Why the Heck Is the Trucking Business Slowing Down?

I was forewarned. On April 25, Julian the trucker posted this comment on WOLF STREET:

Have been trapped on the West Coast for the last week. Freight has slowed to a crawl, with way too much time on the loads, and the truck stops are filling up too early in the day. I had to pay for a parking place in Castaic, CA, night before last because the Pilot was full at 4:30 in the afternoon. Finally got a load to Little Rock. But it doesn’t load till late tonight and has more time on it than usual. We usually experience slowdowns before the rest of the country becomes aware of them.

On May 2, he wrote:

I have lost 5 days either waiting for a load or waiting to load or deliver, since leaving on the 12th of April. I have seen this pattern before in my 34 years of trucking – we always get hit first in any downturn, just as we always feel the upturn first. As you regulars know, my company has done several strategic things since the crash in 08 and work has been steady since then. My warning is anecdotal but you all are well of the inventory overshoot in Q1.

And on May 4, he wrote:

Freight is still slow. I barely have 7,000 miles on the clock since the 12th of April. A normal month is 10,000 + miles.

As Julian said, it’s anecdotal. Maybe he was just unlucky. Maybe he got tangled up in some kind of snafu somewhere. A sample size of n =1 doesn’t represent the vast US trucking industry. But rumblings have been coming from other ends of the industry, triggering some, let’s say, intriguing explanations.

Rates for intermodal containers by rail, as reported by the Cass Intermodal Price Index, dropped on a year over year basis in January, February, and March. April hasn’t been released yet. When the surprising March decline came out, Cass tried to make some sense of it:

With diesel prices continuing to fall, loads are shifting (to the extent capacity is available) from domestic intermodal back to over-the-road truck, which is challenging demand and pricing power for intermodal.

So railroads were facing weaker demand and losing pricing power as shippers were shifting loads to trucks because diesel has gotten cheaper? That’s the theory.

In reality, as Julian experienced, and as it turns out other truckers experienced, shipping volumes by truck fell in March from prior year. It seemed like a fluke, something that would bounce back in April, but in April, according to the just released Cass Freight Index, shipping volumes by truck fell again.

These two months in a row of year-over-year declines came as a particular surprise because 2014 had been a banner year, according to the American Trucking Association. On Monday, it reported that revenues by trucking companies jumped to an all-time record of $700.4 billion, finally beating the prior record set before the Financial Crisis. You could practically hear the exuberance in the report:

Increases in freight, combined with continued tight capacity helped drive revenues and coupled with lower fuel prices, we saw motor carriers go on a buying spree for new trucks as they replaced older equipment.

This vast $700-billion machinery with its 3.4 million drivers that hauled nearly 10 billion tons last year – 69% of the nation’s freight – is an excellent early warning system for the overall economy.

So when the spot rates for tractor-trailers started dropping in April, it triggered all kinds of explanations at the time, for example, in the Journal of Commerce:

Rather than a sign of underlying economic weakness, the softening spot market may indicate shippers are finding the trucking capacity they need, for now, with contractual partners. Shippers, carriers, and logistics operations at a recent transportation industry event said the US trucking market shifted back toward a rough equilibrium in capacity in the first quarter.

Given the exuberance of 2014, carriers have added lots of new trucks to replace older equipment and to add capacity, but by mid-April, the phrase “excess capacity” started cropping up. And the idea that the spot market was suffering as shippers were relying more on their contractual partners made sense.

But turns out, overall shipping volumes and money spent on shipments have been dropping for two months. The Cass Freight Index, which tracks them, usually rises in the early part of the year from the lows in January. This seasonal pattern is also playing out this year, with a difference:

The index for shipping volume in March dropped 5% from a year ago. But maybe it was a fluke and April would make up for it. But no. Now the index for April dropped 2.5% from a year ago! The index for shipping expenditures fell 3.5% in March and fell again 4.7% in April!

The first quarter was crummy. We already know that. The estimate for Q1 GDP growth will likely sink into the negative over the next two revisions. But April is in the second quarter! This weakness is now infecting it as well. That’s what the trucking industry is saying. And the trucking industry, as Julian pointed out, experiences the “slowdowns before the rest of the country becomes aware of them.”

There are numerous reasons why this might be happening, including the $110-billion inventory buildup during the first quarter. Businesses will eventually bring inventories back in line, either by selling more or by ordering less.

The first option – selling more – obviously isn’t happening: the just released retail sales for April, for example, were flat on a monthly basis and up only 0.9% year over year. That’s less than the rate of inflation; so in terms of shipping volume, that would be a down month!

