June Truckload Market Update

Thank you for taking the time to read the June Truckload Market Update! This is a monthly newsletter, released the first or second week of every month, be sure to subscribe to be notified when the updates are released!

As we wrap up the last month of H1 2024 I can report there is not much to report. I was chatting with David Spencer, VP of Market Intelligence at Arrive Logistics, and he said “I think the most noteworthy thing about June is that we haven’t seen much that is noteworthy”. That does appear to be the case. 

However, the purpose of this update is to keep readers educated on what is going on in the truckload market, and what is likely to go on each month. That said, just because nothing overly exciting has recently occurred does not mean we do not need to understand WHAT is going on and WHY the conditions are the way they are. 

Economics:

I continue to keep a watch on manufacturing activity, and June gave no indication of improvement. It appears manufacturing is experiencing weak demand.

In collaboration with Jason Miller we broke down several contributing factors to manufacturing’s weak PMI release.

Data for new orders came in very weak in May on a seasonally adjusted basis.

This continues to point to weak manufacturing demand. Likewise, core new orders for manufacturers with unfilled orders remain flat, with value of shipments exceeding value of new orders (a weak sign for manufacturing demand). 

We are also seeing signs of manufacturing industries sensitive to capital investment experiencing weak conditions. One example, would be the steady increase in inventories to sales ratios for machinery wholesalers, which suggests that the demand was weaker than manufacturers anticipated. 

To pair with that, we can see declining seasonally adjusted industrial production for machinery manufacturers as well. 

I think that’s enough of a look into manufacturing for this month to tell us that we should not expect to see manufacturing contribute positively to truckload demand in the near future. 

As we are evaluating and discussing things that drive higher demand for full truckload shipments like manufacturing, consumer spending, imports, etc. I wanted to take a moment to recenter our perspective on the broader state of the market. 

According to FTR truck loadings are projected to grow across most segments in 2024. Even if the growth numbers are relatively weak, we can see that 2022 and 2023 also came out overall positive for truck loading growth. 

Clearly, you can see how small percentages can have large impacts. Going from 2% growth in 2022 to .1% in 2023 was miserable for most transportation providers, and 2024s .3% projection has not felt much better thus far. 

The point to be made here is that volumes are not dramatically down from previous expected trends. Supply has been elevated which exaggerates this feeling of a loose/weak market. Additionally we are still close enough to the peaks of 2021-2022 that a recency bias is still in play. While the freight market is starting to get restless and “feel” like it’s time for the next market cycle, the broader economy does not seem to be wanting to keep pace with our feelings. In fact, some parts of our economy might still be settling down from the previous years’ activity, like consumer spending on goods. 

Matthew Klein published an interesting article recently that opened with:

The dollar value of U.S. consumer spending has been rising steadily at a yearly rate of about 6% since mid-2022. That has helped keep prices growing somewhat faster than the 2% yearly goal favored by Federal Reserve officials. But the composition of this spending has been shifting over the past year or so, with an increasingly large growth contribution coming from categories where spending is “imputed”, instead of based on actual transactions and observed prices. Strip that out, and nominal spending seems to have been slowing. Yet this does not seem to be translating into slower inflation, with core consumer goods prices accelerating notably over the past few months.

There was a lot to unpack in that article, which is linked for you and I encourage you to read, but the primary note that stood out to me is that consumer spending on actual goods may be experiencing more weakness than we previously thought. Below, he illustrated that Other "core" PCE is comprising a larger portion of spending, which includes things like imputed financial services, nonprofits, etc. Not the stuff that translates to freight on trucks.

My second take away worth noting from that article is that the battle against inflationary pressures on goods does not seem to have been won. This may be why we are seeing signs of weakness in consumer spending as well, if goods prices continue to remain elevated, consumers will be able to purchase fewer goods with the same amounts of spending.

Matthew shared this graph above with the caution that:

“These monthly numbers are volatile and prone to revisions, so it would be premature to draw firm conclusions about them. But the apparent coincidence of (modestly) slowing nominal spending and (modestly) accelerating underlying inflation suggests that the productivity windfall of 2023 may have (temporarily) played itself out.” 

Edward Jones economists believe that there might be two rate cuts in our future in H2 2024, provided the H1 increases in inflation we saw are able to be tamed. 

