FreightWaves’ State of Freight webinar for March offered a bit of optimism that the freight market could improve at some point later this year.
Craig Fuller, FreightWaves CEO and founder, and Zach Strickland, director of freight market intelligence, said while they don’t see any clear signs of a significant boost in the overall freight industry, there are signals that the market is moving in the right direction.
Here are five takeaways from the webinar:
2024 could be ‘more of a normal year’ for the freight industry
Both Fuller and Strickland noted that people constantly ask them, “When is the market going to flip?”
“Everyone wants to know,” Fuller said.
Strickland pointed to FreightWaves’ Outbound Tender Reject Index for the U.S. (OTRI.USA) as a good indicator of current market conditions. The index measures carriers’ willingness to accept the loads that are tendered to them by shippers under contract terms.
“I feel like this index is going to be the one that shows us the fastest. … We have kind of fallen back into this 3.8% rejection range. Now that is higher than it was this time last year, but only marginally,” Strickland said.
“If we look at the [OTRI.USA] chart, you look at where it was last year and this year; there’s a tiny gap between the two,” Fuller said. “I think the question that I would be asking if I’m running a supply chain is, ‘Do we think it’s going to trend like last year, which was sort of an anomaly?’ Typically, May is when the market starts to pick up. I think it’s going to be more of a normal year. There’s a lot of reasons to be bullish in the second half of the year. I think it’s going to look more like a typical May sort of in the second quarter than what we saw last year.”
Spring seasonality will help spur market demand
“March is traditionally kind of a transition month, not just for the weather, but for freight as well,” Strickland said. “I think typically we do see some volumes kind of start cranking up a little bit — nothing that’s terribly dramatic, but it does signify kind of a turning of that doldrum of the winter into something a little bit more active.”
Fuller said spring is when products and commodities such as construction materials and home and gardening supplies start moving.
“The big-box retailers do really well this time of year because of the gardening and yard work that people need to do,” Fuller said. “Summer apparel is also important and let’s not forget beverages. This time of year beverages are in hot demand, and when we get to Memorial Day, beverages will heat up. This is always a good time for freight, because it’s the spring season.”
Strickland noted that while spring seasonality will help increase freight demand, excess capacity remains.
“We still have an oversupply situation in the market,” Strickland said. “I think people have underestimated just how oversupplied the market is.”
While there may be too much capacity in the dry van sector, the specialized trucking space has seen more capacity recently moving into the market, Strickland said.
According to FreightWaves’ Net Changes in Authorities (CDNCA.USA) index, there has been a slight upward trend in authority changes in the past few months.
“The [CDNCA] chart has been in the red all of 2023, and it looks like we’re kind of pulling up into the green right now,” Strickland said. “Now, just because it is going green doesn’t mean that capacity is growing. We have had what I would consider a little bit of a directional shift. We have seen a little bit of a shift away from the general commodity entrance into the other kind of modes, like oil and gas transport — things in bulk, flatbed, as well as refrigerated trucks.”
Federal infrastructure spending has kept the economy moving
Both Fuller and Strickland said they were not expecting U.S. GDP to currently be up more than 5% from the same period last year.
“We got it wrong about GDP. I certainly thought that the second half of last year was going to be a lot tougher,” Fuller said. “We thought that the student loan deferments were going to hurt things. There were credit issues in the market. The bank failures certainly caught everyone off guard, and people thought it would really reverberate for the economy. None of that happened.”
At this time last year, one of the biggest burdens more than 25 million Americans were facing was the end of student loan forbearance. Fuller wrote about it in an article titled “An unusually terrible freight market may get a lot worse.”
Fuller said while consumer spending didn’t completely fall off, it was government spending that helped keep the economy afloat.
“What is sort of harder to understand and track is the government stimulus, not to consumers’ wallets, but in infrastructure programs, like the Inflation Reduction Act, the CHIPS and Science Act, the [Bipartisan Infrastructure Law]. Those things put a significant amount of government dollars into the economy,” Fuller said. “I think what happened is where we saw softness in the freight economy, those things have sort of overridden this, and that’s what kept the economy going.”
Trump threatens more tariffs on China if he is reelected
Former U.S. President Donald Trump has said he would impose more tariffs on Chinese goods if he wins the election in November. Trump said if he wins a second term, he will add 60% tariffs on all Chinese goods to the U.S.
“You talked about what happened before when a lot of folks were trying to pre-run, bringing in a lot of products to avoid those tariffs,” Fuller said. “Do we think that shippers are going to do the same thing this year? In the anticipation of an uncertain election season, are they going to pre-run their shipments? Or is this going to be a situation where they wait to see who ends up winning and then make those decisions later?”
Strickland said Chinese companies may know how to avoid those tariffs, and that’s by using Mexico as a back door for imports to the U.S.
“I think China has already figured out a way through this. Our inbound ocean twenty-foot equivalent unit volume index for imports from China to Mexico (IOTI.CHNMEX) shows that it’s up 40% compared to last year,” he said. “Now, this is different from the 2019 trade war between the U.S. and China when everything came in through ports in California.”
FreightWaves’ SONAR Inbound Ocean Twenty-foot Equivalent Unit (TEU) Volume Index shows that imports from China to Mexico (IOTI.CHNMEX) have been increasing since 2019.
“A lot of people have been talking about this and speculating, but I think it’s a really important story, because it actually proves exactly what you’ve said, which is that Mexico is benefiting greatly from China,” Fuller said.
Texas is becoming the new California in freight transportation
Fuller said he remembers 20 years ago when Texas was a backhaul market with very little freight coming out of the state.
“In terms of freight concentration, I remember when Texas was a territory where trucks went in there, but they didn’t leave. There was very little being produced there,” he said. “What’s happened is the rise of the distribution centers, and the sort of reemergence of Mexico as a major trade partner has really shifted Texas into the role that California used to play in freight and trucking when I was in the industry 20-something years ago.”
In 2023, Mexico surpassed Canada and China as the top U.S. trading partner for the year, totaling $798 billion in trade.
Fuller and Strickland noted that Laredo, Texas, and Port Houston have benefited from Mexico’s emergence as the top U.S. trading partner over the past year.
“Laredo is the second-largest growth market in the United States right behind Phoenix,” Fuller said. “Phoenix is getting some of that California benefit as people are pulling freight out of warehouses in California and adding them to warehouses in Phoenix.”
Cargo thefts spiked 68% in Q4, led by food and beverage freight
Container shipments from China to Mexico skyrocketed in January
Location, cost drive international firms south of the border