And the second option – ordering less – may be one of the scenarios beginning to play out. It would be bad news. The trucking business is an early thermometer of the real economy. And things might turn around on a dime. There might be a sudden surge of sales that will propel the economy to “escape velocity.” But we doubt it, and we’ll keep listening to the truckers for more clues going forward.

When the People’s Bank of China spoke of “big downward pressure,” it wasn’t kidding. Read…  China Downturn Hits US Automakers

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  32 comments for “Why the Heck Is the Trucking Business Slowing Down?

  1. michael says:

    More evidence that recession is right around the corner. The wizards of wallstreet, the FED, and the corrupt Federal, State, and local governments have broken the back of the average consumer.

  2. Petunia says:

    I shop the sales at a really nice women’s chain store. Last season’s items, less than six months old, are all on the sales rack at up to 50% off, and there is plenty of selection. I live in FL so it wasn’t the weather. Usually sales have a very limited inventory.

    I have also seen more premium brands sold in my local closeout chain store, including a very expensive and popular coffee cup maker. The big brand cookies were in a display just like in the supermarket. You can see that merchandise from a few months ago is being discounted already.

  3. Michael Gorback says:

    IMHO the recession never ended. It was papered over – literally – with money printing and deficit spending in both the private and public sectors.

    This type of info is very useful. When I lived in western NY in the 90s (thankfully for only a year) I saw the recovery coming because my patients told me Cummins Engine was hiring like crazy.

    I used to have a patient who worked down at the Houston Ship Channel and his observations about shipping were very useful. I have often wondered about using the “sailor indicator” as a warning about the dollar. Sailors wait to make port in the U.S. to get paid in USD and they usually want fresh crisp bills. If some day they start waiting to make port in China, it’s game over for the dollar.

  4. Vespa P200E says:

    DJT (Dow Jone Transport) Index is decent indicator of where the general economy is heading. Anyway is has ominous and rather disturbing patterns of 2 lower highs after hitting 9200 4 times between Dec and March. What is interesting is that one would expect to see pick up after West Coast port slowdown came to an end but that does not appear to be the case with Julian’s front-line views. Take into account at times “worthless” Baltic shipping and SHAGhai container stats and indeed the global trade may herald the return of the global Great Recession.

    Agree with Gorchak that the Great Recession never really ended and yes papered with the Fed induced liquidity with billions of 3 QE rounds.

    And noted that the bull inspired stock market is behaving rather tired again heralding the top?

  5. ERG says:

    In this internet age, it is not possible to hide the truth from anyone looking at the data with any degree of depth. The recession never ended. The difference now is it has become so obvious that it can no longer be masked.

    There are two fundamental observations that anyone can make to determine where we are:

    [1] how easy is it to find a job – a REAL job, not a 20 hour per week bartender gig and,

    [2] How much pain and suffering is involved when you shop for food and clothes?

    By these criteria, it is still 2008. Or worse.

    Who you gonna believe: your government or your lyin’ eyes?

  6. Mark says:

    As someone who has ran a Retail store for the past 13 years I can tell you it has changed from day to night in regards to people’s spending habits. And the reason is NOT because of the Internet sales it’s because the consumer is completely tapped out from the ever increasing high cost of living.

    When I opened my store 13 years ago, people we’re happy they we’re spending money without a thought. I could sell women’s robes for 200 dollars and no one would blink. Now the market has become totally trashed by ” made in china ” garbage. You have a situation now where the Retailer keeps demanding the lowest possible price to buy so they can mark it up the highest. And you have the Consumer who is broke, knows it’s all made in china crap and refuses to spend money on anything anymore. So you now have the situation where the Manufacturer’s have lost control of pricing and the Retailer’s have lost control of pricing and the Consumer dictate’s everything. The consumer who suffers from chronic ADD, is broke now and wants you to carry 1,000 products all at rock bottom prices just so they can come into your store and buy 1 thing once year for 20 bucks, not to mention the fact that they also want and expect you to turn your entire inventory around with new products every month !! How in the heck is a store suppose to stay open with those kinds of attitudes from the tapped out consumer? The consumer will come up with any excuse in the book not to buy. And the Media sits there trying to cover all of this up with ” well the internet is taking over ” and then you have Gov’t companies like USPS and Canada Post who claim to be ” delivering the new online world ” to you. It’s a joke ! Internet website’s don’t make any money. Why, because it is super saturated with every tom, dick and harry trying to supplement there income with selling junk on line.