“Arguably, markets have paid the most attention to inflation and the path of Fed rate cuts this year thus far. Inflation had surprised to the upside for the first three months of the year, and the Fed has pushed back on cutting rates if the data does not cooperate. So the key question for investors is whether they believe inflation will show a moderating trend in the months ahead, which should provide the Fed confidence to cut rates. In our view, inflation will moderate in the coming months, though perhaps not in a straight line lower, for two key reasons. First, we continue to believe that the shelter and rent components of the inflation baskets will move lower in the months ahead, as they tend to lag the real-time trends, which have shown moderation in both home and rental prices. And second, we believe some softening in the labor market will lead to a continuing easing in wage gains, which would drive lower services inflation. Overall, given this base-case scenario of softer inflation, we see one or two Fed rate cuts likely this year, perhaps at a quarterly cadence, in September and December, which would also support market sentiment and the bull market.”

The Wall Street Journal had this to say about April’s CPI data and inflation:

The Consumer Price Index climbed 3.4 percent in April, down from 3.5 percent in March, the Labor Department said Wednesday. The “core” index — which strips out volatile food and fuel prices in order to give a sense of the underlying trend — rose 3.6 percent last month, down from 3.8 percent a month earlier. It was the lowest annual increase in core inflation since early 2021. The slowdown will likely come as welcome news to consumers, and as a relief to policymakers at the Federal Reserve, who have been concerned that they were losing ground in their fight against inflation. But economists cautioned that one month of encouraging data was far from enough to set those worries to rest.” 

In summary, we are all still trying to make sense of inflation and consumer spending as new data is released each month. There are various ways of looking at it, and of breaking down PCE and CPI data. Sometimes it’s okay, in my opinion, to take a step back and evaluate this more holistically. Overall, inflation is persistent and the FED has so far not been confident it is tamed enough to cut interest rates. If we look at PCE, we can see there may be a chance that consumer spending on goods is declining further, and we know that spending on goods has been shifting to services for some time as they have made a strong comeback. No matter the exact degrees, there are factors at play that can have an impact on the volume of goods manufactured, sold, and moved on trucks in the US for the rest of 2024. 

While imports do not account for a large percentage of domestic trucking ton miles, I did see a headline this month that made me decide to check into imports for the first time in several months.

Lori Ann LaRocco writes,

Spot rates had fallen after the sharp rise triggered by Red Sea tensions in early 2024, but since the end of April they began spiking by as much as $1,500, on average, on routes to the U.S. coasts, and now some of the highest contract rates charged by shippers are over double the rates of just a month ago.

If you are like me, not a primary participant in the ocean markets, you might have heard all the talk about oversupplied vessel capacity from past months and assumed we would not be facing capacity constraints in the ocean space for some time. Apparently, that’s not quite the case. 

“Goetz Alebrand, head of Ocean Freight Americas for DHL Global Forwarding, tells CNBC that vessel space on many trade lanes is insufficient to meet market demand. “Trade lanes from Asia to Latin America, Transpacific routes, and Asia to Europe are all experiencing space constraints,” said Alebrand. “These shortages are affecting specific locations, some carriers, and certain types of equipment.” He cited a shortage of 40-foot containers at the Chinese port of Chongqing last week. “As high demand and longer transit times continue, we are closely monitoring the situation to address any potential challenges,” Alebrand said. Judah Levine,  Freightos’ head of research, says that in March and April, ocean carriers were able to use idle vessels as well as ships from other lanes to help offset the longer voyages, keep containers moving and for the most part keep to weekly departure schedules. “But this has meant there is no excess capacity in the market,” he said.”

This is the truckload market so I will digress here on talking further about capacity and rates in the ocean space, but to wrap up a segment on imports, here is where any impact on domestic trucking would appear:

An increase in TEUs hitting the ports. With modest growth predictions for the coming months, this could have a small impact on truckload volumes in metros and industries most reliant on imported goods. 

I felt the graphs below help us to also keep in perspective that when compared to previous years aside from 2021-2022, import volumes are healthy. As Chris Jones from Descartes Systems Group put it “Month-over-month and year-over-year, U.S. economy proves to be robust in April 2024"

I once again take the stance that with the current supply of capacity in the market, even as the economy maintains it’s health or continues to expand in some segments, without the further exit of carrier capacity and some type of demand stimulus likely driven by manufacturing and interest rate cuts, we will remain in an “uncomfortable” freight market. 

Rates

Another month of not what transportation providers are wanting to see, and another month of data that reassures shippers that their rates will hold for at least another couple of months without disruption. 

Checking in with DAT Solutions, they provided our monthly graphs to help us understand where spot and contract rates stand heading into June. 

That’s still a pretty large gap between spot and contract dry van rates. We saw some expected seasonal spot market rate increases for May as well, and June is typically a busy month as well leading up to the 4th of July. 

