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FTR: Dry van volume ‘holding quite strong’

Strength in industrial and manufacturing supporting freight markets despite softness in economy

Continued strength in the industrial and manufacturing sector could support freight transportation markets in the second half of 2022 despite softness within the consumer economy, FTR Associates said during a webinar on key issues in transportation.

“A slowdown is different than a recession. If we are in a recession, right now, I’ll take it. This is an environment that feels radically different than any other recession that I could ever tell you about,” said FTR President and CEO Eric Starks, noting that it’s possible the U.S. economy might experience a “growth recession,” in which there are certain segments that are still growing.

There are a number of factors that support growth in the manufacturing sector, experts with the consultancy firm said. U.S. core capital goods appear to be on a continued growth trajectory, while there is still growth in the labor market. 

Meanwhile, the U.S. consumer is more exposed to high inventories and an imbalance between imports and exports. 

But while “the elephant in the room is inflation,” with high inflationary pressures felt particularly within the U.S. consumer economy as seen via the core Consumer Price Index, a lot of that pressure is global in nature, such as the impacts of Russia’s invasion of Ukraine. 

Furthermore, the industrial and freight markets have been already experiencing inflationary pressure for the past two years via high prices for raw materials, such as steel and lumber, and that pressure hasn’t seemed to fundamentally change the way of doing business, according to Starks. 

While carriers may bear initially higher fuel costs, they will pass those on to the shippers, he said.

Pent-up demand within the industrial sector can still benefit the trucking sector because even if people need fewer trucks, there is still a need to replace aging equipment, according to Avery Vise, FTR vice president of trucking. 

Vise suggested that while there is a cooling spot market for dry vans, that cooling market stems from a shift from the spot market to the contract market and not from a sharp drop in overall freight demand. 

There is still demand for truck drivers and there also seems to be ample driver availability, Vise said. 

(Chart: Truckstop.com, FTR)

“We see here that growth in dry van loads certainly has gone away largely, but in absolute terms, volume is holding quite steady and is continuing to grow very slightly,” Vise said, referring to the chart above. “Therefore, what this chart would imply is that while we have seen cooling in the spot market, we’ve seen it as the contract market has picked up that volume and the overall volume is holding more or less steady.”

Meanwhile, the freight rail sector’s focus through the end of 2022 is on improving service, and so “you’re not going to see a commensurate step down [in freight rail demand] unless you see manufacturing drop drastically,” said Todd Tranausky, FTR vice president of rail and intermodal.

Tranausky expects carload and intermodal volumes to improve in 2023 as service issues even out and the additional hiring by Class I railroads in 2022 translates into more crew availability in 2023. 

Fluidity at the ports has also improved in 2022, with a “tremendous” increase in transloading activity seen particularly out of California, he said. 

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.