deals online, while in-store sales increased by 1.1%, MasterCard Spendingpulse said. U.S. shoppers spent $9.8 billion online during Black Friday this year, according to data from Adobe Analytics, which was in line with expectations of the data and insights arm of software firm Adobe”
In November NRF published their predictions for this year’s retail sales which call for muted growth rates when compared with recent years, but still positive growth nonetheless. December is expected to remain a busy month for consumer spending to close out 2023.
“NRF expects retail sales during the holiday season – defined as November 1 through December 31 – to increase between 3% and 4% over 2022 to a total of between $957.3 billion and $966.6 billion. The growth rate is expected to fall short of the pace of the last three years but is consistent with the average annual increase of 3.6% from 2010 to 2019. And the projected total, which excludes automobile dealers, gasoline stations and restaurants to focus on core retail, would be a new record, topping the previous record of $929.5 billion set last year.”
Cautious purchasing of new inventories this year paired with consistent destocking efforts and end of year sales have helped retailers and wholesalers in their efforts to manage their over inventory issues. Jason Miller writes “As of September, inflation adjusted inventories had declined almost 20%. They are now just 7% above 2019 levels (note, they need to fall below 2019 levels for inventories to sales to reach 2019 levels because sales today are below 2019 levels).”
As inventories reach acceptable levels through the end of this year, speculation has already begun around what that will mean for containerized import volumes early next year. Cathy summarized some of this conversation in her recent newsletter:
“Retailers, manufacturers, and third-party logistics providers (3PLs) have sufficiently de-stocked to start planning for a cautious ramp-up in purchase orders next year, writes Bill Mongelluzzo. “Everyone we have spoken to has finally gotten their excess inventory down, so potentially there could be a surge of imports,” said David Bennett, chief commercial officer at forwarder Farrow. Bennett said the pre-Lunar New Year rush in January looks promising and that the second half of 2024 should be noticeably stronger than H2 2023.”
Last month’s newsletter focused extensively on the strength of the labor market and its contributions to inflation. This month I wanted to highlight the still elevated wages contributing to the strong labor market as they pertain to consumers’ abilities to continue to spend in the face of rising interest rates on consumer debt categories. The Burning Glass Institute writes in their recent December market update that
“The Employment Cost Index, a highly reliable barometer of wage trends, indicates that wage growth is decelerating gradually. However, at still roughly 50 percent above its levels just before the pandemic (albeit down from its peak of 75 percent above pre-pandemic levels), it is still far too early to predict a reversion to historical norms in the near future.”
The strong wages that have been prevalent for the last several years help to explain why consumers have continued to spend despite high interest rates on consumer debts, shown here:
These higher interest rates will certainly put a damper on new spending where credit is required, and for people facing existing balances on credit cards and other forms of loans more of their payment contributions will be eaten up by interest. One thing to note as well has been the stricter attitude of banks when considering granting credit to new applicants. As consumers start to be restricted in the credit they have access to, they will also start to feel less confident in their consumer spending positions. From The Burning Glass Institute:
“If inflation stays higher than expected in 2024, contradicting current market predictions of Federal Reserve rate cuts, long-term interest rates could rise significantly. This adjustment would occur as markets realign expectations with the Fed's actions to control inflation. Higher long-term rates would increase borrowing costs, especially in the housing market, potentially slowing economic growth. Additionally, these changes could lead to greater volatility in financial markets. All this is part of the bigger narrative of the coming decade: a tight labor market will continue to create wage and price pressures, which will force the Fed to slow down the economy.”
A slowing and stagnant economy for 2024 seems to be the rhetoric as we round out 2023 and prepare for 2024. However there were a couple of very small bright spots in the US manufacturing data that we can keep an eye on as we head into 2024. Understanding that US manufacturing accounts for over 60% of trucking ton miles, any type of bump in manufacturing activity in 2024 would be well received by the trucking industry.
Several months ago I noted how much the paper industry was decimated here domestically as production for paper related goods slowed and significant amounts were moved overseas. It seems it is now showing some signs of life returning.
Iron and Steel Production actually was higher on a YOY% in October, again showing some small signs of positivity in this sector:
Of course no signs are pointing to sudden meaningful increases in activity in the first half of 2024 at least, which makes this end of year RFP season quite unlike what many were hoping for. Arrive Logistics stated in their November Market Update that
“We expect additional downward contract rate movement into the new year as the gap between spot and contract rates remains historically high… The capacity correction should continue, but a recent rise in new equipment orders indicates capacity may exit more slowly than previous estimates. Regardless, capacity leaving will make the market more vulnerable to disruption, especially after another RFP season drives contract rates down closer to spot levels.”
So what is this gap that they mention? In all previous market cycles where we saw rates tighten and increase, a decreasing gap between the spread in spot and contracted rates, or even an inflection of spot over contract rates had occurred. Today when we look at where we sit in average contract and spot linehaul rates we can see the gap is still quite large. We have seen some recent upward movement in rates, but at least in contracted rates we expect that may be short lived. Current and upcoming RFP efforts are expected to put some additional pressure on contracted rates and potentially push those down some more. If spot can continue to show small signs of increased rates as contract pressures are applied, we will start to see that gap lessen.
Looking at the YOY% changes, you can see that we are still well below 0% and in negative territory when it comes to YOY growth.
And lastly a quick check into on-highway diesel fuel will show us that prices have continued to fall, relieving fuel pricing pressures for carriers.
Extra Content:
International:
Geopolitical tensions have been cause for closer monitoring of international trade in the last several years. Tensions with China, tensions caused by the Russian invasion of Ukraine, and now tensions caused by the Israel-Hamas conflicts. Iran Backed Houthi rebels have focused some attacks on ships in the Red Sea and Gulf of Aden on merchant ships they believe are affiliated with Israel. Lori unpacks what this means for trade security and inflationary pressures on shipping rates in affected routes.
Intermodal:
Union Pacific announced plans to expand their capacity, including a new terminal in Phoenix. As emissions pressures in California will create a more costly environment for trucking, more and more shippers will likely turn to the rails in the years to come, making even the short trips down to Phoenix sensible to consider for rail movements.
Meet Me For Coffee Recent Podcast Episodes:
Ep 25 with Shannon Breen, Co-CEO and Co-Founder at FreightVana
High level Takeaways:
Ep 26 with Matt Blackledge, VP Enterprise Pricing and Market Intel at Dupre Logistics
High Level Takeaways:
Thank you so much for reading and supporting the Truckload Market Update Report, produced by Samantha Jones Consulting LLC. Samantha Jones Consulting focuses on helping logistics providers better brand and sell their services to create sustainable revenue growth and support their company growth goals!
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Merry Christmas and a Happy New Year!