The uncertainty caused by U.S. President Donald Trump’s tariffs on countries around the world may be proving more disruptive than the tariffs themselves, when it comes to U.S. imports and freight volumes.
“Beyond just the effect of tariffs themselves, it’s also the uncertainty of what these tariffs are going to look like,” said Joseph Towers, senior analyst, rail and intermodal for FTR. He was speaking during a Key Issues in Transportation webinar by FTR last week.
“It makes it very difficult for businesses to make decisions. Do I make an investment? Do I buy a new piece of equipment? Do I launch a new product? Do I change the way that I source my products? So, those are still very much looming questions that still cast a shadow on the trade environment.”
But surprisingly, U.S. import volumes haven’t been greatly affected by Trump’s tariff policy. While there was a pull-forward of imports before the tariffs took effect, followed by a steep drop, Towers noted overall imports from Asia haven’t been severely impacted.
While imports from China fell drastically, an increase in those from Vietnam, Malaysia, India, Thailand and other countries in the region almost offset the decline from China.
“China has, in the past, taken some steps to skirt some of the U.S. tariffs by putting some of their goods into other countries, relabeling them, and sending them over to the U.S.,” Towers said as one possible explanation. “But that’s not the whole story…there was also clear evidence of efficient supply chains with producers being able to source their inputs from other countries.”
There has also been a shift in how imports are shipped to the U.S., with Gulf Coast ports seeing their highest ever volumes while imports to East Coast ports are rising and those to West Coast ports declining. The impact on trucking is that goods arriving at East Coast ports are more likely to be moved inland by truck than rail as they generally have a shorter distance to travel to their destination.
Looking ahead
Avery Vise, FTR’s vice-president of trucking, said FTR has adjusted its forecast and feels the current overall tariff rate of about 14.3% is more likely to be the floor than the ceiling. He added there hasn’t been much in the way of tariff-related inflation to date.
“But a lot of the impact that we’re going to see from tariffs has not really occurred yet, because a lot of the imports were brought in before tariffs took effect,” Vise said of the pull-forward effect. “Some inventories were increased because of that and so forth. So, it’s logical to assume that the effects that we will see from tariffs are still largely to come.”
Overall GDP in the U.S. entered negative territory in Q1, but Vise pointed out GDP counts imports as a negative. Since those imports ultimately move by truck, Q1 was strong when measured in terms of GDP Goods Transport Sector.
Consumer spending has been “pretty sluggish” for a few months, Vise pointed out, and could remain a week spot. With potential tariff-related inflation still on the horizon, he added “You add tariffs and the potential increases in prices and it does seem we are looking at a considerably weaker consumer environment.”
The impact on trucking
So, where does all that leave the trucking industry? The U.S. spot market – which accounts for just about a third of overall freight volumes – saw a large spike in rates in the most recent week for which data is available.
Vise said the gains for van and reefer rates marked their second largest week over week increase dating back to 2008.
“Does this mean an inflection in the market or, is this the turn we’ve been looking for? I’m skeptical to say that’s what happened,” Vise explained. “It certainly is a possibility.”
However, Vise pointed out the week included the Fourth of July holiday in the U.S., “so I’m not going to extrapolate too much from this. If we do not see a significant decline this week and next, then I will start to say ‘OK, we’ve got something going on.’”
Looking at changes to the for-hire trucking company population in the U.S., Vise said in Q2 there was an increase in carriers for the first time since Q3 2022. He said large carriers have generally decreased capacity to align with market demand, but there remains a large overhang of small carriers.
Truck utilization has been weak the last couple years, which FTR anticipates will continue for another few months before strengthening.
As for contract rates, “the environment is improving in our estimation,” Vise said. However, that growth will be tempered, with FTR projecting less than 2% growth in contract rates through this year and into next, barely enough to keep pace with inflation.
“And frankly, if that turns out to be what we see, we probably will lose a lot of carriers,” Vise predicted. “We probably will see even more downsizing.”
The loss of capacity is good news for carriers; not so much for shippers, Vise warned.
Equipment demand
Class 8 truck and trailer orders have been extremely weak of late.
“There’s probably a lot of reasons for that. The tariff uncertainty is a big one,” Vise said. “Certainly, the freight market, the lack of rebound there and the fact it looks like we may not have an EPA27 regulation, or at least one that is enforced by the government.”
That EPA27 environmental regulation was expected to drive new truck orders this year as carriers pulled forward equipment orders to get ahead of the related price increases. That hasn’t happened and the U.S. has said it’s reviewing the regulation, prompting uncertainty that it will be implemented despite the fact truck manufacturers have already made the necessary investments.
Even if demand does pick up, Vise said “There is still an oversupply of trucks that have already been built. In fact, we’re at record levels of Class 8 inventories so if there is a need for trucks, at least for a while, those trucks will be available. That’s not good news for truck manufacturers, who are obviously hoping to keep production levels high. But this allows for a lot of purchasing without having to order more trucks.”
Bye-bye, pre-buy.
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