Thank you so much for taking the time to read the January 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!
The new year has started, bringing with it the usual lull in freight volumes and trucking activity that Q1 does each year.
Last month we covered inflation and consumer spending in detail, and not for the first time. As we move into the new year, analysts, economists, and others are growing in optimism around the strength of the US economy and the ability to stick a soft landing. However, I would describe the overall feeling of the articles and sources abounding lately to be cautiously on edge. We are hopeful for a slow but stable economy, the avoidance of a recession, but seemingly aware that we might be one unforeseen or unlikely event away from that all changing.
JP Morgan Chase's CEO Jamie Dimon has taken the on the role of devil's advocate when compared to many of his peers, and says in a recent interview that:
"Right now the market's kind of priced in a soft landing," he told Fox Business in an interview released yesterday. "You see that in equity prices, credit spreads being very narrow. But the extra money that [consumers] got during COVID, trillions of dollars, that's kind of running out. It's been pushed out for a whole bunch of reasons but it runs out this year. "The government has a huge deficit which will affect the markets. I'm a little skeptical on this Goldilocks scenario. I still think the chances of it not being a soft landing are higher than other people."
While an economic recession would certainly not improve the chances of a freight recession ending, we have also seen the evidence that a stabilizing macroeconomic environment has not allowed the freight market to climb out of a recession either.
I will be looking at several things over the coming 6 months on a regular basis to help gauge where we are headed: Manufacturing Activity, Jobs Data, and Supply (truck capacity).
Jason Miller has called attention lately to food and beverage manufacturing (NAICS 311 and 3121), machinery manufacturing (NAICS 333) and the closely related machinery wholesaling (NAICS 4238).
The custom industrial production index shown below points to a sharp drop of ~2% since Q1 2023, which corresponds to the worsening of freight volumes through much of 2023 (which makes sense given these two sectors account for ~17-18% of for-hire trucking ton-miles).
Jason covered machinery manufacturing and wholesaling in a recent post where he prognosticated on the impact for Q1 and Q2 trucking ton miles.
Implication: I expect the market for hauling machinery to see weak demand over the coming months as wholesalers move to correct inventories in a weaker demand environment (especially compared to the same time in 2022). The second half outlook is harder to determine because we don’t know how various sectors will respond to the FOMC’s expected interest rate cuts. Transportation providers with exposure to machinery, plan accordingly.
His nod to interest rate cuts affecting the later half of 2024 is exactly why I will be watching Jobs Data. The strength of the labor market has been the ongoing contributing factor for sustained high interest rates. The January release showed strong numbers once again, likely eliminating a chance of interest rate cuts for the next several months as the FED remains unconvinced they can ease up now without inflation running away again.
Gad Levanon, Chief Economist at The Burning Glass Institute, provided a concise summary of the recent Jobs release:
“Jobs report is out today. Wage numbers were stronger than expected. Wage growth is barely slowing in recent months, and is still well above pre-pandemic rates. Today's wage numbers plus solid job growth, reduces the likelihood of a Fed rate cut in the coming months.”
That brings us to supply. Supply is the amount of trucks available to meet demand, demand being trucking tender volumes. To better understand where we are at and why it has received so much attention over recent months, let’s first notate where the demand side of the equation sits.
In terms of trucking demand, the seasonally adjusted trucking ton-mile index shifted a bit with the latest release of price deflators from the Bureau of Economic Analysis, showing ton-miles flat since June. With no signs yet that we are going to bounce out of the current trough anytime soon.
And while you can see that ton-miles are down from previous years, they remain slightly above the pre-pandemic ton-miles of 2019. However, it is the still strong levels of supply in the market that has been a focal point for market analysts for months now.
FTR’s Avery Vise recently released a summary statement saying:
“The number of for-hire trucking firms exiting the market in the fourth quarter of 2023 was barely higher than in the third quarter, but the number of new entrants continued to fall sharply. The result was the largest net decrease in the carrier population ever in a quarter.”
In other words, we are seeing a rapid decline in new entrants, which is expected in low market cycles, but Q4 2023 did not see accelerated exits of existing supply when compared to Q3 2023. The combination of these two numbers is still attention grabbing, and if this trend were to continue, even with gradual carrier exits increasing and decreasing numbers of new entrants to replace them, we would start to see a correction in the supply side of the trucking market.
Mazen Danaf, Uber Freight’s Economist, weighed in on this topic as well:
"- Our truckload market indices still show a substantial gap between supply and demand. We measure supply as a weighted combination of driver employment and the Class 8 truck population. Demand is a weighted combination of consumer spending, manufacturing, wholesale, imports, and exports.
