U.S. truck and intermodal rates are soaring. Data indicates that US truck and intermodal rail volumes, as well as freight rates, are at an all-time high for the year, something that is sure to continue well into 2019. However, the peak levels this year are soon to change as a result of trade tensions and economic factors. There are many questions about what led to certain rate fluctuations and what might lead to more changes in the usual ebb and flow next year, but all we can do now is wait and see what lies ahead.
Two significant developments have produced an unusually sharp increase in prices for domestic and international freight movement for the year 2018. An analyst at a distribution conference stated that capacity shortages (not trade growth), more than anything, had forced prices up. The recent tariffs from the Trump Administration (began in summer 2018) on all imports from major US trading partners has created a fear of a potential increase starting January 1st, 2019 on inbound freight. This possible increase would include a 25% tariff on all imports from China. As a result, these two factors have caused market participants to front-load shipments in 2018 which has distorted the normal flow of trade. Eventually, supply-side pressures, and in particular driver shortages, are going to return the trade rates to single-digit increases by the time 2019 arrives.
Where Figures Slowed and Where They Rose
Analysts state that even though intermodal volumes for the summer were substantial, recent numbers are already indicative of a slowdown. This summer we saw 7% growth, but in September the rate of growth dropped to 2.2%. This increase in volume is indicative of the fact that trailers have picked up on this demand where domestic containers were simply unable to keep up. For that reason, intermodal rail volume has reached 50.6% of global capacity and 49.4% for domestic volume.
Front-Loading: The Result of Trade Policy Uncertainty
There is little doubt today that trade policy uncertainties between China and the United States, as well as the NAFTA partners of the European Union, Canada, and Mexico, have all contributed to the front-loading of shipments that took place this past summer. But more importantly, the tariffs on consumer merchandise and manufacturing inputs are continuing to force higher prices which will no doubt impact spending for 2019, if these tariffs continue.
Already, front-loading of imports has had a noticeable impact this year on the timing of import volumes. When looking back over the last ten years, August was the one month where Imports peeked. But, this year (2018) July was the month where imports peaked. Other factors such as tax cuts and low unemployment rates have led to consumer spending increases which continue to fuel the early shipment of merchandise particularly for people who wanted to purchase things for the holiday and back-to-school seasons. One has to consider that at the same time E-commerce reached higher levels than normal because inventories were able to turn much faster. As a result, imports were higher over the last few months than they had been during the same months for previous years. If this front-loading or demand continues due to the scheduled tariff said to take place against China on January 1st, this impact will no doubt rob cargo from that first quarter of the upcoming year.
Right now the industry consensus is that domestic and international freight volumes will peak this year as they already have but that growth will moderate itself noticeably over the next year. Concurrently, the strength of the U.S. economy is said to continue throughout the coming year and it will continue to produce an increase in overall freight volumes by the close of 2019.
Truck Volumes and Tonnage
While it is important to note that overall volumes increased during the summer, and increased at a slightly reduced rate during September, truck demand also historically slows down during September. Truck demand fell 0.8% between August and September. While the level of truck rates slowed down toward the end of the third quarter, the amount of cargo for that same length of time increased and was up 0.1% from the second quarter because of the strong rates of freight in July. At the same time, it was up 5.2% higher than the third quarter of last year comparatively.
What Lies Ahead
Overall, there seems to be a great deal of conjecture about what 2019 will bring and whether the inference in and of itself is going to somehow influence the changing volumes of trade for international and domestic purchases. There are just far too many variables to pin down one specific source for now but we know that many of those sources relate to the current politics and trade disputes taking place around the world. There is no doubt that we will all have to wait and see what comes next.