    At any rate Retail is done and it’s going to be for quite a while before it comes back. It’s no surprise at all that they are shipping less. It’s all a chain. Like when manufacturer’s here disappear, the suppliers go with them. And when the consumer stops buying China will eventually crash and burn.

    • Petunia says:

      I like nice things but the reality is that I can barely afford what I need. I am only replacing items, not really adding anything new, and I have to save and plan for my purchases. If you are a retailer, single store, you are in real trouble. I don’t have a few hundred dollars to blow on an outfit, that is probably what I spend in a year. I think I am very average these days.

    • Vespa P200E says:

      Good to hear from you Mark from the front lines of retail world.

      Well as for me and host of others out there (sans my wife and teenage daughters still buying clothes and other craps they really don’t need ‘cos hey it’s on sale mentality baloney and keep lot of stuff still in the store bags littered all over the house – sigh) I’m just tapped out of buying more stuff.

      Sadly I see more retail stores closing which means people are losing even the lower paying service jobs affecting their family’s finances.

      As for China – I did lot of outsourcing there with 25+ trips there between 1998 and 2009 (PC mice for once largest software company, electrical toothbrush for famous company and electrical medical devices) and saw 1st hand how slowdown in export can make gritty south China factory towns big time in Nov 2008 with lot of newly unemployed factory workers with bags leaving town with fancy restaurants without customers and vice establishments like saunas/KTVs offering discounts with touts outside the business trying to drum up business. Another big issue faced by Chinese companies was rising demand for double digit wage increases and I hear it’s getting worse thanks to the 1-child policy and many freshly minted prince/princess from 1-child policy usually go to college with hard earned money from the parents and don’t care for working at the factories.

      • Mark says:

        I know guys, that’s why I moved my store into the building that my parents own outside of the city core. I’ve lost 50% of my sales doing it… But oddly enough im actually turning a small profit for the first time since 2008 because of the fact that im saving nearly 6,000 a month in operating expenses. And since October last year have paid 10,000 in debit off.

        I don’t think you can run an independent store anymore unless you own the building with no mortgage and your willing to work the store yourself 6 days a week and your either single with no kids, or have a supportive spouse.

        I think too when the stock market finally does crash, it will take the big Retail Chain stores out of the game seeing how they won’t have anymore funding. And the private chains will hurt just as bad if not more.

    • GenEarly says:

      I thought Retail was a dead en 13 years ago when I got out! Worse business experience I ever had, All overhead and little profit. Never Again!

  7. Mark says:

    Another point too is that Retailers are facing the problem of the higher costs of running the stores. Higher property taxes means, higher rents, higher utilities, higher shipping costs, higher wages…. and the list goes on and on. They can’t increase prices at the risk of losing customers so they have to start shutting down or moving out of the city core like I did with my store.

  8. Saylor says:

    I just looked at the Cass Index.

    It is showing ‘up’ for April

  9. NotSoSure says:

    Time for QE Eternity then. At the end of this, everyone will either be in utopia or in hell.

  10. Saylor says:

    I’m sorry, I meant to say April is ‘up’ over March. Noted that it is still below last year and more on par with 2012.

  11. allan says:

    Im a truck driver. My company has been purchasing lots of new equipment of late. its been slow since april and may feels more like december for some reason. Today the 13th has been really slow. Im in the los angeles area even the rush hour traffic seemed light.

  12. rjs says:

    i want to know where the March imports went…the trade deficit increased by 43%, with a 20% increase in consumer goods imports…we just saw April retail sales goose egg with March revised down to 0.8%…wholesale inventories +0.1% after a -0.1% revision…March retail inventories were up just 0.1%…big implications for GDP, as i discuss here in comments..

    • rjs says:

      just a clarification on retail sales, now that i’ve looked at the report closer…March’s sales were revised down to $436.8 billion from the originally reported $441.4 billion, but because February sales were revised down from $437.6 billion to $431.0 billion in a benchmark revision, the reported percentage increase from February to March rose from 0.9% to 1.1%…

  13. Julian the Apostate says:

    I’m honored, Wolf. And for once, speechless.

  14. Julian the Apostate says:

    Oh I won’t, I was just surprised this afternoon when I went to catch up on events and read your article. I was just trying to give the Wolf Streeters a warning on the downturn. While I still check in with talk radio I find I already know the ‘news’ they talk about for two days. The contrarian blogs are cutting edge, and yours is the only one to which I contribute. While the fur flies on occasion it doesn’t deteriorate into insults. Your contributors all make wonderful observations and all come from different walks of life, and all demographics. It is also good to know that the stats bear out my observations, and that I was able to help you ‘scoop’ the blogosphere.