- In October, demand was 1.5% lower than its year-earlier level while supply was still 0.7% higher. This is not good news for trucking rates; The difference between our demand and supply indices is highly correlated with spot rates (see chart to the right).
- The trucking industry continued to defy expectations in November, as it added 700 jobs (-1.5% y/y). Aside from the YRC exit, we haven’t seen any significant capacity reduction. YRC’s former drivers likely flooded the truckload sector, keeping supply elevated.
- In addition, Class 8 truck orders totaled 40.1K in November, the highest level of orders since October 2022. Both of these data points mean that there are no signs yet of the long-awaited capacity correction.”
Looking at the corresponding chart you can clearly see the gap between supply and demand illustrated in their indices.
This next chart does an excellent job of reminding us why we work to understand supply and demand factors and levels, as they are the primary determination of truckload pricing.
In my sources cited thus far, Jason and Mazen both mentioned wholesale inventories. This reminded me of a recent article published by Freightwaves that cited the CEO of C.H. Robinson mentioning Wholesale inventory levels as well.
“The president and CEO of brokerage and third-party logistics provider C.H. Robinson Worldwide Inc. said he doesn’t see any meaningful pivot in the fortunes of the North American trucking market before the second half of 2024, noting that customer caution about ordering and still-bloated wholesaler inventory levels will mute activity through the first six months of the year.”
It is true that Wholesalers’ inventories / sales ratios remain slightly higher than their pre-pandemic levels. We can see that destocking efforts have been effective thus far but it seems we may be looking at several more months for the wholesale inventories to fully revert back to their expected normal levels.
So where do we stand?
As we kick off 2024 I wanted to begin expanding my Rate section to be broken out by both dry and refrigerated mode types. The first two charts provide a look at the National Reefer and Dry Van spot rate averages, with actual rates as the solid blue line. All chart credits to DAT.
I then like to keep an eye on the spread between contracted and spot linehaul rates, this time by mode as well. We have seen some movement recently in rates upward, but both contracted and spot moved in the same direction. Typically to see movement towards a new market cycle the lines would be converging on one another with spot rates rising while contract rates remain neutral or decline. I am inclined to believe that we will see some contract rate declines in coming months as this year’s RFP season is applying further contracted rate reduction pressure.
Some people prefer to evaluate the change in rates on a YOY% change basis to compare this month to the same month last year.
Extra Content:
Are Mega providers losing their relevance? Is there such a thing as too big to fail? Interesting questions to consider as you read the following article covering the negative press C.H. Robinson has received over the last year.
Does VC still have a place in Transportation? Eric Johnson writes this statement in reference to his below article:
This piece may be seen as provocative, but as we look back on '23 and ahead to '24, it's important to take stock of where we are relative to the significant amount of venture capital that has been poured into logistics in the past decade. With Convoy (almost $1B invested) going out of business not even two months ago, we're at a point where we have still yet to see a "venture-worthy" outcome for any of the most high-profile, venture-backed companies in logistics, whether they are selling software, data, or logistics services. I believe it's a fair question to ask at this point: is venture capital suited to logistics?
Meet Me For Coffee Recent Podcast Episodes:
Ep 27. With Pam Simon, Everything you need to know about Manifest
Manifest is just a few weeks away! Join us in Las Vegas for this industry renowned event. You can check out the full agenda details & SAVE $200 on the current registration rate ($600 off the on-site rate!) by registering HERE
This episode covered:
Ep 28 SPECIAL EDITION EPISODE
With Ken Adamo, Jason Miller, Chris Pickett and Rob Haddock.
This episode was Packed full of market insights and things to consider as we move into 2024. The panelists answered the following questions:
1. In what ways did the 2023 Freight market live up to or fall short of expectations?
2. In what ways did the 2023 Macroeconomy live up to or fall short of expectations?
3. What were some of the biggest challenges facing logistics service providers in 2023? Do you think there were any meaningful events in 2023 that will permanently alter the way providers do business or shippers interact with providers?
4. 2023 was a full year of what the industry calls a "shipper market", in what ways did 2023 bring relief or challenge shippers?
5. What are the predictions for freight volumes and rates looking like for 2024?
6. What sectors of the economy have the highest chance of positively or negatively impacting the freight market in 2024?
7. What can shippers and providers expect 2024 to bring, how can they prepare, and what would your advice be?
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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