Thank you for taking the time to read the May Truckload Market Update! This is a monthly newsletter, released the first or second week of every month, be sure to subscribe to be notified when the updates are released!
Writing this month's newsletter felt very familiar to me, so I went back to November's newsletter to see what I wrote then:
"As the labor market remains strong even though it is cooling, inflation will continue to maintain current levels if not be at risk for increasing again, which will keep interest rates raised, the end result here becomes a longer period of what I would call an uncomfortable economy and freight market. Where consumers are “healthyish” and GDP shows some strength, inflation stays above target and interest rates stay high which keep consumers conservative and cautious which keeps spending on goods suppressed and a cautious economy could also keep real estate, construction and manufacturing industries suppressed as well."
The risk of inflation increasing again and staying above target, keeping interest rates raised for longer, and creating an uncomfortable but healthyish economy where GDP shows signs of strength, has in fact happened.
Wage data was actually promising as it relates to inflation and the potential for future interest rate cuts. We have to see some slowing in the labor market, and I think the Fed is pretty happy with the progress the most recent jobs report evidenced.
“This is the jobs report the Fed would have scripted,” said Seema Shah, chief global strategist at Principal Asset Management. “The first downside payrolls surprise in several months, as well as the dip in average hourly earnings growth, will bring the rate cutting dialogue back into the market and perhaps explains why Powell was able to be dovish on Wednesday.”
The jobs data was especially important this month because inflation has been stubborn in recent months, with plenty of available economic commentary available on how we should be interpreting this. Here is a summary of some commentary I think paints a pretty comprehensive picture on what we are facing as it relates to inflation.
Inflation was coming down by most all measures throughout 2023 from it's peak in 2022, and then 2024 came and said "no more". Matthew Klein writes:
“The U.S. Consumer Price Index (CPI) rose by 2% a year from January 2017-February 2020. During the peak of the inflation spike, in February-June 2022, the CPI rose at a yearly rate of 11.4%. By the second half of 2023, CPI inflation had slowed to 2.5% a year. So far this year, CPI inflation has been running at 4.6% annualized. That is the fastest pace of inflation since the end of 2022.”
Edward Jones also provided a visual that illustrated that both common measures of inflation, Core CPI and Core PCE, are showing sticky inflation so far in 2024:
Craig Fehr for Edward Jones wrote in a recent market wrap report:
Consumer prices in the US have surprised to the upside for three months in a row. Prices rose 0.3% in January, 0.4% in February, and 0.4% in March. The annualized rate of inflation implied by these three months is 4.6%, significantly higher than the Fed’s stated target of 2%.To make matters worse, this does not seem to be a temporary phenomenon. Excluding the volatile food and energy sectors, prices also rose 0.4% in each of the last three months. The annualized rate of inflation implied by these three months is also 4.5%. Shelter inflation, which was the largest contributor to the CPI growth in the last few months, continued to come down on a year-over-year basis to 5.6%. Meanwhile, prices increased significantly across other services, and were 4.8% higher than their year-earlier levels. And while prices of nondurable goods rose at an annualized rate of 1.7%, durables continued to see disinflation as prices were 2.1% lower y/y.
Edward Jones mentioned the shelter inflation as still being the largest contributor to the CPI growth the last few months, so I snagged this visual by Orphe Divounguy, Zillow's senior economist, who wrote:
"Housing is expected to keep core inflation elevated for a while. The rent of primary residence index rose 0.4 percent in March down from 0.5 percent in February. On an annual basis, the index is up 5.7 percent down from 5.8 percent last month."
Matthew Klein also noted that we were seeing a period of deep discounting in retail and wholesale consumable goods in 2023 as companies worked to right size their inventory bloat. That has almost all but been completed and now there is less desire to discount goods, and subsequently the disinflation of goods has stalled.
Here's the unfortunate part of all this. The recovery we are all hoping for now seems likely to be farther out than we anticipated at the beginning of this year. Interest rate cuts now are looking like end of 2024 or even not beginning until 2025. Consumers are showing signs of stalling their spending patterns, and manufacturing data did not further capitalize on last month's hopeful reading of a PMI over 50 - with a decline in New Orders and Backlog of Orders.
“Demand remains at the early stages of recovery, with continuing signs of improving conditions. Production execution continued to expand in March, but at a slower rate of growth than in prior months. Suppliers continue to have capacity but work to improve lead times, due to their raw material supply chain disruptions. Thirty-four percent of manufacturing gross domestic product (GDP) contracted in April, up from 30 percent in March. More importantly, the share of sector GDP registering a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 4 percent in April, higher than the 1-percent figure in March, but an indication of better health than the 27 percent recorded in January. Among the top six industries by contribution to manufacturing GDP in April, none had a PMI® at or below 45 percent,” says Fiore."
