Wolf Richter: Why the Heck Is the Trucking Business Slowing Down?

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By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

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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  1. rjs

    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..

    1. New Deal democrat

      “March was revised down to 0.8%”.

      Huh? Here’s what the report said: “The February 2015 to March 2015 percent change was revised from +0.9 percent to +1.1 percent.”

      But April certainly did lay an egg.

    2. New Deal democrat

      “March revised down to 0.8%”

      Huh? According to the news release, “The February 2015 to March 2015 percent change was revised from +0.9 percent to +1.1 percent.”

      April laid an egg, no doubt about that. Still, if April CPI like PPI is negative, that would mean a “real” increase.

      1. rjs

        even if we see a real increase in retail sales, my problem is with the nominal trade figures, which showed a 20% increase in consumer goods imports…where did that go, if not in sales or inventories…

        it’s an issue because the BEA will subtract imports from GDP big time (there was a negative 16% deflator on imports)…imports are subtracted from GDP because they represent either consumption or investment that was not produced here…if those imports weren’t included in March consumption or investment, then they shouldn’t subtract from GDP..

    3. rjs

      just a clarification on retail sales, now that i’ve looked at the report instead of relying on someone else’s headlines…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%…

      none of that accounts for a $2,666 million increase in car imports and a $9,013 million or 20% increase in imports of other consumer goods, against inventories that were reported flat..

      1. New Deal democrat

        See my comment below. Oil patch state sales tax reports for March and April stink. Also, the rapid appreciation of the dollar has just been killing exports.

        Good catch about Feb benchmark, btw.

  2. Ep3

    I work for a company that imports from China. Our office is in michigan. So things come into the LA port and either truck or intermodal or some combination to get to us. First, remember there was a port strike in March. A lot built up just sitting at the dock. Second, we deal in Haz-Mat items. That takes a special certification by the trucker to haul. This has led to a shortage in hazmat drivers, both for getting us our goods and for us hiring. Truckers and their companies are less and less wanting to deal with hazmat trucking. The costs and risks are getting too high for them. The rates for them are only marginally higher; not worth the risk.

  3. greg kaiser

    Why is only Wall Street recovered from the great fraud it created?
    Only some of the middle classes and the ruling elite billionaires and their corporations have all the money, property or hold the mortgages. No spending, because no money – no shipping necessary. The real economy is failing just as Marx predicted it would. And the end he predicted will come [hundreds of years earlier than forecast] if the “best and brightest” don’t soon awaken to the poverty of their economic theory and practice.

  4. New Deal democrat

    Wow, is this article misleading! April volumes were negative YoY, that much is true.

    But go look at the source material. You’ll see a graph showing a nice upward spike from March to April – a bigger increase than in the last 3 years. The combined February – April move is slightly better than in 2012 and 2013. It is only below that of 2014 when, you may recall, we got a huge bounce coming off winter.

    Further, the YoY measure did not “fall again” in April. Rather, the index fell to -5% YoY in March and made up half of that, to -2.5% YoY, in April. That’s an improvement.

    Meanwhile, the more timely data from the AAR showed intermodal rail traffic falling off a cliff in mid-February and staying negative YoY until about mid-March. Since then intermodal traffic on the rails has generally stayed positive. I just checked, and last week it was up +3.8% YoY. Overall rail carloads are still negative YoY since mid-February, almost all of which is due to a steep decline in coal shipments – killed by the strong dollar, making coal from other countries cheaper.

    The bottom line is, trucking isn’t “slowing down.” It “slowed down” dramatically in March, and improved, but not to a positive YoY reading in April.

    1. MyLessThanPrimeBeef

      You think the -5% YOY March decline had to do with the strike and post-strike in April, it bounced a little, to -2.5% YOY?

      1. New Deal democrat

        Not sure about whether the strike has any continuing effects. I suspect trucking is being affected similarly to rail. My best guess is that the positive intermodal container numbers (intermodal being the stuff that can directly transfer from ship to rail to truck) means the effects of the strike are done.

        The dollar moved over 20% higher against the Euro from July through March, and over 10% against most other currencies. It is no surprise that imports are picking up and exports are getting slammed.

