The Dow Jones Transportation Average fell out of bed Friday, dropping nearly 5% in one of the index’s worst single-day performances in recent history.
The 20-stock index fell $771.72 to close the session at $15,511.30.
J.B. Hunt Transportation Services Inc. (NASDAQ: JBHT) fell more than 9.6%, Landstar System Inc. (NASDAQ: LSTR) declined 7.3%, Norfolk Southern Corp. (NYSE: NSC) dropped 6.79%, and Old Dominion Freight Line Inc. (NASDAQ: ODFL) fell 6.76%. At its low point of the session, about 15 minutes before the 4 p.m. ET close, the index was down by more than $800 from Thursday’s closing price.
Virtually all of the damage came from the freight side of the index. The six airlines making up the index came through relatively unscathed, with Southwest Airlines Co. (NYSE: LUV) actually posting a gain in the session.
The decline came as the Department of Labor reported Friday that the number of truck transportation jobs fell in March after 21 consecutive monthly gains. The seasonally adjusted figures came in at 1,550,800 jobs, a decline of 4,900 jobs and the first month-to-month drop since April 2020, when the U.S. economy was collapsing as the COVID-19 pandemic took hold. There was no company-specific news that could be seen as triggering such an extreme drop.
Equity markets in general shrugged off the decline in the index. The Dow Jones Industrial Average, the Standard & Poor’s 500 Index and the NASDAQ posted gains in volatile intraday trading.
The transport index had rebounded in recent weeks, mirroring a recovery in the overall equity market through most of March after pronounced weakness in January and February. The index hit $16,579 on Jan. 4 before falling for the balance of the month and well into February. The index troughed at $14,523 on Feb. 23, the day before Russia launched its invasion of Ukraine. It reversed course from there, peaking at $16,573 on March 29 before posting three consecutive days of declines.
The index is well below its 52-week closing high of $17,039.38, set last Nov. 2.
The index was created in July 1884 by Charles Dow, and initially consisted of nine railroads and two non-rail companies. The index’s composition at its inception reflected railroads’ dominance in interstate commerce and the industry’s profound importance to the country’s growth.
The index has long been viewed as a leading indicator of the broad market’s direction, mainly because economic demand shows up first in shipping order books. Over the decades, freight recessions have presaged broad economic recessions.
The freight industry, and especially the trucking sector that dominates it, is notoriously cyclical. In an op-ed on Thursday, FreightWaves Founder and CEO Craig Fuller predicted an imminent freight recession. Fuller cited data from FreightWaves’ SONAR platform showing a steep decline in the rate of tender rejections for contract truckload services. The drop of nearly 500 basis points in one month reflects a sharp drop in shipping activity, less demand for carriers’ services and the effective end of carriers calling the shots as to which loads they will accept or reject, Fuller wrote.
The tender rejection rate fell 1.3% during the last week of March alone, historically one of the best periods of the year for carriers, according to SONAR data.
In an op-ed the week before, Fuller predicted a “bloodbath” in the truckload market with demand destruction wiping out many operators that had either entered the market or over-expanded during the last two to three boom years.
Anthony Smith, FreightWaves’ chief economist, said that goods demand will continue to be impacted as consumers shift more of their spending to services such as travel. In addition, there is still a lot of upstream inventory in the hands of manufacturers, wholesalers and distributors, Smith said. Cargo owners that opted to fill up warehouses to keep buffer stock on hand are saddled with more inventory than they need and aren’t eager to ramp up their orders, he added.
Carriers and third-party logistics providers also shoulder some of the blame for growing in a “sloppy manner” over the past couple of years, Smith said. Highly elevated rates during that period “covered up a lot of mistakes that will hit much harder in the next few months,” he said.