Trucking rates fall, led by declines in long-distance truckload rates

Data on producer prices shows that overall inflation pressure eased further in February, as a gain in goods prices was restrained by the service sector. Industry detail showed that overall trucking rates declined in February, led by the largest decline in long-distance truckload rates in four years.

The Bureau of Labor Statistics reported that the producer price index (PPI) rose 0.1 percent in February from January’s levels. This fell short of consensus estimates of a 0.2 percent gain and follows a 0.1 percent decline in the previous month. Growth during the month was driven by gains in goods prices, which rose 0.4 percent. Prices received by service companies were flat during the month, leading to the overall soft readings for wholesale inflation. The so-called “core” PPI, which excludes energy, food and trade services, also rose 0.1 percent as year-over-year growth fell to 2.3 percent..

Market watchers and policymakers typically use the PPI to gain some insight into what the underlying pressures of inflation are in the economy. The PPI measures the prices that businesses receive for the goods and services that they provide, and is often seen as a bellwether of upcoming increases in consumer prices. Trends in producer price inflation have softened significantly over the past several months, relieving much of the underlying inflation pressure in the economy.

Trucking rates decline, led by a decline in long-distance trucking

Industry detail in this morning’s release showed some softening in the trucking industry. Producer prices for General Freight Trucking fell 0.3 percent in February from January’s levels, following a 0.7 percent gain in the previous month. As a result,  year-over-year rate inflation in the industry fell to a ten-month low of 7.0 percent, down from the 7.9 percent reading in January.

Details in the trucking industry show that the decline was almost entirely driven by long-distance truckload services, which fell by 1.0 percent in February. This marks the second consecutive decline in rates for long-distance truckload services and is the largest monthly drop since February 2015. Year-over-year growth for long-distance trucking slipped to 6.4 percent, down from 8.3% in January. Local rates rose by a solid 1.2 percent during the month, while long-distance less-than-truckload (LTL) managed to eke out a modest 0.2 percent gain.

Behind the Numbers

February’s headline results continue a generally softening trend for inflation that has emerged over the last several months. Core PPI inflation hit a multi-year high back in September 2018 but has fallen by almost a full percentage point since then. There were already questions about whether the Fed should be raising rates at all when the inflation data was much stronger in the middle of last year, and further increases are likely off of the table for the near future given the soft PPI and CPI data. After February’s big miss in the jobs data, it seems just as likely now that the Fed will reverse course and drop interest rates as it is that they increase further in the next couple of quarters.

On the trucking side, the long-distance trucking readings aren’t terribly surprising, though the magnitude of the decline was eye-catching. FreightWaves has been predicting a moderation in rate inflation in the for-hire trucking industry for the past few months, and February’s data suggests that this moderation is well underway. Carriers spent the better part of 2018 scrambling to add capacity in the industry, after the trucking shortage was exposed by the strength in the goods side of the economy. This increased capacity has been met with slowing demand growth in the economy, particularly during this first quarter in 2019, which has put downward pressure on rates in the trucking industry. Recent data on new orders suggest that the economy may soon find its footing, but we expect that year-over-year growth will continue to moderate through 2019.

Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.