Zach Strickland (l) and Craig Fuller at the State of Freight presentation in front of the F3 audience. (Photo: Jim Allen/FreightWaves)
CHATTANOOGA, Tenn. – Two major developments were in the recent past when Craig Fuller and Zach Strickland of SONAR sat down for their monthly State of Freight webinar, this time in front of a live audience at FreightWaves’ F3: Future of Freight Festival in this headquarters city of both SONAR and FreightWaves.
One was the presidential election. The second was the declaration by Strickland, SONAR’s director of freight market intelligence, and Fuller, CEO of SONAR and FreightWaves, that the Great Freight Recession is over.
Here are five takeaways.
Just how bad was it?
With the Great Freight Recession clocking in at two and a half years – roughly – Fuller cited a conversation he had with an industry executive who said trucking is full of people today who had never seen a freight recession as prolonged as the one that began in spring 2022. “Even the one in 2019 was short,” Fuller said. “This one has definitely gone on for a long time.”
Strickland said normal history is that trucking “goes through these freight recessionary periods where things get tough for a little while, and then they pull back out. It’s kind of cyclical almost.” He likened a normal freight recession to “almost like a seesaw.” But Strickland said the latest one was a more sustained “trough.”
The reasons for the ‘recession is over’ call
While much of the reasoning for the declaration that the freight recession was over already was spelled out in a FreightWaves article on that subject, F3 gave the two men a chance to discuss their logic anew.
Strickland said he spoke at a conference recently and when pressed on when the freight recession might end, he jokingly provided a hyper-specific answer: Nov. 8. And that’s the day that Fuller and Strickland conferred and decided that, yes, the freight recession was finished and recovery had begun.
In earlier State of Freight webinars, Strickland always comes back to the Outbound Tender Reject Index (OTRI) in SONAR as the most important data point reflecting the strength of the freight market. It measures the percentage of contract freight that is rejected by carriers when offered by shippers, and which then goes down the routing guide or out into the spot market. It hit a low point of about 2.5% in May 2023. It’s now up to almost 6%.
When that level gets to 6% or more, Strickland said, “that means that carriers are struggling to cover their customer accounts.” Fuller modified that description and said a rejection reflected more that “a carrier had something better to do financially.” Other possible reasons could be the lack of a truck in the market where the freight is offered, “or it could be maintenance, or it could be weather. All sorts of reasons.”
“The reality is it tends to be financial and that the carrier has made a decision to not accept the contract with the tender,” Fuller said. “And in doing so, they’re communicating to the shipper to find someone else.”
But it wasn’t just OTRI; rates are rising too
Various indicators of freight rates in SONAR are rising as well. The National Truckload Index, which measures rates per mile for linehaul only (no impact from diesel prices), “shows a gradual pull higher over the last weeks,” Strickland said. He said the movement in the NTIL.USA index had a similar relationship to what has been happening with the OTRI.
Another factor, Fuller said, is the relationship between contract and spot prices, which has started to narrow. “All rates are moving in the same direction,” Fuller said.
He added that it’s been a long road back but technical analysis regularly showed some improvement.
“Every time spot rates have fallen since we really bottomed out in May of last year, the next dip number was higher,” he said. And although NTIL.USA does not include diesel costs, another key indicator – NTIL12.USA, which assumes a $1.20-per-gallon base fuel price – has moved above $2 per mile recently. The NTIL.USA, without a diesel component, was about $1.69 per mile at the end of October; it is now more than $1.80. That, and a breakout rate above 6% for OTRI, helped lead Fuller and Strickland to conclude the freight recession was over.
Racing to get ahead of a new tariff regime
“Because of the threat of tariffs, I think every supply chain manager has to take seriously the possibility it will create an enormous amount of ‘pull forward,’” Fuller said. That sort of demand for imported products occurred in 2017 and into 2018 as the first Trump administration readied its first round of tariffs. Even then, Fuller added, the tariffs “caught a lot of people off guard.” That isn’t likely to happen this time, he said.
Fuller questioned whether a new round of tariffs would be inflationary, noting that the first round from Trump 45 had less of an impact on prices due to what he said was “manipulation” of the Chinese currency. China, its current economy mired in the slowest growth it has seen in years, may find itself doing something like that again. “They are going to respond to the threat of the loss of demand,” Fuller said. “They cannot lose market share.”
Walmart reported strong earnings Tuesday morning. Some of that strong performance came from “cheaper-cost products,” Fuller said. “Big-box retailers are buying those products at a discount compared to what they did a couple of years ago.”
(Walmart reported that its consolidated gross margin was up 21 basis points year on year, though a transcript of its earnings call does not make any specific reference to Chinese costs.)
Chinese manufacturers have no alternative but to sell into the export market, “because they don’t have a consumer market where they can dump those products,” Fuller added.
How much increase in US activity from tariffs?
Even after the recent increases in several indicators that suggest a strengthening market, Fuller raised the prospect of several other factors lurking in a market that may see an increase in demand due to nearshoring or reshoring, whether it is Chinese imports being displaced by more activity from Mexico, or from more activity in the U.S.
He referred to a development this week: The Drug & Alcohol Clearinghouse administered by the Federal Motor Carrier Safety Administration was in position to revoke the ability to drive of close to 200,000 CDL holders, though how states implement it means there won’t be a sudden drop in the number of drivers eligible to be behind the wheel of a truck.
If the market is truly in balance or headed toward an imbalance to the positive side,” Fuller said, “then any inflection in demand could create accelerating rates.”
But there is also a possibility that the demand would be met with renewed capacity. Fuller said he had received calls from several people in the trucking industry after the election who were “thinking about driver recruiting because they’re bullish. There was renewed optimism that existed that had not existed.”
