Freight Recession Looming

Posted by Land Link Traffic Systems on May 4, 2022 8:48:28 AM

A waning demand for trucking services could be the early warning sign of a recession, data analysts and experts say. The trucking industry has long been an accurate measurement of the country’s industrial stability. When demand for trucking services is high, we are producing goods for transport at a strong level. When trucking demand falls, it means the economy’s slowing down. Coming out of the pandemic the trucking industry was strong suggesting a solid recovery. 2022 is suggesting the recovery may have stalled.

Energy prices have spiked perhaps sparking a slow down in production. Petroleum prices have much more do with merely trucks. Petroleum is a staple in many manufacturing processes. The events in Europe are a strong contributor to our current fuel prices. More significantly the current environment is affecting the worldwide stock market. The latest China shutdown is having a profound effect on industry demand. The produce season starts soon so that may breathe some new life in demand. In any case the Bureau of Transportation Statistics considers the Transportation Services Index a leading indicator of economic cycles. When compared to economic growth cycles in the economy, the freight measure led by an average of about four months, the bureau found. Any way you look at it trucking demand is as reliable a barometer of GDP there is.

Balancing Assets With Demand

One of the most challenging operational hurdles in the logistics business is balancing demand with supply. And more precisely planning service lanes that optimize your coverage area. How many trucks to add or delete from your fleet, how many drivers you may need. It’s a complicated algorithm to manage a profitable transportation company. Mainly because the industry is so asset intensive. The cost of trucks is through the roof. Keeping drivers and recruiting new ones is very challenging and owners take a risk every year trying to get the balance right. Getting it wrong will cost you in underutilized equipment and personnel expense as well as disappointed customers and lost opportunities.

Assessing The Current Environment

After a strong run that propelled pricing to record levels, the trucking market has been losing momentum, prompting the question of whether a recession might be imminent. Spot rates have retreated, and tender rejections have fallen and, as a result, bank analysts have downgraded trucking stocks. Bank of America located trucking demand “near freight recession levels” last week. This would have ominous ramifications for the US economy, for which the freight sector is often viewed as a bellwether.

For shippers, the high fuel costs have brought a stronger focus on cost control, which has been a major driver of a migration from spot to contract rates. This has gone hand in hand with a weakening emphasis on speed of delivery. Surging diesel prices added to a truck freight market already at very tight capacity due to a lack of drivers and equipment. This confluence of challenges put significant spending pressures on shippers. Arguably, this has strengthened the case for intermodal solutions, where the fuel surcharge is about half as high in trucking. However, continuing rail performance issues and a shortage of chassis are making shippers think twice about this option. 

It’s imperative that shippers have the tools and professional guidance to navigate market challenges and unlock capacity, flexibility, and automation when and where they need it. Rely on the professionals at Land Link Traffic Systems to help you navigate these treacherous conditions.

Stay Safe Everyone.

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Michael Gaughan
Technology Officer
Land Link Traffic Systems


Topics: Supply Chain Management, Third Party Logistics, Freight Bill Auditing, Intermodal Freight, Transportation News, Reducing Freight Rates, Maximizing Routing Efficiencies, Logistics News, Industry Trends, Technology, dimensional pricing