FTR’s Vise examines current freight economy conditions at SMC3

The state of the freight economy was a key theme at the SMC3 JumpStart 2024 conference held in Atlanta late last month. Avery Vise, vice president of trucking, for freight transportation consultancy FTR, offered up his views on the freight economy, at the moment, and where things could be headed.

Vise explained that when using FTR’s “Goods Transport GDP” reading as an indicator, which takes GDP data and “slices it for freight,” by taking out services-related components of GDP and adding in imports, the third quarter of 2023 turned in solid performance, with the caveat that he views it as an outlier and not indicative of the current market.

“For basically more than a year, and as we look ahead, we just see freight as being really sluggish through basically the rest of this year,” he said. “There could be a pivot, yes, and there will be an inflection, but not really much of one. By the time when we get to the end of next year, that'll be a fairly normal environment. Nothing really to get excited about necessarily, but certainly one that is livable.”

As for the reasons behind that forecast, he noted that it goes back to a few different factors.

Consumer spending is strong, he said, and while retail sales have been “quite good” over the past few months, Vise said that its growth period is basically over.

“In our growth forecast, there is some expected growth but not very much,” he said. “But it is significant that we're not looking to lose any, because I think a lot of people do go back a year ago, 18 months ago or so, and back then people were expecting a collapse. One reason for that not happening is that there is still an incredible amount of cash in the system.”

And that cash is visible in Federal Reserve data on household cash reserves, or liquid assets, and not including things like mutual funds or retirement accounts, which currently totals more than half a trillion dollars in cash. Which Vise said means this current period of consumption could very well continue.

As for is that consumption could lead to an acceleration, he said it is not likely, due to things like rising credit card delinquencies, although there is potential for there not to be any decline in consumption through 2024.

What’s more, on the retail sales side, Vise said that there has been a destocking event in retail sales inventories, excluding automobiles, and much less of one on the wholesale side, with retail inventories still very tight.

“The retail side is not a huge driver for freight,” he said. “It really is much more secondary to overall goods assumption, but it is an encouraging sign for freight that we are down basically except for the period of time that I'm categorizing as the disruption period, which would be mid-2020 to the end of 2021.”

Looking at the industrial economy, which Vise called the real driver for LTL, especially relative to truckload, he was direct, saying it is essentially stagnant or not going anywhere, as evidenced by a -3.1% fourth quarter reading, according to Federal Reserve data, the lowest reading since the pandemic-induced second quarter of 2020. And when looking ahead, he noted that future expected growth track is slow, with 1.0% industrial production growth not even expected until towards the end of 2024 based on FTR’s forecast.

“This is not a very encouraging environment,” he said. “This is where we are in manufacturing output. It's been distorted, really, for the last nine months by the run-up to the UAW auto strikes, which to some of the automakers trying to get ahead of the strikes a little bit. Things are in a real slack environment. We really don't see anything that you would even call an inflection until we get to at least the fourth quarter of this year. So not a strong environment.”

On the rates and pricing side, Vise said active truck utilization, which FTR defines as the number of needed to haul freight divided by active trucks available, seasonally adjusted, is viewed as a critical metric in forecasting rates.

He observed that a higher utilization rate subsequently leads to more rate pressure, as was the case in late 2017 into the first three quarters of 2018, which he said were very strong, with the same being the case from May 2020 through all of 2021.

“We are now running utilization at not much higher rates than we were at the bottom in 2018, and more to the point a very sluggish environment,” he said. “We were beginning to recover before the pandemic already in 2019 and early 2020 but not really not really significantly now. This is good news for shippers. It means that the deflationary environment overall, for truckload at least, is going to stay kind of in place for a while. But this is not good news for carriers. We're not looking at pricing having a whole lot of significant pressure, really, even through 2025. We will start to see contract rates coming up but not very strongly. Dry van and spot rates have probably bottomed out

We are not going to start seeing any significant year-over-year increases until we get to around the second or third quarter but least is past bottom. [LTL] contract rates are probably around the bottom, and this goes through 2025. We start to see 4%-to-5% increases annually, which is not nothing but certainly not what carriers were used to seeing.”