So I will end the economic portion of this update similar to how I started it. With a nod to the "healthyish" state of the US economy, and the higher for longer interest rate outlook that is going to drive the lower and slower for longer narrative in the freight market as well in 2024.
Craig summarized his recent report by saying he actually expects to see further slowing in the US economy prior to interest rate cuts:
“When looking under the surface, the headline GDP miss is not as concerning as it first appears. Domestic demand continued to grow at an annualized pace of 2.8%, supported by solid growth in consumption, business investment and housing. After growing at a rapid pace in the second half of 2023, the economy is gradually slowing, which should help alleviate some of the upward pressures on prices. As household savings accumulated over the past three years are being depleted and the impact of prior rate hikes continues to filter through the economy, our expectation is that growth will settle between 1.5% - 2% in the back half of the year and early 2025, before potentially reaccelerating as the Fed easing cycle kicks in.”
Unfortunately, without any sunny news around economic activity increases coming in the near future, I think what we are going to see in the full truckload freight market is the continued attrition of BOTH carriers and brokers closing up shop. The economy is considered healthy because many of our data points actually are performing well, there is plenty of business being done and goods being sold. Goods that go on PLENTY of trucks. What we are currently feeling is the sustained presence of ample capacity in the marketplace. I observed several article headlines this month covering the closures of asset fleets, one a 93 year old carrier with over 400 trucks that was said to be unprofitable and unable to right size their P&L. Tough market conditions are persisting, and Jason Miller provided insights as to why we feel so much pain in the full truckload market while the economy is "hopping along", as Matthew Klein said on the most recent Meet Me For Coffee podcast episode, and "humming along" as Jason puts it:
The current freight recession (peak in March 2022) stands as the deepest freight recession without a broader economic recession. At its worst (January 2023), it is double the dept of the prior freight recession (peak in August 2018) that ran through 2019. As of February 2024, seasonally adjusted volume was down ~4% from the March 2022 peak… I continue to believe that record profits in 2021 and 2022 (remember, prices were incredibly high throughout that year) have kept many carriers afloat… To demonstrate the current capacity overhang, if you compare March 2022 payrolls to February 2024 payrolls in truck transportation, the decline is just 0.3%. That explains why the dry van spot market remains so weak.
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"Mazen Danaf, Uber Freight's leading economic voice, posed a question that provides a nice transition into what I think is our next chance at gauging the direction of the full truckload freight market for the rest of 2024.
"The long anticipated capacity correction has not materialized yet. Our supply index remains 0.8% higher than its year-earlier level. In the past year, long-distance truckload carriers reduced their headcount slightly, but truck sales remained high... What’s next? If typical seasonality holds, spot rates usually bottom around the end of April to early May. In the second half of May, International Roadcheck day causes many drivers to stay off the roads. This is a good market pulse check—will we see a surge in spot rates?... Also around this time, produce volumes kick in, which usually results in a surge in spot rates. Rates usually increase by about 5% to 6% from their bottom. If we do not see such an increase, we expect a weak peak season this year too."
It seems most freight market commenters are in agreement that what we need to see if the expected increase in spot rates during the weeks between DOT inspection week and the Fourth of July holiday sticks around after the 4th. If rates decrease again before the usual peak season, experts are forecasting a weaker peak season that still in itself offers no catalyst for a major market correction.
David Spencer, VP of Market Intelligence at Arrive Logistics, said in a recent podcast appearance:
“In most years the period between DOT and July 4th helps drive some increased activity in the spot market… I think the question is what do we see after July 4th.. Our answer right now is no we don’t think there is going to be a sustained disruption” - “certainly we won’t know for sure until at least mid July”
But, we heard in recent earnings calls of the publicly traded players in our space that carriers are starting to say no. In other words, a line in the sand is being drawn by the companies who intend to stick around for a while.
On the Knight-Swift earnings call:
"In some cases, we have lost contractual volumes because we were not willing to commit to further concessions on what we view as unsustainable contractual rates."
John Keneally, had a great LinkedIn post recently that I believe is a very honest glimpse into what is going on within many fleets right now:
"2024 RFP's have been slightly less cut-throat than 2023 RFP's but still nothing positive on the pricing side. Contract rates will move closer to spot again after this cycle is done on 6/1 and the new rates are in place. Back half RFP's will have less success negotiating lower rates I believe but we will see. Not forecasting increases in 2024, just less losses and that is holding true... Since 1/1/23 we have now lost over $8mm in annual business, all over price... Good news is we also have onboarded new business at profitable levels to help offset the loss of revenue."