  5. john

    Back in march or april I heard a good NPR story (no seriously!) to the effect that labor unions were shutting down all but one of the west coast ports during golden week for maximum leverage. (uh, so check NPR during Chinese golden week for full story)

    Of course, because they are just a mocking vestige of reporting the guest was the shoe industry’s trade representative, but there was great facts in that story regardless.

    This whole slowdown out west could just be clearing through that old blockage.

    John Oliver reports only 2% of US clothing is made locally (and he didn’t touch on the prison garment industry here!) and that Kathy Giffords (or some similar floozy, had the big witch burning for outsourcing after NAFTA) is back to selling cheap clothes (eherm, affordable) on the morning “news.”

    Keep it up Wolf!

    1. MyLessThanPrimeBeef

      I think clearing the blockage would make truckers busier, not trucking slowdown.

      1. Hillary

        As the delays cleared, almost everything moved back to the rail. There are fewer hot shots out of SoCal now than there were two months ago since rail transit is predictable again.

        I had some containers that took six weeks to get from the vessel to the rail yard in February/March. It’s back down to 24 hours (normal from a year ago).

  6. Mark

    Part of this is that there is a huge overhang inventory of things that are USED, but are for sale cheap.

    There’s a used building supply place in Fairfax (California) that has hundreds of sinks, toilets, tons of nails in bins, screws, construction hardware, wood, bolts, tools, electrical devices ad- infinitem. Most of it is high quality American made that has been removed from remodels or was sitting in basement unused until it was donated to them.

    You could buy a hundred dollars worth of cheaply make Chinese stuff at Home Depot, or, you could buy the same kind of high quality American made items used for $20. Every contractor in the know will go to the Away Station instead of Home Depot. Another bonus, you can donate material to them and get a tax write off.

    There are similar places in Berkeley and San Francisco.

  7. justsayknow

    Purely anecdotal but in the last three weeks my tiny company has been contacted by at least three trucking companies looking for work. This has never happened before.

    1. NotTimothyGeithner

      Credit and relying on the rich has run its course. The rich build a dream house, but except for a few, they don’t build a second one. The dream houses have been built. Local governments are bonded out and haven’t seen the tax base grow. New projects aren’t even being discussed. Many of the post Vockler bed room communities are in need of serious infrastructure improvements and repairs with no sales tax collections and retirees as a tax base.

      Here and there will be a few winners. My home town in New Hampshire was a major beneficiary of the current recession because all the government jobs moved there after smaller offices were closed. My mother’s hometown 15 or so minutes away in Vermont looks abandoned. For the most part a steep decline is coming. I can only hope that the stink leads potential Obama library donors to decide to invest in more worthwhile endeavors such as heroin or a remake of Plan 9 from Outer Space called Plan 10 from Outer Space 2.0.

  8. Lee

    Some bond pundits see slow down as well:

    “The reality is the facts haven’t changed — there is still sluggish growth, and economies can’t tolerate much higher interest rates without things getting worse,” said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “As such, global central banks aren’t taking their foot off the gas anytime soon.”
    JPMorgan Chase & Co. added to the economic pessimism Wednesday by revising down its estimate for U.S. growth in the second quarter to 2 percent from an earlier 2.5 percent, citing the latest retail sales number and concern consumer spending has remained subdued. (http://www.bloomberg.com/news/articles/2015-05-13/mind-the-gap-in-bond-market-rout-that-shows-easy-money-to-stay)

  9. TG

    But thanks to Obama now Mexican trucking companies can operate directly cross-border into the United States. Are you only looking at the US trucking industry, or are you also counting foreign-flag trucks in the US? Maybe there is still a lot of trucking, it’s just not going on US trucks?

  10. Switchblade

    The slow down the economy is experiencing is something I have anticipated for well over two years as the absolute demographic decimation of households, and families specifically is the time bomb that is now detonating. The startling deconstruction of the family unit materially damaged the financial infrastructure of the the family to the point where all vestiges of robustness have been replaced by a profound fragility that is accelerating at an unprecedented rate. In a span of only 20 years from 1990, through the 2010 Census, the utter destruction that has been wrought on children, and their parents is blatantly obvious in the maps of the American landscape by county. These maps highlighted the stark contrast in these two Census years, and pointed to disparate parts of Utah as being the final redoubt of intact American families. This one area of concern is one of only 400 data points I measured when I shut down my economic, and demographic database well over two years ago because it pointed to only one outcome, utter disaster.

