The U.S. Federal Reserve’s effort to slow the economy by raising interest rates without triggering a recession may have failed if conditions in the trucking industry are any indication.
In its latest Beige Book, the Fed noted manufacturing activity has flattened in most areas of the country despite improvements in the supply chain, slowing the demand for trucking in April and early May compared to last year.
The Fed added: “Trucking firms reported a sharp decline in freight volume this period with excess capacity in the system. Respondents indicated that there was a freight recession, and it was more difficult to find loads. Weakness in demand was primarily in consumer and industrial segments.”
Shipping rates are at lows and shippers are seeking to keep them there, Pat Gillihan, chief revenue officer at Transportation One, a Chicago-based freight brokerage, told Freight Waves (May 11.)
Does this make trucking a bellwether for the rest of the economy?
Lauren Mendoza, CEO of Bank Standard, which funds trucking companies, told The Food Institute trucking often mirrors the health of the economy.
“A soft trucking summer may hint at slower consumer spending and business activity. However, it’s also important to take into account other economic indicators and sector-specific factors. In this case, it could reflect supply chain backlogs, higher fuel costs, or labor shortages in the trucking industry rather than a wider economic downturn,” she said.
Ed Burns of Burns Logistics said trucking often is three to six months ahead of the general economy.
“As freight demand begins to slow down it is indicative of what is to come,” he said. “Demand is certainly down, but it is hardly apocalyptic; there is still freight moving.
“There was a glut of capacity as many people entered the industry, picked up used equipment, registered for authority, and moved freight during the height of pandemic-generated demand. In a way, the industry needs to right-size and that is what is happening.”
Dean Croke, principal analyst for DAT Freight & Analytics, told The Packer (May 24), however, things are picking up following a late start to the produce season, which could explain the lack of volume and depressed rates. He noted refrigerated rates typically peak around July 4, increasing an average 26 cents per mile. Drive van rates generally go up 21 cents.
As of mid-May, however, volume from California was off 20%, with 5,000 fewer truckloads being shipped but is now picking up.
“It looks like growers are trying to squeeze 24 weeks’ worth of production into 22 weeks,” Croke said, adding weather has a huge impact. Last year, drought was the culprit; this year, it’s flooding.
“I think we’ll pay more for produce. But trucking prices are going to be pretty, pretty favorable for growers-shippers because there are still a lot of trucks in the market chasing loads,” he said.
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