Truck tonnage down again in March as capacity constraints take hold

Truck tonnage declined for the second consecutive month in March, in a sign that the industry continues to cool after rapid growth at the end of 2017.

 Tonnage fell for the 2nd straight month
Tonnage fell for the 2nd straight month

The American Trucking Associations (ATA) reported that truck tonnage declined 1.1% in March from February’s levels, following an upwardly-revised 0.8% decline in the previous month. This marks the first back-to-back decline in truck tonnage since the end of 2016 as trucking freight continues to lose momentum. Activity remains generally strong in the freight space despite the declines,however, as tonnage remains 6.3% higher than at this point last year.

Truck tonnage is often seen as a broader signal of the general health in the economy. Trucks carry approximately 70% of all domestic freight in the US economy, moving manufacturing, wholesale, and retail goods to their next destination. Historically, truck tonnage has had fairly close ties to industrial production in the economy, and tonnage improved as production rebounded in 2017.

However, the declines in February and March this year have occurred despite improvement in much of the economy, particularly in data from March. Hard output data such as industrial production, retail sales, and goods imports performed well in February and March, which would suggest that there should be more freight flowing through the economy, not less.

Survey data suggests that capacity is keeping tonnage down

It may be that this disconnect between tonnage and economic performance is temporary and freight volume will return in upcoming months if economic activity gains momentum in the 2nd quarter. However, there is mounting survey and anecdotal evidence that suggests that the driver shortage and capacity constraints are playing a role in the disappointing tonnage numbers.

 ISM data suggests rising backlogs, increased supply delays
ISM data suggests rising backlogs, increased supply delays

Data from the Institute of Supply Management’s (ISM) manufacturing index suggests that manufacturing activity continued at a rapid pace. The Backlog of Orders subcomponent of the manufacturing index has hit a post-recession high of 59.8 in each of the past two months, signaling that manufacturers are having trouble keeping up with the rapid pace of demand in the economy. In addition, the Suppliers Deliveries subcomponent remains near multi-year highs, in a sign that manufacturers are having difficulty receiving the supplies needed for production in time.

Responses from the ISM index point the finger at capacity constraints and the truck driver shortage. Regional survey responses from the Federal Reserve and the recent Fed Beige Book also highlight the driver shortage as one of the key issues facing businesses in several sectors in the economy. Right now the economy seems to have more than enough demand for goods transportation, and tonnage is unable to grow to meet it because of the current capacity crunch.

As a result, there is growing evidence that some of this freight is moving through other modes. Last month, we highlighted the growth in intermodal carloads which have surged in recent weeks. Recent surges in trucking prices and tight capacity have made intermodal a more attractive option for many freight movements, and shippers are responding accordingly. With ports and intermodal providers taking steps to expand their reach and capabilities, it may be that much of the growth in freight volumes will be captured by other modes as the trucking industry continues to grapple with attracting new drivers and increasing capacity.

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.

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Ibrahiim Bayaan, Chief Economist & Market Expert

Ibrahiim covers developments and trends in the global economy. His focus is on understanding the links between movements in the macroeconomy and the implications for freight markets. Ibrahiim is also a one of FreightWaves’ Market Experts. Prior to FreightWaves, Ibrahiim spent nearly a decade building up the forecasting capabilities and creating the economic messaging at UPS. Ibrahiim and his family live in Atlanta, Georgia.