by Josh Bays, on Jul 22, 2016 12:51:39 PM
Since the U.S. economy bottomed-out after the Great Recession in 2009, demand for trucking and freight services has grown considerably. However, Site Selection Group, a full-service location advisory and economic incentives firm, has recently seen some signs of softening in the trucking and surface freight industries.
The American Trucking Association (ATA) reported recently that for-hire truck tonnage in the U.S. fell 1.5 percent from May to June. In addition, the ATA also recently reported that driver turnover at large fleets has fallen to their lowest levels in more than a year, a sign that the red-hot competition for luring drivers away to other opportunities has cooled down.
Softening demand: Key freight indices falling, prices responding
This trend can be seen further in the Cass Freight Index, one of the freight industry’s leading market indicators. The chart below shows the index since 2010. While each month’s result can be somewhat choppy due to month-to-month fluctuations, when viewed using a 12-month moving average, the recent downward trend is clearer.
Cass freight index: January 2010-June 2016
In addition, Cass’s Truckload Linehaul Index, which shows the change in per-mile truckload pricing (exclusive of fuel and other expenses), is another indicator of current freight demand conditions. The chart here shows that pricing is also beginning to level off and decline slightly, in part as a response to the falling demand noted above.
Cass truckload linehaul index: January 2010-June 2016
A blip or a trend?
While both of these sources provide evidence that the market for freight-trucking services is weakening, it is not yet clear whether this is simply a temporary aberration or a canary in the coal mine for further weakening in the freight sector, or in the broader economy overall. Another broadly used indicator, the U.S. Department of Transportation’s Seasonally-Adjusted Truck Tonnage Index (shown in Figure 3 below), does not yet show the same deterioration of freight demand as the Cass measures. However, the 12-month moving average index does show some flattening – another sign that the demand for freight-trucking may be slowing, if not falling.
U.S. Department of Transportation Truck Tonnage Index:
January 2010-June 2016
Conclusions: Short-term benefits, but Long-term uncertainty
For some of Site Selection Group’s clients in the manufacturing and distribution industries, the continuing truck-driver shortage can weigh significantly on their site selection decisions, regardless of whether they need to hire five or 50 drivers. A cooling-off in the competition for drivers caused in part by slackening demand for freight services could help alleviate some of those concerns in the short-term. And of course, softening freight costs, coupled with falling diesel prices, are also a benefit to manufacturers and distributors.
Despite the short-term benefits, continued softness in the demand for trucking services could be a leading signal of fundamental weakness in the industry or in the U.S. economy overall. Site Selection Group and its industrial clients continue to monitor the data closely to see which conclusion appears more likely.
