Worst Freight Volumes Since 2009...(:-o...

“This is the official policy of the U.S. State Department, according to the U.S. Citizenship and Immigration Services”

 

"The Dunning-Kruger effect is a cognitive bias where individuals with low ability in a specific area overestimate their skills and knowledge. This occurs because they lack the self-awareness to recognize their incompetence, leading to inflated self-assessments.

Never argue with fools.
- Turkey Creek

 

Wonder where there other intellectual masturbators are? They usually arrive in lock-step.

 

Yes. AKA capacity. Freight capacity and freight volume are two separate concepts.

 

Lol! Good one

 

You're thinking that this is happening in a vacuum.

If the market is in equilibrium, and assuming stable demand, a reduction in supply increases prices. That increase in price will either entice more supply to enter the market or cause demand to decrease. Econ 101.

But the market isn't in equilibrium, it's falling. Despite rates falling since the end of 2022, new entrants kept overall capacity from falling, which kept rates low despite a relatively stable freight volume between 2022 and 2024. Cutting capacity in a falling market may stop the fall, but it's not going to make things go up until the factors that initially caused the market slide change.

Take the LTL side. In 2023, amidst a falling freight market Yellow exited the industry. In the near term, total daily shipments stayed largely unaffected, and price per shipment saw a small increase. Other carriers did have a small hiring spree, but not anywhere close to roughly 30,000 Yellow employees that lost their jobs. However, the LTL freight market continued to slide in 2024, as lower volumes created lower prices.

So why did a drop in capacity not result in long term rate increases? In part because of existing slack in the market, in part because of larger macro trends, and in part due to the economic impact of 30,000 people losing their jobs - because it's not just 30,000 people impacted. Those 30,000 will all have immediate changes in their spending, even if they're only out of work for a few weeks before finding a comparable job there will be a long term hesitancy in spending. And most of them didn't find comparable jobs, which results in lower spending. Then there are the second and third order impacts. How many of YRC vendors/suppliers ended up cutting staff or otherwise tightened their belts? How many random people saw the news and decided to put off a big expense?

My original post that you replied to was about losing 600K drivers, the maximum that has been posited, but even if we limit the immigration enforcement impact to 50K drivers, it will also have a larger impact. Say 25k get deported and 25k stay in the shadows taking jobs for cash - you don't think that's going to impact the economy? And what about the economic impact of non-cdl immigrants? Every time this country has cracked down on illegal immigration it has resulted in an economic slowdown, it's one reason why immigration crackdowns tend not to last very long.

 

Yes, it will improve rates if freight volume remains the same, but if freight volume drops?

Take a closed economy with 1,000 workers with a GDP per capita of $85,000 and a 5% slack rate (unemployment plus unused capacity). Say one industry has 10 workers making $100,000 a year and it lays off 1 worker while increasing pay to $105,000 for the remaining 9. Is total GDP going to go up or down? What about GDP per capita?

An argument can be made that total GDP will go up, but GDP per capita will drop which is an indicator for recession. And that's only looking at one industry in an otherwise stable economy.

My point was that removing the 50K to 600K drivers isn't happening in a vacuum, there are second and third order impacts that will negatively impact demand, which will drop volume, which will drop rates. Even if volume remains the same, given the larger economic situation capacity will quickly rise if only 50K are removed.

 

If volumes do drop. Rates will still have upward pressure due to falling capacity. So in theory they won’t fall as far or as fast. However most people aren’t predicting falling volumes. They are predicting stagnant growth with falling capacity.

No matter how you choose to cut it. Reduced capacity is good for trucking companies

 

So as I said earlier in the thread, "If volume continues to drop, the tighter capacity isn't going to matter -it's brief rallies on the way to ragnorok".

In context of the discussion, my response was to Chris saying that "There is X Billions of tons moved every year. So you had a lighter load? BFD. Does that mean the total tonnage is down because of your light load? No, it doesn't. It means others pick up the difference". Averages are useful things, in context. Metrics are great, again assuming you use them in context. Using tons of freight moved isn't a great metric in terms of determine industry wide freight volume or rates. If you order enough trucks to cover 1 million tons of freight leaving Green Bay, using 40K per truck you'd be about 30% short - conservatively. If he'd used 30k as the average weight, I wouldn't have quibbled.

But the larger question is "what does removing X% of capacity do to rates?". The answer is "it depends on demand". If demand remains stable, rates should go up. In face of even slightly weakened demand, rates will crater because of consumer confidence. Markets aren't rational - if your neighbor loses his job is your spending going to increase, decrease, or remain stable? Your income hasn't changed, but uncertainty has increased which has a negative impact on the economy.

 

But regardless of what volume does. Weakend capacity is an upward push. If volume does crater. The speed and depth at which rates crater is dependent upon capacity. There is no denying that.

And no my spending isn’t determined by what is going on with my neighbors. Like I said though. Most analysts that I have heard from are expecting stagnant growth with a decrease in capacity. Which has an upward effect on rates. They are predicting this will cause a broker exodus. Because brokers have quoted on rates dependent on xx capacity. When that capacity drops out they have bid the freight too cheap and won’t be able to cover it. Thus being forced to close up shop.

I obviously don’t have a crystal ball.