08/15/2024 by Greg Massey

August 2024 Freight Market Update

Stay up to date on the latest information on conditions impacting the freight market, curated by Trinity Logistics through our Freightwaves Sonar subscription.

GOOD NEWS, BUT…

Consumer spending is the biggest driver of the U.S. economy, accounting for roughly two-thirds of the nation’s Gross Domestic Product (GDP). One measurement of that consumer spending is the Redbook index, which compares year-over-year growth for large domestic general retailers (think Walmart, Amazon, Target). The index has averaged just over 3.5 percent for the past 20 years, so the recent year-over-year (YoY) growth in the four-plus percent range speaks to the strength of consumer spending (Figure 1.1). This index alone certainly gives reason for optimism, however there is a cautionary tale with regards to consumer debt.

A bar graph from Investing.com that shows the Redbook index, comparing year-over-year growth for large domestic general retailers. A red circle is drawn around the bars showing May 2024 to July 2024, showcasing the recent four-plus percentage range in consumer spending. — *Figure 1.1*

After years of next to zero interest rates to keep the economy on its legs, consumers have seen interest rates on the rise, with the federal funds rate at its highest level since the early 2000’s. With the increase in interest to borrow funds, combined with the increased costs of essentials (food, housing, energy), many households have turned to credit cards to fill the gap for funding of these necessities. Figure 1.2 from the New York Fed Consumer Credit Panel shows the rise in consumer delinquency particularly in those groups that utilize more than half of their available credit line.

While there appears to be relief on the horizon with the impending reduction in interest rates, it appears a portion of active consumers may be pulling back on purchases for those items that are not mission critical. This, in turn, will have an impact on restocking of inventories and trucking activity.

A line graph from the New York Fed Consumer Credit Panel, showing the rise in consumer delinquency (debt). There are four lines showing the borrower utilization rate - one that represents 0-20%, one that represents 20-60%, one that represents 60-90%, and one that represents 90-100%. The graph shows from 2015 to current. There is a red circle drawn around the most recent past year, in which you can see the 60-90% and 90-100% group showing a rapid increase in the percent of balances transitioning into delinquency. — *Figure 1.2*

While it is not approaching the levels seen in 2021, the volume index is quickly approaching levels seen in 2022. This has buoyed optimism in the industry.

JUST SOME GOOD LUCK? TIME WILL TELL

The uptick in consumer spending, restocking of inventories and the threat of labor strife in the fourth quarter of this year has been to the benefit of those involved with the rail and import business.

In Figure 2.1 below, the blue line represents loaded container rail volume in the U.S. and the past three months have seen the volume grow. Similarly, container volumes to the U.S. have been on the rise.

The orange line represents container volume from China over the past six months. While some of that traditional volume is now flowing through other countries, like Mexico, there is still a great deal of activity with U.S.-China trade. Will this continue or is it fool’s gold? That is something we will continue to keep an eye on as a pullback in consumer spending will dictate how the needle moves.

A line graph of the total outbound domestic rail container volume, loaded and in the U.S., from Freightwaves. There is a blue line that represented loaded container volume, with the past three months showing growth. There is an orange line that represents the container volume from China over the past six months that was in a dip but recently has seen a sharp increase. — *Figure 2.1*

STAYING RIGHT WHERE WE ARE

Finally, looking at domestic over-the-road volume (blue line) compared with carrier rejection rates (green line). The slight upward trend continues with volumes and rejection rates (Figure 3.1). Rejection rates continue to inch towards 2022 levels, but a five-to-six rejection rate is about half of what one would see in a balanced freight market.

This has yet to manifest itself in the way of increased freight rates, as capacity still exists in the market.Shippers and carriers should anticipate little change in conditions (although hurricane season is looming) until early 2025.

A line graph showing the outbound tender volume index in the U.S. from Freightwaves. You can see two lines - a blue one that represents the domestic over-the-road volume and a green one representing carrier rejection rates. Overall, there is a slight upward trend in both. — *Figure 3.1*

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