The US trucking industry has suffered a dramatic downturn in recent months, and financial analysts are concerned the bad news is a harbinger of widespread economic troubles.
what are the details
According to Reuters, demand for trucking of everything from groceries to furniture has been in free fall since March. And a segment of the industry dedicated to on-demand trucks, known as the “spot market,” has been hit particularly hard.
“It basically just fell off a cliff,” Craig Fuller, CEO of transportation data company FreightWaves, told the news outlet.
The demand-sensitive spot market is now in correction territory, Reuters reported. Average spot rates for the first quarter excluding fuel fell 55 cents per mile from $2.78 in mid-January to $2.23 on April 14th. A slight downtrend is reportedly common for this time of year, but the industry typically sees only a 22 cent per mile decline.
The rate deterioration began as diesel prices nearly doubled amid the backlash against Russia’s invasion of Ukraine and have since pushed up truck drivers’ wages.
Reuters quoted a California-based trucker, 63-year-old Marco Padilla, as demonstrating how bad things have gotten. Padilla told the outlet that he used to spend about 25 to 30 cents a mile running his truck. But he’s nowhere near that range anymore.
“For every dollar[wage]I put in 70 cents,” he said. “Now it’s $1 a mile.”
What does that mean?
Those familiar with the trucking industry know that difficulties in the spot market are rarely isolated.
One expert, Joseph Rajkovacz, who serves as director of government affairs for the Western States Trucking Association, described it as the “literal ‘canary in the mineshaft,'” meaning it’s an early indicator of imminent danger.
Analysts fear the downtrend could soon “decimate truckers’ ability to dictate prices and bankrupt some small trucking companies,” the outlet said. Not only that, it could herald a broader recession across all sectors of the US economy.
The trucking data company Convoy found that economic recessions have followed six of the 12 trucking recessions since 1972. The reason is simple: when consumers buy less, companies ship less, slowing down trucking activity.
In other words, reduced truck activity usually means only one thing: consumer retail activity is down. And with consumer spending accounting for about 70% of economic activity, any decline can be catastrophic for the broader economy.
This is exactly what the economy seems to be experiencing at the moment. American consumers, hit by historically high inflation and global supply chain crises, have cut back on spending.
What else?
However, truck activity is not the first recession indicator to emerge this year. Last month, news that the US Treasury yield curve had turned first caused concern for many economists.
An inverted yield curve has correctly predicted nearly every recession the US has experienced over the past 60 years.