Surface Transportation

COMMENTARY

By Jason Miller

The US truckload market has been in a freight recession since the third quarter of 2022 . As the freight recession enters its second year , carriers are wondering when the truckload market , especially the deeply impacted dryvan sector , will enter the next bull market pricing cycle .

Recent data shows domestic manufacturing activity generates about 59 % of demand for for-hire trucking operations in the US based on the Census Bureau ’ s and Bureau of Transportation Statistics ’ Commodity Flow Survey . Unfortunately for motor carriers , a variety of data points suggest US manufacturing activity remains in the bottom of a trough , with few signs of a meaningful recovery in the second half of 2024 .

Ongoing weakness

New orders are a strong indicator of future manufacturing output . Unfortunately , new order data from the Institute for Supply Management ( ISM ) continues to remain in contractionary territory . Historically , it takes multiple months of strong expansionary readings — e . g ., greater than 55 — for new orders for the trucking industry to switch into a bull market pricing cycle ; this happened in 2014 and 2017 .

ISM ’ s sample is about 400 manufacturers across all manufacturing subsectors . A far larger survey by the Census Bureau that is sent to about 60 % of domestic manufacturers based on their value of shipments shows that core new orders for manufacturing sectors that operate on a make-to-order basis remain flat and have remained that way since the second quarter of 2022 . As this data isn ’ t adjusted for inflation , flat readings indicate no growth at best and , more likely , declines .

Industrial production flagging

The Federal Reserve Board ( FRB ) produces a monthly report on industrial production and capacity utilization across all manufacturing sectors . A particularly attractive feature of this data is that industrial production data for the many industries represents physical quantities produced , with the FRB providing detailed data for sources of industrial production and capacity utilization statistics . This data does not paint an encouraging picture .

For example , capacity utilization for manufacturing , excluding hi-tech products , remains at the bottom of a trough , having fallen from a post-Great Recession high in 2022 .

Seasonally adjusted industrial production data measuring physical unit output remains weak in several freight-centric sectors such as primary metals , which produces steel coils and aluminum ingots ; food manufacturers that produce consumer packaged foods , bulk animal feed , and edible oils ; chemicals excluding pharmaceuticals that produce an incredible array of products including dyes , synthetic fibers , plastic resins , paint and printing ink ; nonmetallic mineral product manufacturers that produce products of clay , glass , stone , and concrete ; and paper manufacturers that make large paper sheets , solid fiber boxes for e-commerce shipping , paper bags and paper towels .

Without increased manufacturing activity in these freight-centric sectors , it is difficult to see how demand conditions will improve enough for the balance of supply and demand to shift in the favor of carriers .

Capital investment concerns

One sector whose activities generate substantial trucking demand is fixed investment in residential structures , which includes building new single-family homes and multifamily structures such as apartments , as well as improvement projects . Data from the Bureau of Economic Analysis shows that inflation-adjusted activity , while up slightly from this time in 2023 , remains down about 15 % from where it was at in 2021 .

Another sector , which is also considered capital investment , is drilling oil and gas wells . Data from the Federal Reserve Board shows activity in this sector is down about 14 % from this time last year . Given the Federal Open Market Committee is not expected to cut interest rates nearly as much as initially thought in 2024 , it is difficult to see how activity in these downstream sectors will increase .

Taken together , demand fundamentals do not signal a substantial uptick in trucking volumes coming in the second half such that demand for trucking will increase to the point that a strong bull market pricing cycle will commence . This suggests the earliest a bull market cycle could commence is 2025 .

email : mill2831 @ broad . msu . edu

Without increased manufacturing , it is difficult to see how demand conditions will improve .

www . joc . com July 29 , 2024 | Journal of Commerce 35