Freight rates continue to fall, but have they found the floor?

Jeff Crissey (00:03):

Hello, and welcome into CCJ MarketPulse, your monthly look at the statistics and trends in the broader economy and how they're impacting the freight markets. Joining us every month to break it down as always is Jason Miller, supply chain professor at the Eli Broad College of Business at Michigan State. Before we begin, please like and subscribe to this channel to stay up to date on new episodes of MarketPulse, as well as the weekly 1044 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. All right, so welcome back in, Jason. How's your summer been so far?

Jason Miller (00:46):

It's been good. Quite busy.

Jeff Crissey (00:48):

Okay. So I want to pick up on a topic that we touched on last month. In that last episode, you said you were hopeful that the manufacturing sector had found a new bottom after the April numbers were released. Did the data released for May give you any indication that things are worsening or improving?

Jason Miller (01:05):

So the May release was fairly flat. We had a slight seasonally adjusted increase in manufacturing activity, which does sort of reinforce I think the narrative that we've likely found a bottom on that side of things. Some channel checks, for example, in the chemical sector have suggested that chemical production, which was really hurt in the fourth quarter of last year, is starting to improve a little bit. But we still do have a lot of softness in sectors like paper manufacturing, whereas industrial production of motor vehicles and parts is essentially hovering at or near all-time record highs in the United States.

Jeff Crissey (01:44):

Okay. So if domestic manufacturing is just bumping along the bottom, even though we haven't really seen a significant retraction in consumer spending, that means imported goods must be really healthy, right?

Jason Miller (01:55):

So right now, the big thing to think about on the import side is we are certainly down from last year. So containerized imports are down 17% roughly from where they were last year at this time. But they're actually about 8% higher than they were in 2019. And we've effectively returned to the prior seasonal patterns that existed before COVID hit. And rather than framing this as a collapse of imports from last year, I think it's very informative to think about it as just regression to the main.

(02:27):

And so if you take a look and if you take a trend line from 2003 through 2019, if we just look at the first sort of four months of the year at imports just to account for seasonality, 2023 is exactly in line with where that trendline would expect us to be at, whereas 2021 and especially 2022 are outliers above that trendline. And it can't be essentially overstated how odd 2022 was. It was effectively 10 years above where the trendline would've put us. And so that type of inflated import volume was just not sustainable. And so as we've come back to that pre-COVID trendline, it's painful for carriers because there is less imported freight to be moved this year than there was last year at this time.

Jeff Crissey (03:18):

So the year-over-year numbers don't look nearly as good, but I guess we got a glimpse of what 2032 might look like last year, huh?

Jason Miller (03:25):

Yeah. No, it certainly is incredible just to see the amount of activity that we had in '21 and '22 on that importing front.

Jeff Crissey (03:34):

Now, moving specifically to the North American freight market for a bit, are there any pockets of the trucking industry that you're seeing rebound yet?

Jason Miller (03:42):

So I wouldn't say so much as rebound, but the good news for carriers is that we do start to appear to have rates finding a floor. So in other words, this deflationary cycle we've been seeing take place over the past year seems to be drawing to a close. The two sectors in particular are the general freight long-distance less than truckload sector, where essentially the May producer price index is unchanged from April. And also then the specialized freight sector. So that's going to be your long-distance flatbed, refrigerated, auto haulers, chemical haulers, where, again, we're starting to see evidence that that producer price indices capturing the revenue they're obtaining essentially per load, or has effectively been flat in May from April.

(04:30):

Now, this could be revised a little bit, but we're certainly seeing the rate of decrease slowing substantially. So it does appear that we're starting to see that bottom reached for the current rate cycle for those two sectors. So shippers who are procuring a lot of that freight, as you're starting to think 2024 budgeting, the one thing that's jumping out to me is don't expect much further deflation than what you've already witnessed.

Jeff Crissey (04:57):

So those year-over-year comps are going to look much better going forward?

Jason Miller (05:00):

Yeah. From the carrier standpoint, yeah. Those year-over-year comps are going to get smoother throughout the year.

Jeff Crissey (05:05):

Okay. Well, listen, Jason, thanks so much again for joining us today. Hope you have a great summer and we'll catch you next month.

Jason Miller (05:12):

Yep. Thanks so much for having me on.

Jeff Crissey (05:14):

All right. Well, that's it for CCJ MarketPulse this month. You can read more at ccjdigital.com. While you're there, sign up for our newsletter and stay up to date on the latest in trucking industry news, trends, and analysis. 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 notifications so you can catch us next time. See you guys in July.