The Transportation Boom Ends — Douglas in Vegas

Sales of Class 8 trucks (18-wheelers) hit the ditch in January, with orders down 58 percent from a year ago hitting a level not seen since October 2016, near the end of the transportation recession, “when Class-8 truck orders had plunged to the lowest levels since 2009, and truck and engine manufacturers responded with layoffs,” writes Wolf Richter.

The other day I posted about the plunge in the Baltic Dry Index and now news is the Cass Freight Index dropped in December. The Cass “index covers shipments of merchandise for the consumer and industrial economy but does not include bulk commodities, such as grains or chemicals. It was the first year-over-year decline since the transportation recession of 2015 and 2016 — and trucking companies have seen this coming for months:”

Shipping indexes provide a barometer for how the economy is doing. Less shipping means less buying, selling, and producing. Government interference in the form of low interest rates and the threat of tariffs pulled economic activity forward. However, now the economy is digesting that bubble (malinvestment) of activity. Richter explains,

The trucking business is a barometer of, and dependent on, the goods-based economy. In late 2017 through the summer of 2018, demand for transportation services, such as shipping by truck, surged under the simultaneous impact of a strong goods-based economy led by red-hot e-commerce; a buildup of inventories; pandemic front-running of potential tariffs, a resurgence of drilling activity in the oil patch that required equipment and supplies to be trucked in, etc. Freight rates spiked. Squeezed shippers wheezed in their earnings reports about these spiking transportation costs, while truckers were on Cloud-9 and ordered new trucks to meet the demand, and truck manufacturers were swamped with orders.

Now shipping activity has cooled off and trucking capacity has improved.

The Flatbed Monthly Load-to-Truck Ratio by DAT tracks demand-capacity imbalances. After skyrocketing, the industry figured out how to deal with ELDs just as a slowdown in the industrial sector set in, particularly oil & gas. Now, the average load-to-truck ratio has plunged, down 41% from December a year ago.