Analysis: U.S. trucking slowdown portends possible economic sluggishness

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April 25 (Reuters) – Craig Fuller is monitoring millions of transactions between U.S. truckers and their customers as chief executive of transportation data firm FreightWaves – and he doesn’t like what he’s seeing.

There was one unexpected sudden slowdown in demand to truck everything from food to furniture since the start of March and rates in the overheated segment that deals with on-demand trucking jobs – known as the spot market – are skidding.

“He just fell off a cliff,” said Fuller, who fears the United States is at the start of a trucking recession that could decimate truckers’ ability to dictate prices and push some small trucking companies to bankruptcy.

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Meanwhile, investors and financial analysts are worried about what will happen if the trucking crisis escalates and spreads.

History has proven trucking to be a possible indicator of the US economy. This is because when people buy less, businesses ship less – and business activity slows. Economic recessions have followed six of the 12 trucking recessions since 1972, according to an analysis by trucking data firm Convoy.

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Experts predicted trucking would ease a bit as pandemic-weary consumers shifted some spending from goods to services in response to the U.S. lifting COVID prevention measures. But they hadn’t anticipated Russia’s invasion of Ukraine, which sent fuel prices to record highs, rattled already volatile stock markets and forced buyers to pause.

And now the trucking sector most sensitive to demand – the spot market – is in correction territory.

“It’s the proverbial ‘canary in the mine shaft,'” said Joseph Rajkovacz, director of government affairs for the Western States Trucking Association. The group represents small trucking companies that dominate the cash market, which handled up to 30% of freight at the height of the pandemic.

The deterioration in the spot rate hit when diesel prices roughly doubled, hitting the take home pay of truckers like Marco Padilla, 63.

A few years ago, California-based Padilla was spending 25 to 30 cents per mile to run his truck. “So for every dollar (in salary), I was pocketing 70 cents. Now it’s $1 a mile,” Padilla said.

Average first-quarter spot rates, excluding fuel, fell 55 cents, from $2.78 per mile in mid-January to $2.23 on April 14. Spot rates normally drop about 22 cents per mile during this period, said Dean Croke, freight market analyst at DAT Freight. & Analytic.

While spot rates remained 37 cents per mile higher than they were during the last trucking bull market in April 2018, they fell 6 cents year-over-year earlier this month- ci, marking the first reversal of the current cycle.

“That’s where the fear is. Is that the ground? Is it going on?” Croke talked about the demand-driven decline.

The share of freight handled by the U.S. spot trucking market roughly doubled after consumer spending on durable goods jumped about 20% during the pandemic. In their rush to keep up, retailers and other shippers have focused on speed over efficiency – using more trucks and exacerbating demand for them.

At one point, the truckload spot market was handling more than 1 million loads a day, compared to a historical average of about 400,000, said Brent Hutto, director of relationships at TruckStop.com, who like DAT , associates truckers with spot market loads.

But demand fell in March, when retail sales excluding gasoline purchases fell 0.3%. Online sales, which have surged during the pandemic, fell for the second month in a row. Read more

Soaring diesel prices have convinced shippers to wait to fill truck trailers, rather than rush them partially loaded, further dampening demand, analysts said.

Major trucking companies like JB Hunt Transport Services (JBHT.O) and Knight-Swift Transportation Holdings (KNX.N) are somewhat insulated by their one-year fixed-price contracts with companies ranging from Walmart (WMT.N ) and Home Depot (HD.N) to Procter & Gamble (PG.N). Walmart and many other companies have an in-house trucking service while also employing outside companies.

Stifel transportation analyst Bert Subin said in a research note that he expects weak demand for full trucks in the second and third quarters, followed by a rebound in the fourth quarter fueled by the season. holidays. Deutsche Bank predicted earlier this month that interest rate hikes would tip the United States into recession next year.

Meanwhile, some shippers are asking for shorter trucking contracts, “given their belief that rates could come down,” Cowen transportation analysts said in a recent note.

Indeed, some executives like Fraser Townley, CEO of video game controller vendor T2M, are celebrating lower trucking prices as a relief to their profit margins.

“They’re about a third down. There’s still a long way to go,” Townley said.

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Reporting by Lisa Baertlein in Los Angeles; Additional reporting by Tina Bellon in Austin; Editing by Ben Klayman and Lisa Shumaker

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