David Spencer also commented on this in his recent podcast appearance with this statement:
"Shippers are certainly looking for continued downward movement on contract lanes in Q1 and we are starting to see carriers say no. We are finding the pushback now, but there is still a decent sized gap between spot and contract rates, and we have not seen tender rejections increasing yet to levels that usually cause that market flip to draw in the gap between spot and contract rates."
The vocalization of drawing this line we heard in earnings calls, and the optimism that things are close to getting better in the market, likely explains why everyone is feeling more optimistic about Q3 and Q4 for the freight market. Again, I believe May-July will be important in predicting the rest of the year's market conditions. Economic conditions are not predicted to improve quickly, so I am skeptical that we will see any quick improvements in the freight market.
Rates are not giving us any reason to believe we are in for a quick recovery either, there is still considerable progress to be made, that even with a blip of increases during DOT week and the 4th, we are likely to still be well below where carriers would like to be.
Thank you to DAT for providing our rate charts. Dry van and reefer rates both showed no signs of improvement in recent months. Dry van rates saw further decreases and the bump in rates we measured a few months ago lost traction.
Looking at dry van YOY% change:
Produce has had a slow start this year, and reefer rates remain suppressed as well:
Looking at YOY% change:
Ken Adamo, Chief of Analytics at DAT, shared an interesting graph on LinkedIn recently as well that I wanted to feature:
Ken's commentary with the graph said:
"What are the implications of this analysis? For starters, I think it substantiates the idea that market bottoms are easier to predict than market peaks. I also think it suggests that it'll take at least 1 and possibly 2+ market cycles to achieve the peaks we saw during COVID."
The lower trend line has so far been on track in calling the bottoms of the cycles, so as we are bumping along that line now, we could conclude that things should only be up from here. It's more a matter of how soon can we start to see that upward movement.
In their recent Spot Market Update - April 2024, Greenscreens said:
"The trucking markets are exhibiting an unexpected continuation of downward price trends for Van/Reefer into the end of April 2024 indicating mid-single digit from 2023H2 rates. Flatbed showing early signs of typical seasonal uptick. Year-over-year is still down for all three modes. Regional year-over-year rate trends show better conditions in the West US for Van/Reefer, particularly in the South West where year-over-year rates are +6.7%. The North West region is showing -0.5% year-over-year which stands out from other US markets which are hovering at -3.4% to -4.5% year-over-year. The second quarter is typically a leading indicator of strength in the second half of the year. As such, we will be watching Q2 very closely as capacity continues to exit the market. Trucking is way overdue for a post-covid correction, and an exit from a clear bottom has yet to form."
Greenscreens data also allows us to peak into recent flatbed trends in addition to some regional trends in van, reefer and flatbed rates.
Context is important, so here is how these charts are created and how best to read them:
Rate trends reflect the comparison of all shipments to a machine learning baseline rate derived from the latest baseline period (2023H2). Each shipment is rated with a 2023H2 estimate. Each month summarizes the difference to this baseline. All trends are derived using rates that include fuel and reflect spot market buy rates from +150 brokers within the Greenscreens network.
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Next month we will see what impacts May's DOT week had on the market! Make sure you are subscribed!
Meet Me For Coffee with Samantha Jones seeks to correlate macro-economics to freight markets (just like this Newsletter does) and offers a chance to hear various industry and non-industry experts explain their thoughts on economics and freight markets. Subscribe to one of our channels!
Episode 34 - with guest Rob Haddock, covered:
Episode 35 - with guest Matthew Klein (whose most recent work was featured in this Newsletter), covered the following topics:
1. From a high level perspective, what is going on right now with our economy? Is there a chance of a recession in the future at this point?
2. How much will interest rates and inflation impact the strength of the US economy moving forward? Are interest rate cuts are in our near future?
3. Would manufacturing activity see increased activity if we had interest rate cuts? What areas of manufacturing are more likely to grow than others or healthier than others?
4. High level takeaways of recent GDP data releases
5. What to keep an eye on for the rest of 2024 to better understand the direction we are headed in 2025
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 companies in the logistics industry better brand and sell their services to create sustainable revenue growth, and support their company growth goals!
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Make sure you subscribe to the Newsletter to receive the monthly update, and please share this with a friend who can also benefit from reading! As always, Samantha's work is free and created with the intent to add value to the transportation industry.
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!
We love Feedback, if you have questions, comments, suggestions, or are interested in partnerships, please email samantha@connectsjc.com to connect!