Inventory Restocking May Be the Freight Recession’s Antidote
Glenn Taylor
4 min read
There may finally be a reversal of fortune to the freight recession that still plagues the logistics industry, with trucking potentially getting a demand boost it needs as a result of restocking across the retail industry.
According to Motive’s Overall Retail Index, which tracks trucking visits to North American warehouses for the top 50 retailers, department stores, apparel and electronics saw June warehouse visits jump 32.9 percent year over year.
Across all retailers, the metric jumped 16 percent year-over-year. Among other sectors seeing gains include home improvement (24.4 percent), grocery and superstores (22.1 percent) and discount retailers and wholesalers (13 percent).
On a month-over-month basis, the index jumped 10.8 percent from May to June. Hamish Woodrow, head of strategic analytics at fleet management tech provider Motive, told Sourcing Journal that the month-over-month jump is “a really strong trend.”
“I’ve never seen that since we started tracking,” he said, with Motive releasing its first Monthly Economic Report in February 2023.
Woodrow pointed to inventory restocking as a significant driver of the growth, with the company preparing for a strong July throughout retail.
“It’s a two-level story. For one, I think last year was poor because a lot of these retailers still were driving down inventory. They all ended up with far too much inventory going in. That’s why we see such large year-over-year increases. We just see less stock having gone in last year at the same time,” Woodrow told Sourcing Journal. “And second, we see a bump in demand. We see expectations, or at least near-term expectations, to be fairly strong to bring more into inventory to retailers, especially on the brick-and-mortar side.”
Accompanying the escalating visits to warehouses is what Motive expects to be a renewed stability in trucking, which has largely experienced overcapacity problems since the pandemic. In recent years, the capacity in the market has shrunk “enormously” due to unsustainably low trucking rates, Woodrow observed.
In June, 7,621 trucking carriers entered the trucking market, according to data from the Federal Motor Carrier Safety Administration (FMCSA). This is 10 percent less than in May but in line with typical decreases seen for this time of year, as highlighted in Motive’s July monthly report.
The percentage of new carriers (2.1 percent) is similar to pre-pandemic totals in June 2019 (2.25 percent), indicating more stable growth throughout the sector.
And while 1,972 carriers left the market in June, representing a 60 percent increase from May, it is still 58 percent fewer exists than December 2023—another indicator of a strengthening trucking market.
Overall, the second quarter saw half as many carrier exits (4,039) compared to the first quarter (8,400), with Motive anticipating fewer exits in August.
With this projected stability in place, Motive maintains the prediction that the trucking market will see net-positive growth by the fourth quarter.
“We’ve gone from this Covid boom, where the sector, fueled by the economics at the time, has come down and crashed in a freight recession for almost two years now that is ultimately coming to an end,” said Woodrow. “We’re going to see a very light reversal and start to slowly grow and come into the end of Q3 and into Q4. We imagine that the consumer demand continues to be as strong as it has recently been, combined with less capacity.”
Woodrow said that as the ocean freight market spices up—with more retailers pulling forward their cargo this year in the wake of the possible East and Gulf Coast port strike—this could compound into more price sensitivity and higher rates on the trucking side as more goods pile into the U.S.
“We’re going to see, some price sensitivity come at the end of the year. It’s going to hit cost of goods, or cost of transportation, specifically for retailers going into 2025,” Woodrow said. They’ve had this glut of capacity that’s been able to keep prices very low in the transportation side, and that’s probably going away, so we’re going to have a reversion to the mean.”
The projected in rates will, in turn, force many retailers to adjust their inventory management strategy, holding on to more inventory longer as later restocking becomes more expensive. Motive expects to see this change taking hold by the holiday season.
Unfortunately for consumers, this could result in higher prices after the holiday takes place, as so retailers will likely need to start passing higher logistics costs to consumers by the end of Q1 or early Q2 next year, according to Woodrow.
“Essentially, that’s a decision you have to make because inventory costs money to hold, and that has a real cash implication,” Woodrow said. “We’ve held very low inventory-to-sales ratios right now, that’ll probably have to adjust up. When you think about all these companies, they’ll have credit lines for a lot of this. There’ll be real firm implications, including the cost of interest on the inventory. That’s going to be one of the bigger challenges I see coming up.”
