The US freight recovery could be over before it even began
Despite a rush of imports and overall strong economic figures, the US freight market has struggled to increase rates
Even with a deluge of imports entering into the US over the summer, trucking freight rates are down Year-on-Year (YoY) across major indices, so is a recovery over even before it has begun?
A long way back after the pandemic boom
US trucking has been in a tough spot recently, going through a spectacular boom during the pandemic and an equally notable trough in the years immediately after.
Throughout 2022 and 2023 there was marked overcapacity, leading to numerous companies filing for bankruptcy.
Coyote Logistics said in its Q3 2024 Truckload Forecast that this boom-to-bust cycle was the most volatile they had seen in the last five cycles in their measure, which go back to 2008. Using YoY change in trucking spot rates, the market went from being up 68.1% YoY at the top point of the market in Q1 2021, down to -38.4% YoY at the bottom of the trough in Q1 2023, a difference of 106.5 percentage points.
A rush to restock and a surprisingly robust American consumer
Hopes of an improving market were boosted by changes to typical flows during this summer, as many importers have moved forward their schedules, importing very high volumes relative to the last two years across the Q2 and Q3 2024.
As we covered in this article, container imports into the US have hit highs last seen during that pandemic boom, and the biggest ports on both East and West Coasts have reported some of their busiest months ever in July and August.
This has been driven by the concern that impending strikes by the International Longshoremen’s Association (ILA) could shut down major ports across the country’s East Coast.
In order to beat the possible disruption many companies have chosen to accelerate their shipping schedules and try to receive inventory before the strike is expected to hit on 1st October.
That need is heightened as the US consumer is continuing to spend even in the face of squeezed budgets and a tighter interest rate environment. Q2 consumer spending, which accounts for more than two-thirds of the economy, rose 2.9% YoY, which has surprised forecasters and economists, who were predicting slower growth and a more conservative US consumer. This spending helped push Gross domestic product (GDP) growth to 3% in Q2 and recent job reports have been similarly rosy. US jobless claims for September fell to their lowest since May, leaving unemployment close to historic lows.
But no rising rates
Even with one of the strongest inbound freight levels to the US ever and a robust economy, rates across the US trucking market appear to be experiencing continued weakness across multiple different measures.
DAT found in its August truckload Volume Index that even though volumes were up 6.3% YoY for van trucks, the average van linehaul spot rate was only 3 cents above same month in 2023, at $1.60 a mile. Contract rates fared even worse, with DAT reporting “monthly average contract rates for all three equipment types have been year-over-year negative since August 2022,” and fell month-on-month across all cargo types in August. Additionally, more trucks were available per load with the average load-to-truck ratio declining from 4.2 in July to 3.6 in August.
Cass’ Truckload Linehaul Index noted a 3.3% YoY decline widened slightly from 3.2% in July, leading to inferred freight rates falling 7.2% YoY, remarking that the Index “seems unlikely to turn positive quickly”.
Finally, the American Trucking Associations' advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 0.9% in July 2024 compared to a year earlier, following on from a YoY fall of 0.6% in June.
A mixed picture ahead
This weakness, even at a point of substantial logistics demand, is concerning for the sector.
Forward looking indicators offer limited cause for optimism.
The GEP Supply Chain Volatility Index noted that a sudden fall in its August reading indicated “the highest level of vendor spare capacity since June 2023” for the North American region and that procurement activity has weakened, likely showing a slowing logistics market in the US.
Furthermore, stock acquisition patterns do not favour a strong market in Q4 2024. By forward loading stock requirements to get ahead of a potential port strike and disruption, US companies will likely be able to draw back and reduce orders in Q4 2024 compared to what would normally be expected.
The inventories to sales ratios in the US, which indicates how many months of inventory are available relative to sales, hits its highest level in over four years in June 2024. While this is below long-term averages, it seems that US companies have adjusted to more lean inventory holdings post pandemic and this likely represents a high-water mark unless the strike becomes prolonged.
CEO of freight monitoring company FreightWaves Craig Fuller said in a presentation that many “companies already run a pretty sophisticated logistics network, where they already have dedicated trucking, they already have their linehaul services between their distribution centres,” and had made major investments into “visibility systems & robotic systems” post pandemic. He said that more efficient operations could be a large reason why inbound cargo volumes were not showing up in trucking rates.
However, a lengthy strike will push firms to take more aggressive measures to boost safety stocks. That scenario could potentially provide the turnaround the trucking industry needs, but outside of that it seems likely that further capacity reduction will need to occur in the trucking sector in the remainder of 2024 and into 2025 before rates can rise in real terms.