Looking at YOY% change, the trend line has remained consistent

May saw the produce season really kick off, DOT week, Mother’s day, and Memorial Day, which provided some reefer demand stimulus and a bump in spot reefer rates. This trend may continue through June as well into the 4th of July holiday. 

YOY% change saw further trends towards 0%. 

Jason Miller recently authored an article in Supply Chain Management Review that is worth reading:

In the article, he featured his DAT Dry Van Spot Market Cycle Indicator that shows we are still awaiting further market movement to officially enter the next market cycle. He wrote,

each time the DVSMCI has entered a bull market (i.e., < 10%), it has been driven by an upward increase in dry van TL spot prices. Thus, history suggests we are unlikely to enter a bull market from a pricing standpoint unless we see a sharp increase in dry van TL spot rates.

If you have not yet, be sure to check out the Greenscreens.ai Market outlook they are now publishing each month!

Matthew Harding wrote:

“As much as everyone in transportation is waiting for a return to more balanced supply, the only bright spots for rates are found in the South (-0.3% ), Southwest (0.0%) and Southeast (+1.8%) markets when compared to 2023H2 rate baselines for Van. All northern markets are down -7% to -8% for Van off 2023H2 rate levels. In addition to Southern market van rates, Reefer rates are showing similar differences to northern markets as rate levels are trending higher than northern markets. South (-1.4% ), Southwest (-1.3%) and Southeast (+12.8%) versus 10% to -13% for Reefer in the northern markets. Flatbed markets are showing strength in Southern latitudes as temps heat up showing 4.8%, 5.7% and 1.2% to 2023H2 baselines for South, Southeast and Southwest markets. A very consistent seasonal pattern between north and south is evident in all modes, but the drag in the North is dimming the overall outlook.

Greenscreens data also allows us to peak into recent flatbed trends in addition to some regional trends in van, reefer and flatbed rates. Sometimes these more regionalized views and allow us to make better decisions for our businesses if we are more exposed in certain geographies than others.

Context is important, so here is how these charts are created and how best to read them:

Rate trends reflect the comparison of all shipments to a machine learning baseline rate derived from the latest baseline period (2023H2). Each shipment is rated with a 2023H2 estimate. Each month summarizes the difference to this baseline. All trends are derived using rates that include fuel and reflect spot market buy rates from +150 brokers within the Greenscreens network.

As a company committed to helping brokers create sustainable revenue models through increased operational efficiencies and smarter decision making, greenscreens.ai proudly sponsors this edition of The Truckload Market Update, which also aligns with their goal of producing market insights that help companies improve their business operations. You can connect with one of their awesome team members here for a no pressure demo to show you how they enable brokers to price to increase their revenues and margins here. 

COMING UP with Meet Me For Coffee - MID YEAR MARKET UPDATE with industry experts! 

If you enjoy this Newsletter, then this podcast is a must attend event for you. Several of our regular contributing thought leaders to this monthly Newsletter will be joining us LIVE for a one hour discussion on what happened in H1 2024 and what to expect in H2 2024! We will cover the macroeconomy, truckload demand, supply, rates, and any other questions you bring in! With already over 100 industry professionals registered and the event two weeks away, I expect we will have a very engaged and dynamic audience to network with as well! 

See Registration details here:

What happened in the full truckload freight market in H1 2024? What is going to happen in the freight market in H2 2024?

In January Meet Me For Coffee hosted an expert panel to make 2024 predictions. Join us as we bring back two of those panelists and two new panelists to discuss H1 results and forecast the H2 freight market!

Joining our panel of market experts is:

Samantha Jones, Host and author of the Truckload Market Update Newsletter

Ken Adamo, Chief of Analytics at DAT Solutions, and a returning guest and panelist!

Jason Miller, Eli Broad College of Business Endowed Professor of SCM at MSU, and a returning guest and panelist!

David Spencer - VP of Market Intelligence at Arrive Logistics and a former podcast guest and first time Meet Me For Coffee panelist speaker!

Cody Thacker - Senior Director of Fleet Operations at RFX | REFE and a first time guest and panelist on the Meet Me For Coffee show!

We can't wait to meet you all for coffee and an information packed discussion that will prepare your business for H2 2024.

You can start submitting questions NOW and anytime leading up to the LIVE show, drop them in the comments of the live event on LinkedIn! 

If you’ve never listened to a MMFC episode before, you can catch some recent shows here, or even go back and listen to the predictions made in January's expert panel to prep yourself for June’s panel! 

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