The ACT For-Hire Trucking Index is a monthly survey of for-hire trucking service providers. ACT Research converts responses into diffusion indexes, where the neutral or flat activity level is 50.
The Volume Index decreased 1.2 points in December to 48.3, seasonally adjusted (SA), from 49.5 in November. Volumes remain underwhelming, but have improved from the low of 36.1 in April of 2023 and are no longer declining much. Following the post-pandemic service boom, consumers are reverting back to more goods consumption. Inflation continues to retreat, and crucially for freight, goods inflation fell from a peak of 10.5% y/y in June 2022 to -0.3% y/y in November. Additionally, imports continue to improve, with the ports of LA and Long Beach loaded imports up 21% y/y in Q4 and destocking in the rearview mirror. With improving goods consumption trends, lower inflation, the end of destocking, and a resilient industrial sector, we expect the gradually improving trend to continue.
The Pricing Index fell 5.1 points in December to 42.1 (SA), but the decline appears to be more of a blip than a change in trend. Spot rates have improved in January as ocean disruptions push cargo to the US West Coast, and cold weather has taken cargo off the railroads and into the spot market. Importantly for pricing, driver availability fell this month, and further declines will help turn the cycle in a meaningful way. The pricing pendulum remains with shippers for now, but capacity is rebalancing. Though fleet capacity growth is delaying the recovery in rates, the supply/demand balance suggests the worst is in the rearview, and the recovery will continue.
The Capacity Index decreased by 3.3 points m/m to 44.2 in December. For-hire capacity has contracted in seven of the past eight months, and decreased further as fleet purchase intentions cratered and driver availability fell further this month.
Capacity is still being added industry wide by private fleets, but declining US Class 8 tractor sales indicate this phenomenon is starting to slow. Unlike private fleets, for-hire capacity has been contracting, so as private fleet additions decline, tighter industry capacity should press rates up.
Equipment manufacturers built at essentially full capacity in 2023, but many signs suggest lower demand in 2024, which will broaden the capacity contraction.
The Driver Availability Index dropped noticeably, down 4.1 points m/m to 50.9 in December. After a year of record availability, culminating in the all-time high reading of 62.0 in September, the Driver Availability Index has since reversed course, falling 11 points over the past three months. Low rates and profitability seem to have finally caught up with the driver market, and while bad news for the drivers, it’s key to tightening the freight market. A major weakness of the DOT operating authorities data is its inability to capture the safe haven effect of fleets, but this index closes that loop. Longer-term challenges to driver availability will persist, such as the retiring baby boomer demographic, resulting weak US labor force growth, and the FMCSA Drug & Alcohol Clearinghouse. Employers will want to be ready when labor demographics bite again, as the next driver shortage could start in a few months.
Fleet purchase intentions fell to an all-time low in December, with only 24.4% of respondents saying they plan to buy equipment in the next three months. The pandemic pushed equipment purchases from 2021 into 2022, but the pent-up demand from those shortages is now more than met. “When truckers make money, they buy trucks” is a maxim of the trucking industry, and with equipment needs largely satisfied and profitability weak, many carriers are probably happy holding off on new purchases.
The Supply-Demand Balance increased in December to 54.2 (SA), from 52.0 in November, as the decrease in capacity was larger than the decline in volumes. The main cause for the Supply-Demand Balance improvement in the past five months has been capacity declines, but lesser volume declines have also contributed. This five-month positive string suggests a tighter market in 2024 after 17 months in a loose market balance, similar to the 2015-2016 downcycle, when the Supply-Demand Balance was loose for 16 of 19 months.
After a historically sharp downturn, cyclical dynamics are beginning to improve, albeit from low levels. With improving goods demand and inventory fundamentals (loaded imports +21% at LA and Long Beach ports in Q4), we expect gradual improvement to begin to push freight rates higher in a few months.
Fleet productivity shot up 11.2 points m/m, to 60.0 in December (SA), on the drop in capacity and lower driver availability. Productivity will likely remain elevated if equipment purchases slow and capacity and drivers continue to trend down.
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