March Market Update
Thank you for reading the March edition of the Produce Logistics Update, a comprehensive high level overview of the macro-economy as it impacts the full truckload freight market, and current produce transportation events and news. This is a monthly publication, be sure to subscribe to receive future monthly editions as they are published!
There has been an ongoing battle against inflation in the US economy by the Federal Reserve. They have been attempting to tame inflation without driving up unemployment rates and pushing the economy into a recession. One of the reasons that inflation rose so quickly was the robust labor market that grew post pandemic lockdowns. I have been saying for over a year now that we need to see significant cooling of the labor market to help cool inflation. It would appear the labor market has made good progress in moving this direction, and Matthew Klein writes that:
The latest comprehensive estimates of actual wages earned across the U.S. based on taxes paid into unemployment insurance coverage suggest that both average and aggregate wage growth has slowed dramatically in 2024. And while the January personal income numbers imply that the average American got a substantial pay bump, with personal income before transfers rising at a 9% annualized rate, that seems to be driven by a surge in dividend payouts that is unlikely to finance much, if any, consumer spending.
The sustained increase in consumer spending on goods over the last several years contributed to the inflation of consumer goods products, and spending was driven by strong wage growth and stimulus. As stimulus savings ran out, wage growth continued allowing consumers to maintain their new spending levels. So now we find ourselves with cooling wage growth and little optimism around a new surge in consumer spending. However, despite the decrease in wages, inflation has been rising again across many manufacturing inputs and goods.
Matthew goes on to credit this uptick? in part to the decreases in wholesalers inventories. This was covered in previous newsletter editions, but even as retail inventories were decreasing to acceptable levels the last couple of years, wholesale inventories remained elevated. As wholesalers have worked down their inventories this is putting slightly more pressure on manufacturers to produce new goods instead of drawing on inventories that already exist.
Speaking of manufacturing… Manufacturing firms' new orders suggest we may have reached the bottom of the current downturn. We have some initial signs on the new order front that we may be seeing some growth in the manufacturing sector. A reminder that domestic manufacturing accounts for what is estimated to be 60+% of trucking ton miles, which is why we follow it closely in this update.
As Jason Miller wrote in his recent post: “ISM's seasonally adjusted new orders index is hovering around 50 (the threshold for expansion), though still far from levels that truly suggest expansion (e.g., 55).
Overall, the US economy has been praised for its resilience and strong growth over the last year. Edward Jones Commented on the primary leaders in the US Stock Market and said:
"The three conditions that are likely needed and that will likely be in place later this year for the leadership rotation to materialize are
In other words, for companies to emerge as new leaders in the stock market, there will need to be interest rate cuts to stimulate business growth and consumer spending on goods, and increases in domestic manufacturing activity. This sounds very in line with what many truckload market experts have been saying is needed for rate increases in the full truckload market for months as well. What is interesting is that Edward Jones seems confident both of these conditions will be present at some point in the later half of 2024.
Some experts in the truckload space have remained optimistic that we may see a change in rates as early as Q2, but I think that those hopes should be waning.
With decelerating wages, and what may be re-accelerating inflation on goods, I think it is safe to say we will not be seeing a major demand side (trucking volumes) stimulus in the full truckload market in the next couple of months stemming from consumer spending.
As we move through the year we will continue to keep a close eye on inflation, wages, consumer spending, interest rates, and manufacturing activity to better forecast the direction of the full truckload market (and the broader economy).
Rates:
February spot market rates were not hopeful for carriers operating in that space. Overall we saw decreases in the space from the month prior. Contract rates remained stagnant or decreased across mode types as well, which led to no progress in the tightening of the gap between spot and contract rates. The market is still operating with ample supply (trucking capacity), and as long as the demand side (volumes) remain static we will continue to see capacity leave the market as carriers close their doors after struggling through almost 2 years of tough market conditions. Let’s dive into further detail around the state of rates in the full truckload market, through data in collaboration with reliable industry leading experts.
