Canary in the Coal Mine?

Stories about trucker shortages remain common.
Truckers move almost about 73% of all freight in the U.S.
Anecdotal evidence suggests that demand for trucking services is rapidly waning.
Are trucking companies the canary in the U.S. economic coal mine?

Like most people that follow financial markets, we follow economic data with regularity. Most of the time, that can be a useful exercise to gauge how the economy is performing. But there are other times when that data can be downright misleading. Those times occur because of the delay in actually getting the data. For example, GDP growth is estimated each quarter. So, when the first quarter GDP estimate is released on April 28, it will be for a period that began 4 months earlier and ended 1 month earlier than the release of the estimate. That’s admittedly an extreme example, but with any data points, there are delays between the event and the release of the data. That’s a problem because it implies that the forecasters tend to miss inflection points when industry dynamics shift, but the data has not yet been produced.

In a week where higher interest rates and a weak stock market got most of the attention, our time might have been better spent listening to the trucking industry. Below is a look at the recent performance of some of the larger trucking company stocks as compared with the S&P 500. While the S&P is up 5%, the trucking stocks are down 15%-16% and that decline is essentially over the last week and a half.

A small industry group, like truckers, does not get beaten up without a reason. The trucking industry moves almost 75% of the freight in the U.S., if these companies have a problem, it isn’t a stretch to conclude that we all have a problem. We went in search of more detail about exactly what is going on and we came across freightways.com, a trucking company intelligence website and a story titled “Why I believe a freight recession is imminent” (For the full article, see the links below). In that article, they present comments from industry execs which we have re-produced below.

Large industry supplier (March 31):

“In an internal memo that I sent to the team last week about weakening demand and what that means for the industry, my closing line was ‘The Elmer Fudd steroid-induced demand juicer is over.’”

Top ten 3PL (third party logistics)/truck brokerage (March 31):

“Heard from an investment banker that they have fielded a lot of inbound questions from your article. It’s happening. I called it 3-4 weeks ago internally. Our linehaul purchasing rate is down almost 20% in 3 weeks. Rates are not down so much due to fuel offset.”

Other top ten 3PL/truck brokerage (March 31):

“I’ve been following your increasingly apocalyptic takes on the freight market on Twitter and agree. I don’t think most are ready for the pain that could be coming.”

Large enterprise fleet – 1000+ trucks (March 28):

“We were turning down 4 loads for every truck a year ago. Today, we are barely keeping our trucks running. In some markets, things are so bad that we have resorted to signing up for a load board account to keep them moving.”

Large enterprise fleet – 4000+ trucks (March 30):

“The only market this reminds me of is right after September 11th. Consumer spending completely dried up, but the industrial economy had just come out of a recession. But it was rough for a few quarters.”

Large LTL carrier with a sizable truckload brokerage (March 30):

“Rapid deterioration in truckload brokerage. April is going to be rough for the truckload carriers.” He went on to talk about LTL doing well, but that shipment sizes are down.

Good for Inflation, Bad for Growth

While we concede this is not hard data, the comments above are from industry insiders and the comments appear to be confirmed by falling stock prices. That makes us take notice. We have been talking about an impending recession for some time now and this may be the first sign of cracks to appear. There are always canaries in the coal mine, and we suspect we have found one.

Although production bottlenecks get most of the attention in the discussions of supply chain disruptions, the incredible pandemic surge in demand for durable and non-durable goods has also played an important role. A sharp decline in demand for trucking services clearly implies that the demand surge could be ending. And while that would be welcome news on the inflation front, it is a headwind for continued economic growth. It appears increasingly feasible that the Fed is stepping up its aggressiveness in addressing inflation just as some inflation pressure (that is, goods inflation) may be waning and the economy is slowing. Hang on, that is a recipe for a recession.