Freight demand forecast gets 1.7% bump despite fragile market

Speaker 1:

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Speaker 2:

Is the long suffered freight recession finally coming to an end or are shifting capacity rules and market volatility simply changing the rules of the game? Hey everybody, I'm CCJ editor Jason Cannon. On the other side is Matt Colt. Between sudden spikes in energy prices, new broker liability rulings, and shifting trade tariffs, navigating fleet capacity and budgeting has become a moving target. Breakthrough's network captures roughly 35 billion in freight spend across major shippers, giving them a clear view of real-time market shifts. It notes that recent surges in paper and packaging up 9% earlier this summer stem largely from front-running ahead of price increases and energy supply chain pressure rather than permanent demand lift.

Speaker 1:

The big conversation hitting on the paper and packaging surge that we've seen at B of the year, I think it definitely aligns to a bit of a front-running strategy, I think as you alluded to in your particular question. I think along with that, there's several drivers of this that I think have some regional implications. I think when we saw the conflict that Iran kind of kick off and we saw some of the energy price hits happen, I think this caused some supply chain pressure within paper and packaging from the manufacturing standpoint, things like resins and plastics and all this stuff, some derivatives in oil. So I think there was some cost pressure coming up that led to them announcing some price increases in the sector. I think that led to some front running ahead of some of those price increases along with some tariff activity.

And I think that's been one of the drivers we've seen in the past couple months on the paper packaging side and speaking to some of our shippers that are in that particular sector. From the perspective of is this a concern moving forward in terms of a sustained lift? I don't know if it's going to be a sustained lift as much as it's sort of this bump that we've seen to respond to overall market conditions. I think that's probably the initial takeaway from what that demand data says within our ecosystem.

Speaker 3:

Capacity rather than pure demand has been the primary driver of this freight cycle. Regulatory pressure on non-domiciled CDLs, English proficiency standards, and especially the recent court rulings on broker liability are tightening the market. As brokers face higher litigation risks, they're applying stricter carrier selection, adding cost and operational scrutiny across the board.

Speaker 1:

I think the capacity story you're focusing on the broker piece, I think that's the broader conversation in this particular freight cycle that I think the broker piece has hit in the past month or two with that ruling in May. I think we are already coming into a situation this year where if you look at driver counts, if you look at a net change in carriers with operating authority, these all have been under years of this freight recession experience, that cycle turn of them softening and softening, softening in terms of drivers already existed into this year. When you throw in the mix, the English language proficiency regulations, some of the non-domicile CDL crackdown, and most recently, as you alluded to, the broker liability change, all this is kind of culminating in a by and large a soft demand environment where the capacity is driving a lot of this.

And I think the most recent broker ruling, it's poised to have some impacts here in the near term that are likely to extend. I mean, the obvious takeaway from this is brokers now being held liable, puts some challenge in terms of insurance costs and insurance premiums in the near term, as well as enhanced focused on things for brokers like carrier selection, which is going to add to some of those capacity challenges. They look for carriers that have higher safety scores and lean on those types of things that I think is going to add a little bit more scrutiny to what they do for more protection from their perspective. And with that, I think there's a longer term conversation on what happens in the broker space. Larger brokers might be poised to weather some of these challenges more just because they have the ability in this environment where it's going to squeeze some of the smaller brokers in the marketplace a little more just given enhanced litigation risk and things like that.

So I think it's definitely something that's not going to help the capacity issues in the near term and continue to add some pressure in the marketplace. I think within our compliance data, as an example, from what we can see, post that ruling, not saying it was necessarily because of that ruling, I think it's a marker of the broader conditions in the marketplace. But we did see if we saw shippers where those rates were falling out of compliance, falling down the routing guide, we noticed that there was definitely a larger uptick in the broker piece in particular as opposed to asset carriers. If you were to fall out of compliance, you saw much more pressure in those rate movements. It was around, maybe we also saw a bump in rates in Maine more generally right around the road check week, which I think has added complications.

I'll say it was the liability piece in particular, but I think it was just around the same time you saw a little bit more pressure in that space. So I think definitely in the near term going to be adding some pressure to the capacity for sure. And in the longer term, we'll see how the conditions evolve around what this looks like, what it means, and how the competitive marketplace and brokers responds.

Speaker 2:

Overall, freight demand remains largely flat year over year, hovering around a modest 1.7% growth forecast early into next year. However, sector by sector, data shows clear evidence. While retail downstream volumes temporarily saw lifts from tariff front loading, upstream sectors like consumer packaged goods and food and beverage continue to reflect soft consumer spending.

