CHICAGO—Despite a recent uptick, freight markets remain in a prolonged “malaise,” as shippers still lack the confidence needed to end “historically depressed” levels of freight and truck rates, a leading transportation analyst detailed at the Carrier Logistics Inc. User Conference here.
“We've seen these freight recessions over time, and we're just in a really elongated one right now,” said Bank of America Managing Director Ken Hoexter, a senior research analyst specializing in freight transportation and shipping, referring to data from the BofA Truck Shipper Survey. “We're coming up off the base, but shippers still don't have an exciting view of what's going on. It's building, but it is still fairly depressed.”
Hoexter launched his biweekly survey about 15 years ago. It provides real-time insights into demand, pricing, and inventory levels. The cadence is critical: Unlike government data and ATA’s truck tonnage report, which lag the market by more than a month, the Bank of America report is a leading indicator that tracks closely with the ISM manufacturing report and comes out weeks ahead.
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Inventories still too high
Here are some results from the Oct. 3 BofA Truck Shipper Survey:
- The Demand Indicator, at 53.2, is up slightly from the previous report but remains below the 54.2 average during the '12, '15, '19 freight recessions.
- The Inventory Indicator increased to 54.5 from 53.3 last issue, up 2.3% sequentially, and reflects a slight uptick in inventories ahead of port strikes. The level remained above the survey's 49.1 average.
- The Capacity Indicator, which gauges shippers' views of available capacity, increased to 57.3 from 54.4 in the previous survey. While this suggests an uptick in capacity, excess capacity has continued to shrink, according to the report.
- The Rates Indicator increased to 55.5 from 48.9 last issue, up 13% sequentially.
Hoexter paid close attention to inventories, which are still “sustainably above” their historical average.
“The shippers themselves are telling you that it's hard for demand to really improve if you've got too much inventory, and we all know too much capacity,” he said. “It’s getting closer and closer to a more neutral level, and we certainly have come down. That's a good thing because when that demand finally turns, you want to be in a much lower inventory level; you want capacity to be out of the market. So we're starting to get back toward that muted level.”
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What about capacity?
Regarding capacity, Hoexter suggested the excess has persisted because the COVID-recovery wave of record trucking rates, along with federal financial assistance, kept some marginal carriers afloat.
“There were a lot of carriers that were kind of sticking around because they have effectively free money to operate when rates were at break-even level,” he said. “So in a normal cycle, when rates are this low, you normally would have the cycling out of excess capacity. It just took longer.”
Carriers, of course, can track freight trends moment-by-moment, so this isn’t news. But Hoexter hinted there’s a recovery coming. Even a slight improvement in the market indicators, while low for a record-long time, points to a recovery.
“If we knock out excess capacity, if we knock out excess inventory, when demand finally turns, it makes for a much better rebound [than in previous freight recessions],” Hoexter said. “It doesn't have to be a sharp rebound. It can be a nice, gradual one, particularly if the capacity continues to come out at a gradual pace. And that's OK because that means you don't have a rush-in of new excess capacity.”
As to “catalysts” for a rebound in freight volume and rates, the election—a couple of weeks away at the time of Hoexter’s presentation—“can mean so many things” depending on who gets elected, he closed.
“You could have increase in tariffs, an increase in taxes, a decrease in taxes,” he said. “So it's not just about who wins; it's about the policy. What policies ultimately get put in place, and what kind of increase in investment are we getting for businesses in America to want to invest?
“Are we getting more near sourcing? Are we getting more production? Ultimately, what we care about is what's driving volumes within economic activity.”
