A fourth-quarter economic outlook from Chattanooga, Tennessee-based truckload carrier U.S. Xpress calls for a continuation in elevated freight demand moving forward with some signs of caution.
“For the foreseeable future, freight will continue to run at a torrid pace,” the Monday report read.
The outlook noted concerns throughout the overall economy, most notably the direction of consumer spending, and said that when the current freight cycle ends, it will likely be due to declining demand versus capacity additions.
Stimulus and unemployment benefits kept consumer spending high through the summer. However, the report said it’s tough to differentiate which headwinds – mid-single-digit inflation, supply chain bottlenecks or declines in disposable income – will drive future spending the most.
“In a nominal sense, consumer demand has remained high relative to our supply chain’s capacity to keep up, particularly in the face of productivity challenges and labor shortages. But if inflation begins to take root and interest rates rise, without wage growth, consumer purchasing power will be diminished in real terms.”
However, U.S. Xpress (NYSE: USX) pointed to the need to continue to add to depleted inventories as a catalyst. “Inventories are still low relative to sales and will likely remain depleted through Q2 of 2022.”
But the company said any future slowdown will likely be tied to consumers pulling back versus a meaningful increase in truck supply.
“It seems that if relief for inflationary rates comes relatively soon, it’ll appear in the form of declining freight volumes rather than bolstered truckload capacity.”
The report pointed to truck production headwinds and a lack of drivers as the reasons. Semiconductor and parts shortages continue to constrict build schedules and the American Trucking Associations’ recent estimate pins the driver shortfall at 80,000 and moving higher.
U.S. Xpress noted that roughly 100,000 drivers will be sidelined by the Drug and Alcohol Clearinghouse by year-end and that implementation of infrastructure spending “will definitely be a factor in driver recruitment and retention trends.”
The cessation of enhanced unemployment benefits and multiple rounds of driver pay increases haven’t “moved the needle in an appreciable way,” the report found. “Indeed, carriers across the country have tapped into every incentive imaginable to coax drivers back out on the road, to little avail.”
U.S. Xpress said per-mile pay increases are being watered down by supply chain congestion and delays unloading equipment at shipper facilities, which result in fewer revenue miles driven.
“One of the most challenging realities of supply chain bottlenecks and labor shortages are the elevated wait times and other inefficiencies that diminish gains that would otherwise be realized by heightened driver pay scales.”
The report said that even recent unfavorable data points – third-quarter GDP, inflation and wage declines – still point to a freight market well ahead of previous cycles.
“The latest spate of economic data does suggest some softening in the economy, and thus corresponding freight volumes and rates as well. But a ‘softened’ Q4 in 2021 will still look exceptional compared to even the strongest freight markets of yesteryear.”
Disclosure: FreightWaves founder and CEO Craig Fuller retains ownership of U.S. Xpress shares through his family trust.