Freight demand has not bottomed out

Chart of the week: Outbound Tender Volume Index, Outbound Loaded Rail Containers, Inbound Ocean TEUs Index – USA SONAR: OTVI.USA, ORAILL.USA, IOTI.USA

Container imports, intermodal rail transport and demand for truckloads have fallen from their high pandemic-era highs and may be a better indicator of how inflation will be tamed in the coming months than that consumer price index (CPI) itself.

Container import bookings measured by FreightWaves TEU index for inbound oceans (IOTI) are now only about 6% higher than in November 2019, having averaged over 80% above pre-pandemic levels for most of 2021.

The volume of loaded intermodal containers on the rails (ORAILL) has decreased by 7% compared to mid-November 2019.

That Volume index for outbound tenders (OTVI), a measure of shipper requests for truck-loading capacity, is now just 9% higher than the week leading up to Thanksgiving in 2019, after averaging nearly 50% above norms from July 2020 through March 2022 of the pandemic.

The demand destruction has occurred at a much more significant level than the dollar numbers that drive much of the macroeconomic data suggest. Dollar readings are noisy, measuring emotions and supply and demand imbalances. That scarcity effect is a prime example of this and has been one of the main drivers of inflation over the past two years.

The inflation-representative CPI, the Fed’s #1 enemy, is still moving higher on a yearly basis, thanks to rising supply costs and companies passing on the upstream cost increases experienced over the past two years.

With view on producer price index (PPI), which is more focused on upstream production costs, this direction has already changed and has been slowing since June. Transportation costs are part of that number.

The point is that scarcity is decreasing. Supply chain overload relaxation. From a purchasing power perspective, consumer conditions have deteriorated. It will take time for all of this to be fully reflected in macro numbers and behavior to change completely.

The transportation sector was at the forefront of both the economic boom and its recent decline. The reason for this is that transport is the backbone of the goods economy. All goods, unfinished and finished, must be moved at some point.

Commodities run ahead of production and represent the most upstream view of aggregate demand. Finished goods transported to brick-and-mortar stores and fulfillment centers are also represented in transportation data.

While truckload and import demand may not yet have fully returned to pre-pandemic levels, the direction and time of year suggest it won’t be long before we get there. Seasonally, retail volumes pick up just before and around the holidays, but there’s little sign of that at the moment.

December and January are the slowest months of the year for domestic freight movements, meaning that without some kind of black swan event this winter is likely to get even worse for transport companies.

It’s hard to say how long this downtrend will last as much of it will depend on fiscal policy and investment sentiment. There is surprising strength in the labor numbers that the Fed is citing as the reason for continued rate hikes, but this is a lagging read that may still be reflecting past conditions.

About the chart of the week

The FreightWaves chart of the week is a chart selection from SONAR this provides an interesting data point to describe the state of freight markets. A chart is selected from thousands of possible charts SONAR to help participants visualize the freight market in real-time. Each week a market expert will post a chart live on the front page along with commentary. Thereafter, the chart of the week will be archived on FreightWaves.com for future reference.

SONAR aggregates data from hundreds of sources, presents the data in charts and maps, and provides real-time commentary on what freight market professionals want to know about the industry.

FreightWaves’ data science and product teams release new data sets every week and improve the customer experience.

To request a SONAR demo, click here.

Leave a Reply

Your email address will not be published. Required fields are marked *