In collaboration with industry thought leader Jason Miller:
The dry van spot market cycle indicator (SMCI), calculated from broker buy contract rates and dry van spot rates (both including fuel). The formula is SMCI = (Contract – Spot) / ((Contract + Spot)/2). As can be seen, February showed a substantial upward increase to 18.8%, which places us solidly in bear market pricing territory.
DAT’s dry van spot pricing and broker buy contract pricing (including fuel). We see the increase in the SMCI was due primarily to February’s spot rates dropping $0.07 relative to January. This drop can’t be explained by diesel prices, which rose in February from January. On the positive front, March is the month where freight volumes will start to shake off the winter lows, though I will caution that the seasonal adjustment model I use for the trucking ton-mile index is expecting March 2024 to be weaker due to March starting on a Friday plus featuring Easter. However, April is predicted to be stronger than March (unusual) due to it starting on a Monday.
In collaboration with DAT:
Dry van rate averages decreased in both contract and spot spaces over recent weeks due to a weak February.
Reefer rate averages decreased in both contract (barely) and spot spaces over recent weeks due to a weak February. There are also reports that produce volumes have been noticeably weaker thus far this year.
Dry Van spot and contract rates YOY% change:
Reefer spot and contract YOY% change:
领英推荐
PRODUCE:
Spring is known to bring new types of produce volumes along with it. Trucker Tools recently shared a graphic that easily visualizes which regions of the country will be impacted by produce volumes and when.?
March is a heavy citrus month, here is a look at the types of citrus and other produce that March is known for:?
Produce Spotlight: Sweet Onions! ??
Originating from the Bermuda Islands, the sweet onion made its debut in south Texas in 1898, following the planting of Yellow Bermuda onion seeds ina small garden near Cotulla. Renowned for its mild flavor, this exotic variety quickly garnered widespread demand, signaling the onset of global sweet onion growing and distribution.
By 1920 the Bermuda Islands' onion farms struggled to meet the escalating demand, prompting Texas farmers to seek a more dependable solution. In 1933, Texas A&M's Texas Agricultural Experiment Station initiated an onion breeding program, catalyzing a significant breakthrough in the industry.
The resulting cultivar, known as "Texas Early Grano 502," emerged as a game-changer, characterized by its early maturity and robust yields. Subsequent developments, including the introduction of the Excel 986 onion in 1952, led to the creation of the iconic Granex onion, celebrated worldwide for its exceptional quality and flavor. It is now known by many names, one of the most notable is the Vidalia onion which is actually just a Texas Granex grown in Georgia soil.
Onions typically require refrigerated transportation and storage with a controlled temperature somewhere between 40-50 degrees. As we enter March onion volumes out of Texas will kick off, with additional onion volumes moving south into New Mexico later this summer.?
Produce Dates and Events:
Ongoing Events:
Yuma Produce Season- Yuma production has been steady even with the unusual amount of rain the region has seen this year.
Nogales Produce Season- Nogales has seen a slow start this year with weather issues in Mexico causing some crop loss.
Citrus Season- The citrus season has been steady with no major issues to report. The storms last month did not seem to leave any negative impacts on volumes
Upcoming Events:
Onion Shifts - Onions are going to be shifting from Washington and Oregon down to Texas and New Mexico at the end of March?
The Florida Produce season has had a quiet start with lower volumes moving out of Florida. Berries, tomato, bell pepper, and cucumber volumes may start to increase in March out of Florida.?
Thank you for reading!
This update is produced by permission and in collaboration with Samantha Jones Consulting LLC, and uses reliable industry data sources. We do our best to advise on the market as we see it, and our hope is that this information can be considered as you formulate your own conclusions and business decisions. A&Z Trucking is proud to assist our clients in better understanding the markets around them, and providing industry leading transportation, warehousing and logistics services to our clients. If you would like to contact us about produce transportation, crossdocking and cold storage solutions, or any other full truckload transportation needs, please reach out to [email protected] with your questions and comments!
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