The U.S. trucking industry has suffered a dramatic downturn in recent months and financial analysts are worried the bad news is a presage of widespread economic trouble.
What are the details?
According to data compiled by Reuters, the demand for trucking every kind of product from food to furniture has been in a free fall since March. And one segment of the industry that deals with on-demand trucking, known as the “spot market,” has been hit especially hard.
“It basically just dropped off a cliff,” said Craig Fuller, the CEO of transportation data company FreightWaves, in conversation with the news agency.
The demand-sensitive spot market is now in correction territory, Reuters reported. Average first-quarter spot rates, excluding fuel, plummeted 55 cents per mile from $2.78 in mid-January to $2.23 on April 14. A slight downtick is reportedly common for that time of year, but the industry normally only sees a 22 cent per mile decrease.
The rate deterioration took hold when diesel prices nearly doubled amid backlash over Russia’s invasion of Ukraine and has been pummeling trucker wages ever since.
Reuters cited one California-based trucker, 63-year-old Marco Padilla, to demonstrate just how bad things have gotten. Padilla told the outlet he used to spend about 25-30 cents per mile to run his truck. But he’s nowhere near that range anymore.
“For every dollar (of pay), I was pocketing 70 cents,” he said. “Now it costs $1 a mile.”
What does it mean?
Those familiar with the trucking industry know spot market trouble is rarely an isolated incident.
One expert, Joseph Rajkovacz, who serves as director of governmental affairs for the Western States Trucking Association, described it as the “proverbial ‘canary in the mineshaft,'” meaning it is an early indicator of coming danger.
Analysts fear the downward trend could soon “decimate truckers’ ability to dictate prices and push some small trucking firms into bankruptcy,” the outlet stated. But not only that, it could foreshadow a wider recession across all sectors of the U.S. economy.
Trucking data company Convoy found that economic recessions followed six of the 12 trucking recessions since 1972. The reason is simple: When consumers buy less, companies ship less, causing trucking activity to slow.
Stated another way, decreased trucking activity typically means only one thing: Consumer retail activity is down. And since consumer spending accounts for about 70% of economic activity, any decline can be catastrophic for the overall economy.
That seems to be exactly what the economy is experiencing at the moment. American consumers, hurt by historically high inflation and global supply chain crises, have cut back on spending.
Trucking activity, however, is not the first recession indicator to come up this year. Last month, news that the U.S. Treasury note yield curve had inverted first caused many economists to worry.
An inverted yield curve has correctly predicted nearly every recession the U.S. has experienced in the last 60 years.