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Freight data suggest demand for trucking services is leveling off

5/6/2022

Truckers are starting to see the effects of inflation.

Since the early summer of 2021, demand for trucking services has remained relatively steady, with tonnage levels either holding or rising every month from the previous one tracing back to July. But due to surging inflation and fuel prices now at all-time highs — both for unleaded regular gasoline as well as diesel — freight demand appears to be waning. And the downward trend is likely to persist, as tends to be the case in a high cost environment.

For the week ending April 15, the Outbounder Tender Volume Index fell nearly 1% from the previous seven-day period, FreightWaves reported. On a year-over-year basis, meanwhile, the OTVI has slipped by more than 17%.

This latest report comes after the American Trucking Associations' monthly For-Hire Truck Tonnage Index. In February, the most recent month in which data is available, the measure was unchanged. Under normal circumstances, no change in the index would not be especially noteworthy, but it marks the first time in seven straight months that the index hasn't risen.

In March, ATA Chief Economist Bob Costello attributed the lack of movement in the index to ongoing issues with the driver shortage — as well as an insufficient number of trucks, with carriers operating 7% fewer today than prior to the pandemic — as opposed to diminished demand. Corroborating his assertion is the Outbound Tender Reject Index. An assessment of relative capacity, the OTRI fell 125 basis points during the second week of April compared to the previous seven-day stretch, a drop of nearly 11%, according to FreightWaves.

Several measures indicate people are buying less
But other analyses suggest the dip in freight does indeed stem from a pullback in demand. In addition to the 17.6 year-over-year slip in the OTVI, tender volumes, for example, have also edged lower, down 1% from where they were in 2021. The Dow Jones Transportation Average lost almost 5% of its value at the start of April as well, FreightWaves reported.

Whether the drop in demand is a blip or representative of a trend may be determined by how retailers fared in April. In March, retail sales rose a seasonally adjusted 0.5% from February and by nearly 7% compared to 12 months ago, the Census Bureau reported. The vast majority of merchandise that retailers sell is delivered by commercial truck.

Jack Kleinhenz, chief economist for the National Retail Federation, noted that despite rising inflation and the price at the pump, business activity for retailers has remained robust. But that may change with the Federal Reserve raising key interest rates.

[Consumers] are largely dealing with the shock of gas prices but will be facing higher interest rates as the Federal Reserve tightens monetary policy in the coming months," Kleinhenz said in a press release. "The challenge for the Fed is to cool off demand without pushing the economy into a dramatic slowdown."

The Federal Reserve increased interest rates for the first time in four years in March, pushing the benchmark to between 0.25% and 0.5%. The Fed is likely to continue raising rates in subsequent meetings to rein in demand without triggering a recession.

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