Freight Market Intelligence Monthly Market Outlook: Sept 2023

6-Month Market Outlook 

Sept 2023 Edition

In August, national trucking rates continued to marginally decline, with the correction gathering significant momentum in Arizona and Florida. However, at a more granular level, we observed increasing regional variances, with Northeast and especially Midwest rates continuing to rally as rejections are picking up speed. 

Outbound Rates Heatmap (30-Day Change)
OB Heatmap 30-Day Change Sept 2023

Source: Transfix Internal Data
Note:  As of September 15th, 2023

The trucking industry not only continues to face significant downwinds, but last month’s green shoots (capacity reduction and improved sentiment within our industry and financial markets) are withering.

On the one hand, Bank of America’s bi-weekly Truckload Demand indicator continues to improve: it has bounced to 52.4 from 51 in the last survey, above 50 for the third consecutive time, after printing under 50 for 13 straight issues! However, it remains significantly under the long-term average (60) and levels reached during previous freight recessions (54.2).  Negative outlooks have converted to Neutral, now at 59%, up from 50% in the last survey. July’s green shot, the increase in positive views, has therefore converted into a more modest ‘return to Neutral.’

This return to neutral and ‘normal seasonality’ was also reflected by Morgan Stanley’s Truckload Freight Index (TLFI): the demand component continued to underperform, and the supply component switched to underperform after performing in line with seasonality last month.

Susquehanna’s trucking market analysis sums up the change in mood by suggesting that the first half of 2024 will likely look more like the end of 2023 than the current market expectations. While trucking demand may be returning to traditional seasonal trends, with low Spot volume, Spot rates below operating costs, Contract rates under pressure, and the likely absence of any demand catalyst until the end of Q1 2024, we expect that rates will continue to be under pressure for the next few quarters.

Reflecting this shift in market perceptions, after July’s outperformance, transportation stocks underperformed the S&P 500 in August: while the index was down 1.8%, Transportation was down 5.8%. Moreover, excluding LTL, the underperformance was far worse: -8.1% on the month.  Wolfe’s Freight Transport Index fell 4.1% last week (September 11th-15th) alone, with every single transport stock finishing in the red.

Additionally, one green shoot we noted in August, the reduction of the trucking driver pool by close to 2,800 in June, allowing for a gradual capacity normalization, has been invalidated, as July saw the addition of 3,200 truckers. According to Goldman Sachs, this puts trucking employment 4.2% above pre-pandemic highs. As we believe that a reduction in capacity is the best predictor for Spot rate normalization, the July numbers will likely delay any sustained rate bounce beyond seasonal trends until well into 2024.

Accounting for these conflicting trends, our 6-month forecast below has remained stable. Based on our internal model, Transfix's base scenario for March 2023 suggests that trucking rates will marginally increase by approximately 5% from the end of August through March 2024 for an All-in rate of $2.31 per mile. The projected range within our confidence interval is $2.19 to $2.42 per mile ($1.65 to $1.89 per mile for linehaul rates, plus $0.54 per mile for fuel charges).

Historical RPM & Rate Forecast Sept 2023

At the same time, the dispersion between regions continues to increase. Below, we highlight the difference in our prediction between the Midwest and the South over the next six months.

RPM: Midwest vs South Sept 2023

The macroeconomic environment is equally uncertain: we continue to see positive trends but also reasons to worry about their sustainability. 

Firstly, US non-farm Payrolls for August rose 187k against the expected 170k, showing that the labor market remains resilient. Yet, unemployment rose unexpectedly to 3.8%. 

Secondly, consumers continue to be resilient, but the outlook has shown signs of deteriorating:  delinquency rates on credit cards and auto loans are spiking as debt payments as a percentage of household incomes have doubled since 2021 before student loans will become due again!

US CPI, likely the most important and watched macroeconomic indicator these days, also conveyed a mixed message. Core prices were up 0.3% compared to 0.2% last month. This leaves the annual increase at 4.3%, certainly improving but still stubbornly above the Fed’s 2% target. Looking forward, as fuel prices have reached cycle highs following crude oil coordinated production cuts by Russia and Saudi Arabia, new inflationary pressures are to be expected. 

All in all, while economists at major banks revised recession odds lower in September, with the American Bankers Association’s Economic Advisory Committee pricing the odds of recession next year under 50%, the new data might dent this recent optimism. 

Probability of Recession vs RPM Sept 2023

In summary, the trucking industry trends are marginally deteriorating while the economy at large remains resilient but under increasing structural pressure, with both interest rates and inflation painfully high. July’s green shoots look uncertain, but given the significant trucking rate drop over the last 18 months and the low margins the industry is operating on, the current rates are unlikely to see any substantial decrease in the next two quarters. A significant rate bounce is equally unlikely, barring a sudden acceleration of the trucking industry supply consolidation. As such, we believe trucking rates will remain in Neutral territory, converging to a ‘weak’ seasonality pattern similar to 2019 with higher rate volatility and regional rate dislocations.

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