Trucking Prices Inch Up in February
RedStone Resource
March 15, 2024
Inside This Edition
Election Years, Consumer Spending, and Freight Volumes
Research conducted by First Trust shows that only 4 times since 1928 has the S&P 500 index fallen in an election year. Unfortunately, two of those years were 2000 and 2008, and it remains fresh in our minds. Prior to that, one would have to go all the way back to 1940 to find the last one (prior to 2000) and 1932 prior to that.
Oil and Fuel Prices Increase Mid-March
A wave of attacks on Russian refinery and oil production infrastructure have created instability in the global oil market. At the time of writing, estimates suggested that up to 15% of Russian oil production and refining capacity had been hit by drones and was at least temporarily offline. US West Texas Intermediate prices had risen by nearly 5% since the first attack on the 12th and prices are now 13.5% higher year-to-date.
Business Inventories Remain Unchanged
Inventory management has played a large role in manufacturing activity, raw material and energy demand, and freight volumes. Coming out of the 2021/2022 global supply chain crisis, companies experienced a bloating of inventories headed into central bank tightening periods. Interest rates rose and the cost of carrying additional inventory became far more expensive. That started a global destocking trend that started in the fall of 2022.
Economic Briefing
Trucking Prices Inch Up in February
The Producer Price Index provides a snapshot of street level prices for various modes of transportation, and the two primary modes in trucking were both slightly higher in February (latest data available). These prices include spot and contract rates and include fuel.
Truckload rates were higher by 0.4% month-over-month (they were up 0.5% last month) but they remained sharply lower versus February of 2023, falling by 7.9% and lower than last month’s drop of 4.6%.
Less-than-Truckload prices were also higher month-over-month by 0.8% versus an increase of 2.6% last month. They were also higher on a year-over-year basis by 3.4%, which was much stronger than last month’s Y/Y growth rate of 0.7%. The Yellow bankruptcy was still playing a role and research found that prior bankruptcies in the LTL sector had led to rate increases of 4-6% above economic-generated growth for nearly a year after the closure of the company. With a recovering global manufacturing supply chain, rates could continue to go higher and fall into the 4-6% growth range (if not higher).
Election Years, Consumer Spending, and Freight Volumes
Much has been made of the risk that an election year brings to general macroeconomic activity. Generally, business executives believe that consumers and businesses bunker during election years, especially volatile ones. But research conducted by First Trust shows that only 4 times since 1928 has the S&P 500 index fallen in an election year. Unfortunately, two of those years were 2000 and 2008, and it remains fresh in our minds. Prior to that, one would have to go all the way back to 1940 to find the last one (prior to 2000) and 1932 prior to that.
Other factors will likely work harder on either promoting growth and freight volumes or weakening the market and creating the risk of contraction. For now, economic forecasts show macroeconomic growth of 1.9% for the full year and the risk of recession has been pulled completely out of the outlook. Consumer spending remains stable, unemployment remains low, and businesses continue to spend. That can change quickly, but current outlooks show a stable, but marginally growing economy and with inventories balanced, the freight sector will follow macroeconomic trends (in the past 18 months, positive economic growth has not always created positive increases in freight movement because inventories were largely overstocked).
Transportation Briefing
Oil and Fuel Prices Increase Mid-March
A wave of attacks on Russian refinery and oil production infrastructure have created instability in the global oil market. At the time of writing, estimates suggested that up to 15% of Russian oil production and refining capacity had been hit by drones and was at least temporarily offline. US West Texas Intermediate prices had risen by nearly 5% since the first attack on the 12th and prices are now 13.5% higher year-to-date. With 45% of the price of a gallon of diesel and gasoline being tied to the price of crude oil, there are concerns that fuel prices are rising headed into the busy summer season.
Diesel prices have been slow to react, they are still essentially flat month-over-month at $4.04 a gallon ($4.06 last month). And they remain lower versus last year by 6.9%. Spring refinery maintenance is largely complete and conversions to summer blend fuels will allow refiners to continue to build inventories. But in the last two weeks, inventories of refined fuels and petroleum have fallen more than expected, which is also helping push speculative prices higher.
Business Inventories Remain Unchanged
Inventory management has played a large role in manufacturing activity, raw material and energy demand, and freight volumes. Coming out of the 2021/2022 global supply chain crisis, companies experienced a bloating of inventories headed into central bank tightening periods. Interest rates rose and the cost of carrying additional inventory became far more expensive. That started a global destocking trend that started in the fall of 2022.
But that trend is largely over after Q4 ’23 and Q1 data is revealed. Current business inventory-to-sales data shows inventories at the same levels as they were from 2015-2019. Some sub-sectors of the economy are sitting lighter, some heavier. Largely, manufacturers are sitting slightly heavier, Retailers and automotive are still underweight, and wholesalers are generally now ‘just about right’. This is important because those sectors that are balanced or underweight will be ordering more consistently and more akin to the period prior to the pandemic, those sitting heavier could lag and wait until further inventory destocking takes place.
