Market update with Matt Muenster, Chief Economist, Breakthrough

Logistics Management (LM) Group News Editor Jeff Berman recently spoke with Matt Muenster, Chief Economist for Green Bay, Wisc.-based Breakthrough, an innovator in transportation management, dedicated to creating transparent and fair strategies for the world’s leading shippers. Muenster provided Berman with an overview of trade and tariffs, the indiustrial economy, and Peak Season, among other topics. 

Their conversation follows below. 

LM: What are the biggest takeaways related to tariffs that you think are top of mind for shippers, amid the many moving parts and shifts related to trade policy?

Muenster: In early August, Breakthrough held its annual conference, and at a shipper roundtable there, the biggest takeaway was the lingering uncertainty in the market as it relates to things like the effective tariff rate on particular products and what it is going to be, for things like pharmaceuticals, automotive industry. These are front and center in the businesses that are most concerned about outcomes and ultimately, just really are looking for more clarity in the market. There's still a lot of concern on both sides of the Atlantic of what tariffs will ultimately mean to economic activity and production.

LM: How do you view the 2025 Peak Season? Given the strong U.S.-bound import volumes seen in July, at some ports out West like Los Angeles and Long Beach, may it have already happened?

Muenster: It is a good question. I do think it is front-loaded this year and an earlier Peak Season, especially with what we saw in July, as you mentioned. I think we are also seeing a couple of different trade flows [related to tariffs and trade policy] that happened earlier this year, like in March and April, when we had pretty robust imports—and we saw that freight demand through our Breakthrough ecosystem suggesting that we were getting some freight demand well ahead of seasonal timing—including back-to-school supplies in that window. I do think it is an earlier Peak Season this year.

LM: Shifting gears over to the Federal Reserve. Do you expect to see a rate cut coming and, if so, what could that mean for things like freight growth and demand?

Muenster: There was a general sense of optimism from Chairman Powell’s recent remarks that a cut may be coming in September, which is corroborated. It feels like things are at 50-50 in terms of a 0.25% rate cut, with maybe another matching one in October. So maybe we see a 0.50% reduction by the end of the year, if the macro-environment plays out the way we think it will without too many surprises. As for what this could mean for freight transportation, I am sure it will get the market excited. If anyone has been wanting to move more tonnage and has not been able to, I am sure this will be looked at as a sign for hope. I would say there are long legs between these cuts being made and their ultimate impact on the costs of borrowing. Long legs and more cuts are going to be needed if we are really going to see a profound impact on next year’s housing market, for example. That has been part of the freight ecosystem and it has been slow, in terms of things like building products. Until there is more action, we wouldn’t fundamentally change our expectations for next year’s freight market. We still think it is going to be a gradual recovery into 2026, and we are expecting gradual rate growth in 2026. This does not change our perspective.

LM: How do you view the current situation with the White House’s IEEPA tariffs and the U.S. Court of Appeals for the Federal Circuit recently stating the majority of the IEEPA (International Emergency Economic Powers Act) tariffs rolled out by the White House are illegal?

Muenster: That has created another layer of uncertainty, so businesses have to decide how to act, when to act, with that kind of information still lingering out there. If any of the IEEPA actions are rolled back through court proceedings, theoretically, at least, perhaps the administration would then seek other avenues to ensure that those tariffs would remain in place. We do have some greater guidance on other tariffs, the section 232 tariffs, steel, aluminum—the potential of them being levied directly on a medium and heavy-duty vehicles is still unknown for the end of this year, but those tariffs tend to be viewed as more permanent because they're being they're put in place outside of IEEPA. Again, that's just another layer of uncertainty, and that's something that gets brought up by shippers. First and foremost is they want to have a greater understanding of the impact to their business. They need these figures. It's one thing to plan for tariffs. It is another to plan for this kind of uncertainty around tariffs, whether they're going to actually be in place at all, and what the percentage and effective tariff rate is going to be.

LM: What are your thoughts about the White House’s 40% transshipment tariff, used to counter countries re-routing goods through a third country to evade paying the correct tariff rate?

Muenster: I think this goes back to the first Trump administration's approach on tariffs and ultimately what transpired from it. When we look at trade deficits across major US, trade partners, at the 10 countries who the US has the largest trade deficit with China, the first China being first and foremost on that list, going back to the 2016 administration that's continued through to today, the trade deficit with China decreased about 15% from statistics in total value from 2016 To through the new administration in 2024. That trade deficit decreased by 15%, but across other major trade partners, with the exception of Japan, who our deficit also shrank with, our trade deficits grew with all of our other major trade partners, Mexico, Canada, the European Union, Vietnam, South Korea, the list goes on. And, so I think in addition to what's being done with particular indirect surcharges on a transshipment, the growth in breadth of tariffs being applied across countries is another way that the current administration is essentially doubling down on ensuring that freight from China isn't moving regionally in Southeast Asia and being essentially tariff-free or having a much lower tariff right rate being applied to it, even though it's a continued movement of essentially Chinese goods into a new geography. The transshipment rules are being set up in a similar fashion.