Speaker 1:

The demand space, I think, as far as freight cycle goes and sort of the turn we've experienced, this one is unique as we've alluded to because capacity's driven a lot of it while demand has been respective of what our ecosystem shows. And for perspective, just to add some commentary on what's actually captured in that. So a breakthrough, we actually work with shippers across energy solutions, freight solutions, sustainability solutions, and part of providing those, we actually collect their network data essentially to provide those solutions. So we capture something in the range of about $35 billion in transportation spend across many, many clients, many Fortune 500 clients. So we're wrapping up a lot of that volume activity when we look at what we're seeing in demand. So there's a tremendous amount of network data that is involved in that. We've seen in the demand space, if you go back a year, even a year, different slices, we can look at this.

Realistically, we saw a bump up in volumes last year around March, April, around the initial tariff activity and some front running across the ecosystem. But in 2025, what we largely saw was a lot of flat to down behavior almost from May 2025 all the way until January of 2026. So really flat subdue demand, no major shifts. Coming into 2026, demand activity essentially showed as we saw a dip at the end of January, which roughly corresponds with that winter storm for an activity that sort of hit nationally. Saw a dip in volumes and the recovery up into February of what that looks like. And since then, we've essentially been oscillating a little bit positive, negative, but hovering right around zero as an entire network. I think the last data point of about 0.6% year over year for June roughly. So not a significant change from the prior year, still relatively flat demand.

But I would say when you dig deeper into the underlying dynamics, if we do some slices by some sectors and some industries, that's where you start to see some uneven demand. So in particular, I'll call it two industries. We already mentioned one that have been maybe causing some of the lift. So paper and packaging, March, April, June has been elevated compared to last year up eight, 9%. I think the most recent data point as of last week is hovering around 5% up compared to the prior year. And we already talk about some of the dynamics with that one. The other area that in the last data point sector that has shown a sizable volume actually is in the retail sector in particular, the downstream supply chain space. It's up about around 9% in the last data point we have coming into July. And I think a lot of what we're seeing from that particular sort of narrative and story I think is a lot of the tariff front loading activities.

So some tariff deadlines coming up in July. I think we saw a lot of retailers try and stock up inventories and rebuild. I think that was sort of echoed in the recent logistic managers index report that came out where they highlighted downstream retailers in particular showed evidence of some restocking. So I think we're seeing some momentum from that particular lens or data point in the past couple of months. The other thing I think is interesting from the demand side on that retail space is if we look a little bit deeper within that retail sector and we start to talk about different types of retailers, noticing a bit of a trend in the past couple months around general merchandise retailers as opposed to say specialty retailers. They've seen a little bit more volume movements than maybe specialty has. This could be a number of reasons for this, the inventory rebuilding in general, but I also think there's a narrative there possibly around in the heightened energy price environment, consumers tightening their budget, some of those concerns.

There might be some strategy around limiting trips out, just going by one store where I can buy everything as opposed to two or three specialty stores. I think it's kind of showing up a little bit in the data from the retail side. So those are two areas in particular where we're seeing pretty solid movements at the moment in the last month or two of data. I think what's interesting is the other kind of sectors that we will slice and dice, food and beverage, consumer packaged goods, and durable goods, those have all been pretty much flat to negative actually in terms of the volume lifts compared to the prior year. Now some of this, you got to pay attention to baseline effects as we're comparing year over year to last year when you had some of the tariff activities, some interesting oscillations in the data. But the other sectors, many of which do ultimately rely in the end on consumers in terms of their spending patterns, are showing sort of that flat to soft behavior.

So I think by and large, really what we're seeing across the ecosystem is a lot of the demand story for we can look at is still relatively flat to soft. And the demand indicator that you referenced sort of rolls all that up into sort of an index-based measure. And that's where the number you said about a 1.7% forecast moving forward through the end of the year to early 2027 really reflects this notion of persistent soft demand kind of expectation from our perspective. Again, we're seeing pockets of movement in the data, but anything that we can point to some front-loading activity with tariffs, that's kind of borrowed demand from the future to some extent in terms of the freight volume movements. So I think that sort of plays into the soft expectation that we're sort of framing out and what we're seeing from our freight demand indicator perspective.

Speaker 3:

That front-loaded demand presents a risk for the back half of the year. Because shippers pulled inventory forward to get ahead of tariffs and price hikes, we could see an artificial demand cliff heading into what would normally be the traditional peak shipping season.