    No one will tell you that the peak of Baby-boomer earnings, and household net worth occurred in 2006 at the peak of the last housing bubble. I was waiting for that moment because I had stumbled upon the retiring Baby-boomers effect on housing prices back in 1987 while studying demographics in the libraries of UCLA, and UCLB. I was in the process of researching women in the automotive marketplace, and my theory of a future crossover market dominated by women, when I was struck by Boomers beginning to retire in 2006.

    In the enduring mystery over the fall of household speeding since 2000 none of the mainstream pundits will tell you the following. The absolute peak for the percentage of consumers at the apex of the consumer speeding bell curve was back in 2000, and since then we have seen a steady decline in household spending. The Millennials will not begin to rally consumer spending until the year 2024, which is cold comfort to those of us about to enter a new depression.

    The financial mandarins at the Federal reserve certainly knew, and understood the this demographic data when they attempted to build a spindly scaffolding across the demographic chasm by utilizing an opaque alchemy in the form of QE1, QE2, and QE3, to shore up corporate profits at our expense. The quickly advancing TPP and it’s Atlantic counterpart are meant to be the final coup de grace of the American household as it was already falling into the abyss before this latest treachery. The patient was in critical condition but has now been sentenced to spend it’s final days in hospice care far removed from family and friends.

    For those who seek to challenge my assertions be advised that I was way ahead of Mark Hanson in 2006 in calling the housing collapse, and it’s detonators, MERS, fraudulent Alonges, empty trusts, and vacuous tranches that were sold multiple times. I was ahead of the curve because I had studied this area for 19 years by that point in time. I warned of the American, and European banking crisis by looking at each banks leverage ratios, and exposure to American mortgage tranches. If an idiot like myself can discover the under appreciated power of demographics, then what do you think the ghouls in Washington know, that you don’t know. Knowledge is power, and it is being used to absolutely decimate our future while the vast majority of American’s gorge themselves on Kardashian drama, and the latest viral video.

    The ultimate event horizon will occur before the malevolent charade of the 2016 election crowns Jeb Bush as our new Lord and Savior.

  11. Tom Hammett

    It could be that the truckers are most recent victims of NAFTA. In 2011 Obama pushed through a three-year pilot program shipping truck driving jobs to Mexican truck drivers with a NAFTA cross-border trucking agreement when the jobless rate was over 9%, something George W. Bush could not accomplish in 2007.

    Border opens to Mexican trucks
    Measure complies with NAFTA

    By Sandra Dibble, San Diego Union-Tribune, January 12, 2015 8:43 PM

    The United States is preparing to open the border to Mexican long-haul truckers, allowing those who qualify for permits to make direct deliveries from Mexico to U.S. destinations — a measure stipulated more than two decades ago under the North American Free Trade Agreement.


    The announcement by the U.S. Department of Transportation, which oversees the Federal Motor Carrier Safety Administration, follows a three-year pilot program designed to test the safety of Mexican trucking companies driving on U.S. highways.

    1. sam hough

      Look at the facts- the number of actual shipments from Mexican trucking companies is very low- the NAFTA requirements and the US cargo and personnel liability laws prevent any larger Mexican carrier from wanting to even participate in US markets- the Mexican carriers rely on US carriers to handle the US domestic side of the business- and the result is good paying freight and nice length of haul shipments from Mexico to US cities. Ask carriers like Swift, Werner, Con-way, Celadon, US Express – etc about the growth in their transborder freight. It is much larger than US domestic growth in the past 5 years.

      Look up actual facts, actual shipments- name me one Mexican carrier that has actually threatened any US carriers with the potential loss of business.
      Idiotic, headline grabbing, uniformed statement above

  12. Demeter

    Living in the crossroads of two major interstates, I see lots of trucks, but the number fluctuates. Some weeks it’s safe to go on the highway. Other weeks, you take your life in your hands. I have no way to explain it, but that’s my observation.

    And the truck drivers are stressed, if the quality of their driving is any indicator.

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