A return to “normal” is likely in store for the North American trucking industry over the next year, an environment the industry hasn’t experienced since before the pandemic.
Bob Costello, chief economist with the American Trucking Associations (ATA) updated Management Conference & Exhibition attendees this week in Nashville, Tenn., where he said “Every cycle is different and this one is no different.”
The main drivers of truck freight, he indicated “are going to get no worse, and in some cases could get a little bit better.”
While interest rate decreases by the Feds will help consumers, Costello added “It takes a long time for both increases in the Fed funds rate and decreases to work their way through the economy.”
He predicted Q3 GDP will come in at about 2.8% growth, getting back closer to historical levels. While the consumer economy has been resilient, factory output has fallen 0.2% this year, which has been a headwind for truck freight.
Retail inventories are at healthy levels, Costello said, and should not weigh on freight demand. The U.S. jobs market remains strong, but is slowing, something Costello said is a good thing as it will enable the Fed to further decrease interest rates. In fact, the U.S. just experienced its longest run of sub-4% unemployment since the ’60s.
Household debt a concern
While household credit card debt is a concern, recently surpassing US$1 trillion for the first time, Costello noted total household debt as a percentage of disposable income is at “pretty low levels.”
The Consumer Price Index (CPI), which measures inflation, has seen smaller sequential jumps and is nearing the Fed target of 2%. However, it’s up 22% since 2020 and prices are still increasing, albeit at a slower pace.
Those macro-economic factors point to slightly better truck freight conditions ahead, Costello said. He also noted private fleets are insourcing more freight, which is proving to also be a headwind for the for-hire segment.
Costs remain a challenge for fleets dealing with stagflation. Costello noted demand rates are down while costs continue to climb. “It’s a horrible place to be,” he said. “That’s why we’ve been in recession. Supply is coming out but there has to be more.”
He anticipates there will be more bankruptcies in the trucking sector.
“I take zero pleasure in talking about this,” he stressed. “It’s one of the hard parts of my job, to say more companies need to fail.”
More failures needed
However, he also acknowledged more capacity will have to leave the industry for it to improve, since he isn’t forecasting strong freight growth.
The truckload tractor population is currently only about 1% above where it was pre-pandemic, while there are fewer independent contractors today than there were then.
In summary, Costello said the macro-economy is proving resilient and is now slowing to trend growth. Most drivers of truck freight will remain the same or improve slightly next year, he predicted.
He said more capacity will leave the market as fleets struggle with rising costs in a slow growth environment. Asked about how the U.S. election could impact the economy and the industry itself, Costello said “Presidents get way too much credit and way too much blame for the economy.”
