Are We Coming to the End of this Freight Recession?

These are crazy times.?Wildfires in Canada produced dark skies over eastern Canada and the northeastern United States and some of the worst pollution on record.???We are only in mid-July and the peak fire season hasn’t begun. Record high temperatures are being experienced in the southern United States on a daily basis.?Severe rain, flooding and flight cancellations are being experienced in the northeast.

Former President Trump was indicted for a second time this year, the first time a previous President has ever faced charges after leaving office.?There are possibly two more indictments to come.

The Vegas Golden Knights, in their sixth year of existence, won the Stanley Cup while the six Canadian teams in the National Hockey League, where hockey in the national sport, haven’t won the cup in 30 years.?The screen actors and writers have gone on strike together for the first time in 63 years.?

Looking at the broader economy, manufacturing has been contracting on a year/year basis.?Retail inventories are bloated. As fears of the pandemic faded, consumers switched back to buying services.?High mortgage rates are resulting is less building and less freight.?According to Bob Costello, Chief Economist and Senior VP of the American Trucking Association, all freight indicators are contracting on a year/year basis.?Supply is contracting; demand is contracting.?There is still too much supply.?The Spot Market is much worse than the Contract Market. ?Despite the US Federal Reserve’s aggressive monetary policy, the economy has not yet entered a recession.

As a result, we have been experiencing a nasty freight recession or “freight drought” for some time.?Volumes and freight rates are down while trucking company bankruptcies have been trending upward.?Yellow Freight System, one the largest trucking firms in North America is locked in a battle with its 22,000 Teamster employees.?If the Yellow cannot meet certain liquidity thresholds, this could put $4 billion of freight into the market and result in the closure of one of America’s largest unionized trucking companies.

Despite the freight recession, U.S. business logistics costs, or what is spent to keep the nation’s logistics network operating, grew by an astounding 19.6% in 2022 to a record $2.3 trillion, representing 9.1% of national gross domestic product, according to the 34th annual State of Logistics Report.?One of the oddities of the current situation is that unemployment remains very low.?There are approximately 1.6 jobs available for everyone looking for a job.?Airports and airplanes are full.?Restaurants are busy.?Even though food prices, airline tickets, and the prices of so many products have increased significantly, the economy appears strong.?Companies are having trouble recruiting employees.?To find employees, employers must compete based on compensation.?

Are we Pulling Out of the current Freight Recession?

As noted by the Nobel Prize winning economist, Paul Krugman, “the latest numbers on consumer prices arrived on Wednesday, and they were better than even optimists had expected.?For this report was anything but grim. It strongly suggested that we may be heading for a?soft landing?— a return to acceptable inflation without a large rise in unemployment ?. . .?but they’re all telling the?same story: a rapid decline in underlying inflation even though the?unemployment rate?is the same as it was a year ago . . . .”

Why have things gone so well??“Part of the answer may also be that when the economy is running hot, policies that cool it down — such as the Fed’s recent rate hikes — may?reduce inflation?without much adverse effect on employment.”

Maybe, Gonzaga University economics professor Ryan Herzog writes for The Conversation: “While the data shows inflation remains well above the Fed’s target of around 2%, there’s good reason to believe that it will continue to fall regardless of what the Fed does.” Herzog finds optimism in housing costs, as Zillow’s Observed Rent Index suggests inflation is “much closer to where the Fed wants it to be” than survey data used by the Bureau of Labor Statistics.

Privately-owned housing starts in May 2023 were at a seasonally adjusted annual rate of 1,631,000. This is 21.7% above the revised April estimate of 1,340,000 and is 5.7% above the May 2022 rate of 1,543,000. Single-family housing starts in May were at a rate of 997,000; this is 18.5% above the revised April figure of 841,000.

The Consumer Confidence Index increased in June to 109.7, up from 102.5 in May 2023. Per The Conference Board, “Consumer confidence improved in June to its highest level since January 2022, reflecting improved current conditions and a pop in expectations.

The shipments component of the Cass Freight Index (CFI) rose 1.9% month-over-month in May 2023, and fell 5.6% year-over-year. Freight markets continue to work through a downcycle which featured its first year-over-year decline 17 months ago. “Declining real retail sales trends and ongoing destocking remain the primary headwinds to freight volumes, but dynamics are shifting as real incomes improve and the worst of the destock is in the rearview.”

Last week, FreightWaves published an article with this title: Has the Freight Bubble Burst??They noted that truckload spot rates and demand are up this summer.?Truckload spot rates excluding fuel costs are up approximately 13 % since early May with truckload tender volumes up 7 % since the start of the year ?. . . .” FreightWaves believes that this is sign that the freight market is ‘stabilizing.’

“The National Outbound Tender Volume (NOTV), a measure of shipper requests for truckload contract capacity, has been trending upwards since January . . . The main takeaways as we close the first half of 2023 are that the market has found a demand floor . . . The majority of the bubble has burst but capacity is due for a strong correction.”

The Shippers Conditions Index (SCI) in April 2023 rose to 7.1 from a 4.5 reading in March. A weaker environment for both freight rates and carrier utilization more than offset slightly stronger freight demand and a deceleration of fuel cost decreases in April. The outlook is positive through mid-2024. Says FTR Transportation Intelligence, “Shippers conditions improved in April as weaker rates and carrier utilization helped support shippers. The outlook is for a firmly positive outlook for shippers in the economic balance of power between themselves and carriers for at least another 12 months.”

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