  15. interesting says:

    “We usually experience slowdowns before the rest of the country becomes aware of them”

    for some reason i have the same experience, my workload has fallen off a cliff and the last time it was this slow……(it’s even slower this time, my #1 client has sent me 1 project so far this year and normally i would have had 10) was 2007 and guess what happened next?

  16. J says:

    I work for the railroad in Virgina. I can tell you that we have experienced a big slow down in export coal. The majority of our coal is premium Appilation coal, used for making steel. So the slow down has little to do with regulations, cheap natural gas or weather. Its week demand. China is growing slower. Now as far as intermodal goes. We haven’t had a slow down, at least not on the east coast. Business is steady, and maybe up just a little.

    • Wolf Richter says:

      Thanks, J.

      Here is a thought: East Coast intermodal should be up quite a bit since you’re getting some of the freight that would have gone through West Coast ports that shippers are still avoiding as congestion clears. Unfortunately, I don’t have any numbers on this. If you run across something, let me know.

  17. PNW_Warrior Woman says:

    Any chance the west coast port slowdowns back in March is related to this issue?

    • Wolf Richter says:

      The labor dispute was tentatively settled on February 20.

      Here is the thing: while the labor dispute was raging, containers got hung up late last year and in January and February. This backlog of containers was then shipped in March and April. If anything, these containers suddenly hitting the road INCREASED shipping volumes in March and April. So without these containers, shipment volumes might have looked even worse.

      But I have no numbers on this and don’t know how much of an impact it had on national data.

      • rjs says:

        Wolf, in the article i cited earlier, i quanitified some of the post strike increase in imports:

        our imports of consumer goods rose by $9,013 million to $54,164 million on a $1,677 increase in imports of cell phones and similar household electronics, a $1,293 increase in imports of synthetic textiles, and a $981 million increase in our imports of furniture and similar household goods. However, our imports of cotton apparel and household goods, footwear, pharmaceutical preparations, toys, games, and sporting goods, televisions and video equipment, other consumer nondurables, non textile apparel and household goods, household appliances, cookware, cutlery, tools, and camping apparel and gear all also rose by more that $250 million each, which almost certainly does not indicate an increase in consumption of consumer goods by that much, but rather just an offloading of waiting ships. In addition, our imports of capital goods rose by $3,980 million to $52,047, our imports of autos and parts rose by $2,666 million to $28,851 million, and our imports of foods and feeds rose by $726 million to $11,027 million, probably all much higher as a result of the ending of the strike. On the other hand, our imports of industrial supplies fell by $167 million to $42,617 million on decreases of $822 million in crude oil imports and $422 million of natural gas imports, while imports of industrial supplies likely impacted by the strike rose.

        my problem remains that the increase has not yet showed up in sales, investment or inventory in any of the other March data…

        • Wolf Richter says:

          Thanks. I’m as mystified as you are.

          I think very intelligent people have gone completely nuts trying to reconcile these various monthly reports with each other to where they all add up. They don’t add up. We will get more clarity over the next few months – by which time there will be new data sets to mystify us :-]

        • rjs says:

          here’s what the problem is, Wolf…the BEA, or the BEA computers, are going to subtract those imports from GDP when they compute the 2nd estimate of GDP two or three weeks from now, and in total, could take as much as 1% off GDP…now, imports shouldn’t be subtracted willy-nilly just because they’re part of the formula, as there’s a reason they’re subtracted…the change in GDP, our output of goods and services, is computed by adding together all our consumption, investment and inventories, which are a proxy for our output, and comparing them to our consumption, investment and inventories of the previous quarter…and the reason imports subtract from GDP is because they represent either consumption, investment, or inventories that was not produced here…so if those imports weren’t included in March inventories, consumption or investment, then they shouldn’t subtract from GDP…

    • Vespa P200E says:

      West coast slowdown is over.

      SF bay is “clear” and there are no container ships sitting around to load/unload.

      Even LA harbor has cleared up. I flew into Orange County yesterday and did not see congested container ship parking lot I saw in back in Dec and Feb.

  18. Fred Scott says:

    This is an excellent article. Thank you for the wonderful data, everyone who comments on here really knows what they’re talking about. I truly appreciate the information. This puts many things in perspective for me. It seems as if the financial sector has been the only benefactor during this past few years. I always try to look at the transports to gauge the direction of the economy, and I don’t see a better way than to hear it straight from the horse’s mouth. Thanks everyone!

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