LM: With the de minimis exemption now officially going away, how does this impact things from a modal perspective?

Muenster: There is an expectation that more shipments, which would have gone in the air, will move over the water, especially this year. Those shipments can be front-loaded more easily, moving by air. We already know that some international e-commerce players that are purchasing low-cost goods abroad have adjusted prices, due to that expectation. Companies like Shein and Temu have adjusted with higher prices. I expect those kinds of behaviors to play out across a growing number of companies.

LM: In Breakthrough’s 2025 “State of Transportation” report, it found that 60% of shippers are diversifying transportation modes to manage volatility, adding that the most volatile, or the most agile, supply chains are built on trust, transparency, transparency and agility and that working with the right suppliers helps companies stay flexible, avoid disruption and respond faster to change. How do you sort of view that, in terms of shippers diversifying modes amid volatility and uneven environments?

Muenster: It is certainly a consequence of everything that's gone on going back to the pandemic. I think a prime example was a deterioration of rail service during covid, as the sector lost a large portion of its labor force. They did not bring them on quickly enough and basically lost out on those elevated freight volumes for a period of time, in 2020 and 2021. We've gradually seen shippers return their volumes to intermodal networks. We've seen that growth happen over the last couple of years gradually across our ecosystem of shippers. But it's experiences like that that stand out with why shippers are pursuing these relationships to establish agility and reduce risk in their supply chains. Successful supplier relationships are built on trust, transparency, and shared strategic goals. Transparency is an important enabler of these relationships, that there is a direct sharing of strategic goals that needs to happen between businesses and their suppliers, and what part of their strategy they'd like to emphasize, whether it is sustainability, risk management, supplier diversity, ethical sourcing or something else that matters most to the business. The way we see this rolling out—because shippers and carriers and partners, takes on a lot of different scopes, depending upon what that strategy really is—if it is sustainability, there's the opportunity for shippers to directly have conversations with their intermodal carriers, for example, to talk about growth and intermodal conversion of their network. They may be comfortable with the cost difference between truckload and intermodal. They might have some concerns about service, so there's some opportunities to have strategic conversations about how service will be maintained. Perhaps there's agreement to provide greater visibility to the shipper for other movements that are on that perspective, for an intermodal lane. The shipper can take steps to ensure they're identifying lanes for conversion that'll offer consistent volume and longer lead times where possible, and target those high-density lanes with more reliable infrastructure and rail service. There are a lot of steps that can be done to set that up well, but then ultimately, when it comes to execution, we encourage clients to take experiments, if they're looking to pursue alternative energy with the carrier, then bring the carrier into that, that strategic discussion. We can help them solve for the sourcing the alternative energy, and ultimately choose a carrier that you've had a comfortable relationship with some time.

LM: Manufacturing and industrial production have been in a real rough patch here for a bit and until the new order books really perk up, it seems like conditions are going to remain in this current environment. What is your sense of the current situation?

Muenster: That is a challenge with ecosystem volume. That's something that's held our volumes up that we've been seeing transpire in the marketplace. It's why we haven't had more robust truck tonnage on a year-over-year basis, quite frankly, for a period of years. One particular place of interest is truck manufacturing. The orders book. have been very weak this summer, really year-over-year. The manufacturing for plenty of durable goods and equipment will be more challenged by increased costs from tariffs, such as the ones on steel and aluminum. We talked about the impact of the Fed rate cuts, and ultimately, that'll help reduce some financing costs involved in the purchase of these goods, but you're still dealing with, on the flip side, perhaps, some countering price pressure that will show up in the form of tariffs. And when orders decrease, we see firms and OEMs, making adjustments to their head count. We're seeing that play out over heavy-duty vehicle manufacturers, like Daimler, Volvo, whom have decreased their head count. So, when the market does turn around, and when this demand does ramp up, depending upon how quickly that workforce is brought back, there could be tighter capacity, and it's another thing that can increase costs—not to mention the impact of rapidly-changing immigration policies. We've been paying close attention to that, especially its influence on the trucking market. English language proficiency fits in this space, with not so much of a direct impact to manufacturing, although perhaps an impact to the downstream transportation costs for it. But now something else very interesting, is the move for the U.S. to pause work visas for commercial truck drivers. If this expands to other industries, this also becomes a challenge and something can elevate costs over the longer term and create headwinds for manufacturing returning to a robust state in the near future.