Craig Fuller, the founder and CEO of FreightWaves, and Zach Strickland, market analyst at FreightWaves, shared The Great Debate segment at the FreightWaves 3PL Summit. While Fuller came into the debate being bullish about the trucking market, Strickland took the other end, calling it a bearish market and that it was a bubble waiting to pop.
Strickland opened with the Outbound Tender Volume Index (OTVI.USA), which showed an extremely anomalous behavior, rising 25% above previous year levels. “This clearly is not a sustainable amount of volume. The demand side of things remains very heated and is still going strong right now,” he said. Strickland considered the anomaly to be because of the COVID-19 disruption and that it would eventually slide.
Fuller took on Strickland’s claims of an impending market downturn, saying the market will continue to go up thanks to the massive $5 trillion stimulus that the Federal Reserve and Congress have pushed into the market. Fuller explained that the unprecedented volumes are due to the black swan nature of the pandemic, which explains why reading into seasonal patterns will not work for the current situation.
“What we see now in the market are stimulus dollars, but what we are going to see is other demand return to the market,” said Fuller.
Strickland used the U.S. national customs maritime import shipments data (CSTM.USA) that feeds the freight market in general. This saw a huge dip in March due to the pandemic, and imports are still currently below the last couple of years levels.
“This means that there is not much freight coming into the country to move right now,” said Strickland. “People are buying a lot of goods, but they are not spending it on capital expenditures. This is what is driving a majority of the freight, these big purchases. Eventually, the speed that we see right now in the domestic freight market is going to come to a close at some point because it is going to run out of space.”
Fuller argued against the parameters that Strickland picked for his customs data, calling the years 2018 and 2019 to be quite different from historical data spanning decades. While 2018 saw the surge caused due to the threat of global tariffs, 2019 saw a freight recession.
“What is driving the freight market today is domestic demand. And it is because of the Federal Reserve and the amount of money it has pumped in via monetary policies, combined with the Congressional stimulus with PPP and the CARES Act. The customs data does not tell you that,” said Fuller.
Strickland then brought up the disconnect between trucking capacity and inventory levels today. While inventory levels seem to expand too rapidly, trucking capacity is decreasing too quickly, which Strickland contended will lead to a correction. Fuller negated that argument, calling Strickland’s premise of “what goes up needs to get back down” to be a fallacy in the current scenario.
“Inventories are high because companies are holding more products to protect their supply chains. Not only is that sustainable, but it will only continue to happen, particularly as we see global borders to be under pressure,” said Fuller. “Even if companies do shut the doors to inventory space, it means that volumes will enter the freight market. Once we see the return of consumer activity and get a vaccine, this trend will continue.”
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Thank you for documenting this debate. Is there a link to watch the whole thing?
Strickland’s argument seems more compelling. The federal reserve can distort reality and stimulate the trucking industry, but as soon as the fed ends their quantitative easing/money printing stimulus (by choice or because the value of the dollar tanks), the bubble will pop, and companies who have been relying on stimulus to keep going will be left high and dry.