US trucking markets hold firm, but fears of falling spending will squeeze cargo loads

CONTRACTED truckload volumes in the US are up five per cent year on year, even though imports and intermodal volumes plunged in February and March

12 March 2020 - 19:00

CONTRACTED truckload volumes in the US are up five per cent year on year, even though imports and intermodal volumes plunged in February and March.

Capacity has tightened, too: Tender rejections are up to 5.83 per cent, breaking above the 5.5 per cent level where they hovered through February, New York's FreightWaves reported.

That may be related to new awarded contracts that are coming online now at lower rates than last year, closing the gap between contract and spot rates. Shippers that now have access to lower contract rates are rotating freight out of spot markets to contracted carriers and driving up contracted volumes relative to spot markets, testing routing guide compliance.

Eventually, lost Chinese imports will show up as a headwind to truckload volumes, but most shippers have ample inventories to run down before that happens. The total business inventories-to-sales ratio has been hovering around 1.4 months for the past two years or so, which is historically high compared to the five years prior to that period.

There is some evidence that those inventories will be depleted faster than usual. A freight broker said that 'shelves are emptying a lot faster than they usually do this time of year: Shippers are pumping canned food, packaged food and bottled water directly to stores'.

Stockouts are still a possibility in United States brick-and-mortar retail. Despite the Chinese government's insistence that workers return to their jobs and reactivate the country's massive production engine, there are reasons to believe that the economic recovery will take some time.

Alternative datasets like containers waiting to be offloaded, coal consumption at power plants, and average road congestion in Chinese cities suggest that China's economy faces a slow grind upward rather than a rapid 'V-shaped' recovery.

After all, the reactivation of a massive manufacturing and transportation machine almost by definition occurs in an uncoordinated, piecemeal way. Raw materials suppliers, transport and logistics firms, and manufacturers are returning to work at different rates at varying capacities, and freight flows will bunch up at the weakest links in the supply chain.

Yet at this point, the coronavirus impact has yet to make itself felt across the broader over-the-road trucking industry, even though spot markets are already pricing in Los Angeles weakness by charging more to enter the market and less - as little as US$1-$1.15 including fuel - to leave.

The American Association of Port Authorities has said US port volumes could be down 20 per cent in the first quarter; at some point, that has to make an impact on demand for trucking services. But if anything, at this point, consumers are buying at an accelerated pace in anticipation of quarantines or shortages which may or may not come, with the overall effect of boosting demand.

Stockton, California outbound volumes are up 36.2 per cent month over month; Denver is up 31.9 per cent m/m; Phoenix is up 26.9 per cent during the same period, and Allentown, Pennsylvania is up 27 per cent.

It typically takes three quarters of contraction before markets bottom, relative capacity tightens, rates rise and sentiment improves. In other words, over the next quarter or two, relative capacity will tighten assuming no demand-size shocks like a dormant China or coronavirus quarantines in the United States.

Until the rate of growth in new infections slows in the United States, caution will prevail over business investment and consumer spending, representing a potentially deep downside risk to freight volumes.


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