Back in March 2022, FreightWaves, one of the leading experts on the global physical economy and what it takes to transport goods around the world, stated that they believed a freight recession to be imminent. Most of the industry paid little heed to these warnings. Now, over two years later, FreightWaves has announced that we have reached the bottom of recession barrel, and that a recovery from the Great Freight Recession is nigh. Is it time to cue the trumpets and throw a victory parade? Maybe? Maybe not? Today, the LZBlog is diving into the topic of the Great Freight Recession.
What is the Great Freight Recession?
Generally, a freight recession, or a trucking recession as it is sometimes called, “is a period of declining freight volumes, which indicates overcapacity in the industry.” FreightWaves considers multiple consecutive quarters of decline in freight volume to be a freight recession. When the bull market brought on by the Covid-19 pandemic reached its zenith, the industry found itself at the height of a market that was being fed by a population of Americans stuck at home with cash payouts from the U.S. government. However, this reality could only last so long. After people finished ordering products for their new home offices, new hobbies, or new living room décor, the trucking and warehousing industries began to see the numbers of purchases drop off dramatically.
Covid-19 was not the only reason for this decline, though. While the pandemic was boosting the amount of retail products being shipped, it also led to a greater number of trucks on the road. Once demand shifted downward, carriers found themselves with too many trucks and not enough product to ship on them. Inflation also played a major factor; fuel prices and labor costs skyrocketed quickly. On top of all that, the bull freight market left many low-margin carriers to cope with all of the extra goods being bought and sold. However, these low-margin carriers were not created to handle the bear market that they soon found themselves in, forcing many to close their doors. The entirety of that struggle has sent ripples through the entire trucking industry. All of these things, together, led to the Great Freight Recession that the industry has found itself in at this time.
“East bound and down…”
Now that 2024 is more than half over, many in the industry are wondering how much longer the recession can continue. Thankfully, FreightWaves has signaled that the recession is coming to a close. Here are the trends they are using to make that prediction:
- FreightWaves uses their SONAR Outbound Tender Rejection Index, or OTRI, to determine the balance of supply and demand. The OTRI shows that the higher the rejection rate, the more load options there are for a carrier to choose from in the marketplace. That means that carriers can pick and choose the loads they carry, and those options are indicative of a strong economy. FreightWaves explains that tender rejections are up from last year’s beleaguered 2.88%, to a stronger 3.95% at the tail end of March 2024. These numbers are still slowly moving upward.
- Along with domestic transportation, global manufacturing and shipping is also starting to slowly pick up again. In June of this year, Asian manufacturing hit a sixteen month high, and many of those goods come to the United States. The costs of shipping internationally is still very high, with CNBC finding that it can cost as much as $10,000 to ship a single container overseas. However, the containers are still being sent, and the goods and products on them are still being sold to Americans; therefore, trucks are still needed to pick up these items at the ports and take them to their final destination.
- The Federal Reserve’s potential interest rate hike to control inflation is thought to be a boon for the trucking industry. By cutting rates in 2024, there is hope that it will encourage spending and boost freight demand soon. With data from MOTIVE showing retail orders on the rise, it is hopeful that the tender rejection rate mentioned above will also continue to rise, showing more product being moved across the country.
- Discount shopping options are forcing more traditional retailers to find new ways to market and sell their products. For teachers and parents with children that just went back to school, finding a good deal on necessities has become even more essential. To combat this, many retailers are attempting to discount or bundle back-to-school items, and, in order to do this, they are placing large orders in order to grab their share of this huge market. “CNBC’s Supply Chain survey indicated this trend was to be expected in peak shipping season, with 80% of respondents saying freight order for back-to-school and the holidays were in the middle priced category and signaled a consumer looking for deals.” With the end of the year and the holidays that come with it just around the corner, these deal-seekers are going to be looking for sales and making these purchases for the next several months.
Conclusion
There is a modicum of hope circulating through the trucking industry, thanks to FreightWaves’ announcement that they believe the Great Freight Recession is coming to an end. Morethanshipping.com has added that with non-residential construction up 15% and truckloads from Mexico up over 2% for the year, it looks like the end of the recession is in sight. However, as JB Hunt CEO Shelley Simpson once stated: “I’ve been conditioned over the last two years to be very cautious on the things we say.” In other words, be careful not to be too optimistic; a continued wariness is the best way forward at this time.
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Meaghan Goldberg covers recruitment and digital marketing for Lionzone. A Patterson, GA native, after graduating from both Valdosta State University and Middle Tennessee State University, Meaghan joined Lionzone in 2018 as a digital recruitment strategist before becoming the social media manager.
Resources:
https://www.linkedin.com/pulse/we-freight-recession-freightcenter-p62vf
https://www.cnbc.com/2024/07/17/americas-freight-trucking-recession-over.html
