Economic Indicators in Trucking
Pinpointing one specific economic indicator to gauge the health of the trucking industry is tempting, but all too often leads one astray. While it’s easy to look at the price of gas or consumer spending and make a direct relationship to tonnage being hauled, there are many more factors that can make an economic forecast hazy.
According to trucking.org, nearly 12 billion tons of freight rode on the backs of America’s trucks in 2019. While the pandemic put a halt to that upward movement, 2021 is turning out to be a banner year for freight once again. Let’s take a look at some of the key factors that can affect the trucking industry.
In one aspect, looking at manufacturing as the key indicator for trucking health is a bit like looking backward. For instance, coming out of the pandemic, domestic manufacturing has been reaching record heights according to IHS Markit, who claim that March saw the second-highest total in domestic manufacturing since 2007.
Naturally, with a booming manufacturing sector, demand for freight hauling is higher than ever - there are more loads than available trailers. One issue, however, is that just because manufacturing is rolling, it doesn’t always mean trucks are 100% packed at all times.
Supply chain shortages are more frequent when manufacturing is hitting new heights. As companies ramp up production, there can be a serious lack of basic materials such as gasoline, steel, and other commodities critical for keeping trucks moving.
Finally, manufacturing faces competition when it comes to delivering their finished product to markets. Consumer retail shippers are hogging the freight market, making it increasingly difficult to obtain enough freight space to ship product. This can create shortages within the manufacturing industry itself.
It’s no secret that Amazon and other retail shippers have taken over the universe, and trucks are a big part of that success. In fact, last year eCommerce sales topped nearly 800 billion dollars. However, 2020 was deadly to physical retailers. So how do overall consumer conditions indicate trucking industry health?
In general, the state of retail conditions is one of the best barometers for gauging truck industry health. As people buy more, inventories must be replenished. Manufacturing must replenish inventory, and the supply chain works harmoniously thanks to the freight industry, which flourishes during these times.
However, a few factors to consider when retail conditions are hot. First, there will eventually be a truck shortage - literally. This can factor into disruptions for logistics companies as many will be taxed overcapacity. Even parts will become more scarce. This can disrupt business.
As well, as the necessity to increase freight capacity persists, increased attention is put on the trucking industry by regulators and lawmakers. Increased restrictions on drivers and emissions may put the brakes on trucking industry health during a retail boom.
Fuel costs are an easy economic indicator to point to as having a direct relationship to the success of the trucking industry. If oil prices are high, freight carriers’ margins narrow. When oil prices are low, logistics companies and drivers do well.
Higher fuel costs may not dampen consumer spending or manufacturing - although they can - they do, without question, hasten driver turnover. Many drivers are forced out of work by higher fuel prices. It can also force them to work longer hours - sometimes waiting in line for gas for hours. This leads to driver burnout, which hurts the industry.
When drivers seek greener pastures because they are reluctant to spend $3000 in gas on one cross-country trip, companies then need to find new drivers. Relying on new drivers to be on the road for 12, 13, or more hours is a safety hazard for everyone. It also forces dispatchers to work with newer drivers more frequently, which is less efficient and hurts everyone’s bottom line.
If drivers figure they cannot foot the cost of high gas prices, then it can create shortages at the gas pump. Without a steady supply of drivers delivering fuel, gas stations can expect shortages. This in turn can raise the cost of gas at the pump more.
A sure sign of inflation often begins with gas prices - as the economy gains steam and spending increases, so do prices. Gas is not immune to inflation and is often seen as a key indicator of inflation. We mentioned above how gas prices affect trucking, but how else can inflation influence the freight industry?
As inflation rises, the government will opt to raise interest rates. This can negatively impact the industry as total costs rise on purchases, from new trucks to other associated equipment and properties.
While some companies and operators may choose to lease trucks instead of buying, although this isn’t ideal for many owner/operators as insurance premiums on leased trucks are higher.
One direct result of inflation could be fewer trucks on the road, which could cause shortages along various supply chains. This could help some operators when finding freight, however, but smaller players in the freight industry are inevitably hurt by inflation.
When housing is hot, so is the trucking industry. New construction, whether residential, commercial, or industrial is a boon to the freight industry. From lumber to roofing and everything in between, construction materials are largely manufactured domestically, so freight haulers are involved in all parts of the production process, from the raw material to the finished product.
Looking at new home permits nationally can indicate how well the market is doing, and over the last decade, new home sales have only gone up, save for a dip during the pandemic. As housing prices rise, the supply of homes to purchase has fallen. This means more new construction of homes, which is good news for freight haulers.
Is the construction industry always an ideal indicator for the trucking industry? Usually, but if there is an inventory oversupply, then freight demand can diminish even during a construction boom. This can happen, for instance, after new construction peaks and then plateaus.