The trucking industry is turning a corner after a prolonged freight recession that succeeded the Covid boom in transportation rate and services, according to logistics executives.
Data from Motive, which tracks trucking visits to North American distribution facilities for the top five retailers, shows volume up 30% year-over-year in June.
Hamish Woodrow, Head of Strategic Analytics founder and CEO of Motive, told CNBC it is seeing significant freight being moved into all retailers and department stores.
“When I look at the trends, what is pretty clear here is compared to last year, where retailers were destocking so they were artificially not bringing in inventory, we now see strong restocking trends,” said Woodrow. Specifically, he cited an increase of 13%-14% with the discount retailers compared to 7%-9% last year.
“The rate of bringing in inventory has changed because of the longer Red Sea transit,” Woodrow said, citing the ongoing threat of Houthi rebel attacks in the Red Sea leading shippers to take the 10- to 14-day longer transit around the southern tip of Africa.
Peak season, the time of year when suppliers bring in their back-to-school and holiday items, started a month early in June versus July due to the Red Sea diversions and the threat of a longshoreman strike at the East Coast and Gulf ports on October 1.
Retail orders rise
Data across the retail sector shows year-over-year order increases through June, including at department stores, electronics, and apparel retailers with bricks-and-mortar locations (32.9%), home improvement (24.4%), grocery & superstores (22.1%), and discount retailers & wholesalers (13%).
The latest retail sales report for June came in better than expected. Excluding autos, sales rose 0.4%, a larger gain than the 0.1% consensus forecast.
Woodrow also pointed to tighter capacity in the trucking sector after a cascade of failures during the recession. The trucking industry has been in one of the longest recessions in history, combating flat to slow demand. The bankruptcies of Yellow, Convoy, and the financial struggles of Flexport were among the U.S. companies hit hard by the freight recession.
“We now have fewer trucks on the road because of the bankruptcies and capacity exits,” Woodrow said. “We will exit the freight recession in Q3 and rates will go up in the back end of the third quarter,” he added. “I think the holiday season will be interesting in terms of freight prices because of the tighter truck capacity. We are at relative historic lows from a freight rate perspective, so I anticipate pricing pressure in early 2025.”
It has been a volatile period for trucking stocks, which had recovered in late 2023 and into early 2024 after a steep selloff, but could not hold gains, sinking back near 2022 lows by May of this year.
Trucking stocks remain volatile
Freight stocks including JB Hunt, CH Robinson, Schneider National, and Knight-Swift Transportation posted gains of double-digit percentages in the past month, but the sector has been volatile over the past few years and a weak earnings report from JB Hunt on Tuesday evening placed its shares and the sector under pressure again. The Dow Jones Transportation Average is up 8% over the past month.
JB Hunt CEO Shelley Simpson faced tough analyst questions on the earnings call after the latest in a streak of quarterly disappointments, but in her comments she wouldn’t commit to an inflection point for the market. “I’ve been conditioned over the last two years to be very cautious on the things that we say,” she told analysts.
Other logistics executives say the low is likely in.
“We have hit the bottom in freight rates,” said Paul Brashier, vice president of global supply chain at ITS Logistics. “We are not cratering and we may be lifting off the bottom a little bit.”
Brashier said the data on current number of loads that need to be shipped and the actual amount of trucks ready to pick these loads up (also known as truck-to-load ratio), and freight pricing, shows an environment “starting to resemble more of 2019.”
Noah Hoffman, vice president for retail logistics for CH Robinson, said for back-to-school items this year, it is seeing discount items as the common thread across the 7,500 retailers the company serves.
“The off-price chains are especially thriving in this economic environment,” Hoffman said. “With prices 20% to 60% off full retail, that’s attractive to families who need to stretch their back-to-school budget for things like clothes and sneakers. Those bargains are also attractive to shoppers who have discretionary money to spend but are looking for value.”
Discount shopping fuels store competition
Hoffman said with top-line growth as the focus of retailers, a lot of focus is being placed on grabbing wallet share through discounting.
“The most obvious way that has manifested itself for back-to-school is the big chains holding their sales early to get ahead of Amazon’s Prime Day,” Hoffman said. “Kids may not start school until August or September, but their parents were discount shopping in early July.”
Hoffman said the earlier back-to-school sales mean freight volumes are front-loaded for the season, and retailers must have their deliveries on time.
“If retailers don’t have enough product on their shelves or at their fulfillment centers, the consumer will most likely pivot to wherever else that deal is available right now,” he said. “Many parents are juggling their jobs with summer childcare, camps and such. If they’ve interrupted their busy summer for school shopping, they’re probably not going to wait and check back later. Another retailer will get the business.”
Another big trend influencing warehouse-to-store transport is the bundling of back-to-school essentials.
“Retailers are putting together things like a binder, folders, notebooks, crayons, pencils, glue and scissors and selling them as a sort of back-to-school kit,” Hoffman said. “First of all, it’s another tactic to gain wallet share. Second, even if it’s not cheaper than buying all the items separately, the perceived value on the part of busy parents is value in and of itself.”
The recent CNBC Supply Chain survey indicated this trend was to be expected in peak shipping season, with 80% of respondents saying freight orders for back-to-school and the holidays were in the middle priced category and signaled a consumer looking for deals. The pullback in luxury was anticipated in the freight data as well, with around 7% of the incoming freight orders were in the luxury categories. Luxury retailer Hugo Boss joined Burberry today in announcing lackluster demand.
Global transportation, manufacturing supply chain pick up
Green shots in transportation are also being picked up globally, with the GEP Global Supply Chain Volatility Index — a leading indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses — showing another month of busier supply chains.
In June, Asian manufacturing growth hit a 16-month high, led by suppliers in Vietnam and India.
Despite the green shoots related to inventory replenishment, the growth spurt could be curtailed by rising ocean freight rates, now near $10,000 a container.
Darcy MacClaren, chief revenue officer at SAP Digital Supply Chain, says current trucking freight rates are a barometer of the state of the industry, and the downstream effects of higher inflation, including increased driver wages, fuel prices and interest rates have potential to boost freight rates in 2024.
“You will not only see some small trucking companies impacted by this,” Brashier said. “But you will also also see some retailers starting to pass off these costs. That could impact consumer buying.”
Motive is predicting consumers will see increased prices by the end of Q1 or early Q2 of next year.
“How companies have approached their inventory strategy up to this point will at least partially dictate this,” Woodrow said. “Those that over-committed to a last-minute restocking will feel a greater shock and be forced to raise prices sooner. Retailers with more diversified and flexible inventory strategies will likely fare better.”
GEP’s global transport costs indicator for January 2023 to June 2024 shows global transportation costs rose to a 20-month high in June.
Logistics costs historically are passed onto the consumer and were identified by the Federal Reserve as a reason for the fueling of inflation during the Covid pandemic. Logistics managers have recently told CNBC that container rates reminiscent of Covid are not of the question.