Speaker 1:

Potentially. I mean, if you look at even some of the forecasts we're seeing from the National Retail Federation and the port volume story, which that aligns very much with some of the front loading activity. We saw surge in ports, port activity the past couple of months. And I think last year we saw some of that too where mid-year, we saw the import surge. It kind of trickled down a little bit through some of the other supply chain pressures, and then it was a bit of a softer outlook ending through the year. I mean, I think that is a possible path moving forward of what we can see where we saw this lift in volumes, this lift in some inventory restock in some of these areas. Again, theoretically, if they've already moved some of it, it's not as much to move later. So I think it could be a bit of a sort of leveling out that we see where we got some lifts in a couple of these pockets right now with some softness moving forward.

I think by and large, while we're seeing maybe some of the traditional movements just altered with some of these front-running narratives and these front-running stories, I still think that the big cloud of the entire conversation is sort of the geopolitical risk we're associated with the Iran conflict as well as the ongoing changes and alterations in trade policy. I mean, even as of just this week, the 50% tariff on Canadian imports just kind of got tossed out there in the past week or so as we're having this conversation, which that could trigger some different fluctuations across some of these supply chain movements. So I think we've entered this space where it feels like historically maybe if you think about uncertainty, a lot of uncertainty I think from a policy standpoint historically has been rather episodic, like a shock happens, an event happens, there's uncertainty happens, it comes back down.

And I think we've kind of fallen into this situation where this uncertainty is now more structural in nature. We're just living with this persistence of this constant change and constant policy change and things like that that I think is causing a lot of the supply chain folks to become sort of experts in resilient strategies and finding ways to actually protect themselves as much as they possibly can in this environment. So I think the idea that maybe we've had a little bit of artificial demand lift in some of these pockets, possibly paper and packaging and possibly in retail, that might be offset later by just some softness if some of these goods have already moved in advance of the typical patterns when they do.

Speaker 2:

Persistent inflation and energy price volatility continue to weigh heavily on consumer sentiment. As household budgets tighten, the typical volume spikes usually expected around the holiday season may end up noticeably muted compared to historical baselines.

Speaker 1:

I think it might be something where we might see a little bit of softness. I mean, I think we're seeing different consumer measures, different consumer spending measures. We've talked about K-shaped economy. I think economists have for some time where consumers have tightened up their budgets a little bit. The energy price shock I think is weighing in this a little bit as well. And I think all of that might be poised to soften some of those numbers. And again, we're already seeing it in food and bev and CPG right now currently being down where they were compared to last year. So I think it's absolutely a trend to keep an eye on to see if that kind of holds. And again, I think not to keep hitting the geopolitical risk thing and war in Iran, but if you look at consumer sentiment data, it is very much responding to those shocks.

I mean, I think we had historic low numbers, and then once we saw the Brice reprieve when the PCO came out and the oil prices, we saw actually consumers tend to pop up. So I think some of that, actually how consumers are feeling, might be playing into some of that spend that you're talking about a little bit later in the year, which I think is just going to be something to pay attention to as it's a trend to watch.

Speaker 3:

While some sectors are seeing artificial demand surges, underlying consumer trends tell a much more complex story when trying to answer the question, is the freight recession truly behind us?

Speaker 1:

I think from the perspective of if we're thinking about the rate part of the story, if you think about the freight recession as being a freight rate recession, I think that seems to be, we've moved beyond that part of the conversation because given where rates are now are much higher than they were last year and in that traditional freight recession period that we've seen. I think the part that makes it complicated to say is the freight recession over from the traditional sense? It's over from a rate perspective, but the volume side, we haven't really seen a demand move. So a lot of cycle turns we see the freight demand side drives a lot of the movement where this one just has a bit of a unique flavor in that it seems to be the capacity really seems to be driving a lot of the pressure and the narrative and the rate increases that we've seen.

So I think a freight rate recession, yeah, I think we can say that that seems like we've moved beyond that part of the story. But the traditional sort of volume movements that we see is just a little bit unique right now. I think just because of the broader economic and geopolitical conditions we're under, we're not seeing that typical kind of movement in the cycle. So I think rate recession, yeah, I was going to say I feel like that one's kind of over, but the volume story is just a bit of a different animal right now. You hit a lot of key things that we're spending a lot of time talking about now from our perspective. I think by and large moving forward, just something that I'm thinking about broader from an inflationary standpoint. I know a lot of the focus right now is on energy prices as a spillover effect on broader economic inflation.

But I think from our world in transportation, and we're seeing the freight cycle turn happen, we're seeing spot rates increase, we're seeing contracts have increasing to catch up to those spot rates. I think that's another element that this inflationary pressure is also spilling over into the supply chain from the transportation lens in addition to the energy lens, which I think is going to add a little bit more complication to the outlook moving forward for broad macroeconomic inflation, which then could have some challenges with the consumer spend and all those things that we talk about impacting freight demand from a sort of a second order effect.

Speaker 2:

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