Will the Grinch spoil trucking's busiest freight season?

Hello and welcome into CCJ Market Pulse, your monthly look at the statistics and trends in the broader economy and how they're impacting freight markets. Joining us today as always is Jason Miller, supply chain professor at the Eli Broad College of Business at Michigan State University. But before we begin, please like and subscribe to this channel to stay up to date on new episodes of Market Pulse as well as the weekly 10-44 trucking series that brings you the latest trucking news and trends. And for more frequent economic updates, click the link in the description below and head over to LinkedIn to follow Jason's insights and analysis on trucking indicators. Hey Jason, welcome back in.

Hey, thanks for having on Jeff.

So we got a fresh set of data in freight data. Let's start the conversation today with a look at where we are in relation not only to last month, but this time last year.

One of the things we've started to hear some more positive tenor from the big public truckload carriers recently saying they're starting to see a little bit of improvement in conditions. I'm not really seeing any evidence of that yet though when we look at the ton-mile index that myself and Yem Bolumole at the University of Tennessee co-produce, we saw on a seasonally adjusted basis a slide of volumes in July of about six tenths of a percent from June. And that puts us down year over year at about 2.3%. But from the peak seasonally adjusted act point of March of 2022, that was the peak of this last cycle,  we're down over 3%.

And that 3% ton mileage drop may not seem like a lot, but that's double the freight recession that we experienced in 2019. Again, for historical comparisons, we saw a 20% drop between October 2007 and June of 2009. So we're not looking anything like the global financial crisis, but we still seem to be moving along a trough. We go up month, we go down a month, but no evidence yet from a broader perspective that we're moving out of this freight recession.

So there we're talking about a lot of contracted freight, but the spot market has been hit even harder. I can't even imagine being a independent owner operator in this climate. But is there any relief in sight on that side of the business?

So right now we're not seeing what I would call any sustained evidence yet that the spot market is fundamentally turning upward. We have seen evidence from a rate standpoint that we have hit bottom and rates so far in September have went up a little bit, but that is very likely carriers adjusting up their bids to incorporate the higher price of diesel fuel. But what I really like to look at to understand whether the market's going to turn is the spread between essentially brokers contract rates and then the spot rates that truckload carriers are being paid. And typically the threshold has been anytime that contract premium falls below 10%, we tend to be in a bull market. Anytime it's above 10%, it's a bear market.

Right now that premium sits at 20%. So that is still very much in bear market territory and we're not seeing any evidence yet that there's going to be this shock coming to spot prices that are going to push, essentially start causing brokers to have to increase their contract rates. So right now there just isn't any evidence that we're coming out of the market cycle On a pricing standpoint, we are very much likely at bottom, but when you factor in diesel fuel, actual take home earnings may be a little less for carriers if they're not properly factoring in that diesel price into their bids.

All right, and couple that bad news with the fact that the freight industry is in the middle of what should be peak shipping season as retailers stock shelves ahead of the holidays, that's typically August through October. So take us through a little bit of what you're seeing there.

Yeah, so when we take a look right now at inflation adjusted and seasonally adjusted sales for all of retailing, what we're seeing right now is we're effectively flat year over year. And so when we start thinking what does this mean for the holidays, given we've got student loan repayments beginning, that's going to be an average of about $300 per month for the households that are paying, given we have survey evidence coming in that consumers are saying they're going to be more cautious this holiday season, it seems reasonable to expect retail sales at best case scenario to be neutral to where they were last year for Q4, if not down, let's call it one or 2%.

That is highly unusual given we had seen before COVID a strong secular increase in retail sales and then of course we had the spikes in 2020 and 2021 as people were spending more on goods and they had stimulus money. You combine neutral if not slightly down sales with retailers still drawing down their inventories that were accumulated too much in 2022. you have a situation where there's weak, essentially truck movements in this space. And so again, I'm not seeing any evidence yet to suggest this is going to be a robust holiday season. And there's much more caution this year by the big retailers to limit their imports, so they're not exposed to having too much inventories like they ended up with in 2022.

So unfortunately, again, there just doesn't seem to be much evidence of relief coming. And as we're filming this right now, we have an auto strike going on. Those three plants where there currently are strikes produce anywhere between five and 10% of motor vehicles in the United States. Those are three very large facilities and we already have the UAW saying if better offers are not made, the strike will increase. And so you combine that in, it's not shaping up to be a very good peak season on an aggregate level.

So not a merry Christmas in the trucking market.

Nope, unfortunately not a merry Christmas and Santa's brought a big lump of coal in the form of higher diesel prices.

All right. Well Jason, thanks again. That's it for CCJ Market [00:06:00] Pulse this month. You can read more at ccjdigital.com. And while you're there, sign up for our newsletter and stay up to date on the latest trucking industry news trends and analysis. And please use the comments section below if you have any questions or comments on this month's episode. And don't forget to subscribe and hit that bell for notification so you can catch us next time. See you next month.