A much-awaited Federal Reserve interest rate cut could be on the table this week as the U.S. central bank meets to consider revising its policy interest rate amid cooling inflation. But what would that mean for the sluggish trucking freight economy?
The trucking industry is currently in a volatile state, marked by significant challenges and fluctuating demand. As smaller fleets struggle to stay afloat, Jim Meil, an analyst and principal with ACT Research, joined FleetOwner during ACT’s recent summer seminar in Columbus, Indiana, to discuss how nearshoring, rate cuts, and fleet flexibility could impact the rest of 2024 and the start of 2025 for carriers and other industry players.
But how does this compare to previous freight recessions, and how do federal monetary policy, nearshoring, and elections affect freight and carriers? Watch the second episode of Market Pulse with ACT Research on FleetOwner.com above or subscribe to the FleetOwner YouTube Channel to not miss future discussions on trucking, freight, economics, and management.
See also: ‘Death, taxes, and distribution’: Analysts on what election means for trucking
Flexibility and adaptation
Meil suggests smaller fleets remain flexible and adaptable as they ride out the lingering freight recession. The COVID-19 pandemic brought about sudden swings in demand, highlighting the need for agility in a rapidly changing market. Survival in this climate necessitates being able to adjust to fluctuating circumstances quickly.
“The situation was terrific for small fleet entry into the marketplace in 2021,” Meil said. “The rebound from COVID was a surprise [that] opened up that big opportunity—then all of a sudden, it seemed to close as fast as it opened. Now it’s really the survival of the fittest.”
But Meil noted that as quickly as things change, they can swing the other way. “You have to be nimble, flexible, and try to stay ahead of a very volatile market in a volatile world.”
Nearshoring and Mexico's rise
Looking beyond the current challenges, Meil points to potential bright spots in the future. Notably, the trend of nearshoring—relocating manufacturing operations closer to home—is gaining momentum. Meil and ACT estimate that 40% of truck freight originates from manufacturing.
Mexico, in particular, is emerging as a critical player in this shift, offering benefits such as reduced political risk and more reliable supply chains. Mexico’s imports are now 10% higher than China’s, surpassing 2003 market shares before China’s export boom.
Federal Reserve rate cuts
Meil noted that the Fed's anticipated rate cuts could further bolster the industry.
“Nobody’s going to change their business plan, nobody’s going to buy a house, for the sake of a quarter of a percentage point—or even a half percentage point,” Meil cautioned.
While the immediate impact of a single rate cut might be minimal, a series of cuts over time could stimulate the economy, leading to increased consumer spending, housing activity, and capital expenditures. This, in turn, would likely drive greater demand for trucking and transportation services.
He said that lower interest rates to round out 2024 could open up 2025 to a “more liquid housing market that could trigger some capital expenditures that will spell out good news for trucking and transportation.”
