A mix of poor data – from falling shipments to softening rates – is posing concerns for the trucking industry, according to a variety of analysts.
ACT Research Co. characterized the October freight data tracked by its For-Hire Trucking Index as “disappointing” and indicated “softer freight conditions” are developing.
That index posted its lowest reading “since December 2012 and the first negative October reading since the inception of our survey in 2009,” noted Kenny Vieth, ACT’s president and senior analyst.
“Anecdotally we are hearing that shippers are coming into the market early for bids, which underscores the softening in the supply-demand dynamic as they look to take advantage of current weakness,” he added, with 45% of the fleets in the firm’s survey reporting a decrease in freight in October – a time when freight should be increasing ahead of the holiday season.
Jonathan Starks, director of transportation analysis for FTR, noted that “the U.S. economy isn't running on all cylinders right now,” though the country has managed to continue to grow at a fairly stable pace for a long stretch of time.
“This creates a unique environment, especially when it comes to the cyclical nature of freight demand,” he pointed out. “Inventories are high, demand is sluggish, and regulations are going to impact all of the modes.”
The Cass Freight Index for shipments dropped by 4.7% from September to October, with October’s reading down 5.3% from a year earlier, noted Rosalyn Wilson, senior business analyst with Parsons and author of the Cass’s monthly freight updates.
“Freight payments fell 2.2% [in October] from September and were down 8.7% from last year,” she said in the report. “While some of this month’s decrease comes with the drop in shipments, spot rates have also impacted October’s results.”
Wilson noted, too that trucking capacity at this point in time is “abundant,” which is not only depressing spot rates but affecting contract rates as well.
“Trucking companies are reporting that new contracts are yielding only 2% to 3% rate increases going into 2016,” she said. “Dedicated carriage contracts are faring slightly better for the carriers, with an average of a 3% to 4%, and carriers are still reporting that they are unwilling to lose a good customer over a few percentage points.”
Wilson emphasized, too, that inventory levels remain “a looming problem” as the Federal Reserve continues to actively hint at a possible interest rate hike in December.
“The combination of record inventory levels and an interest rate increase will cause a significant hike in inventory carrying costs,” she explained. “This will most likely drive a drawdown much like the one we saw in 2009 and 2010. {So] expect freight to continue to trail off through year’s end. Retailers and wholesalers have ample supply for the holiday season, so imports and freight shipments should not strengthen considerably.”
