According to a new report, the national truck freight market, including truckload and less-than-truckload sectors, softened in the third quarter as more households continued to shift their spending to services from goods amid high inflation levels.
The third-quarter U.S. Bank Freight Payment Index report shows the spending shift to services from goods has reduced truck freight volumes. Also, inflation has consumers spending more for staple items, such as food, and as a result, they have less money for other products. Other factors that affected freight demand were lower volumes of imported and exported goods and home construction.
“With inflation elevated, consumers are spending more on household staples at the expense of other products that are moved by freight truck,” said Bob Costello, senior vice president and chief economist for trade group American Trucking Associations. “This transition, as well as weaker home construction activity, is impacting truck freight volumes. High levels of oil production in the Southwest, as well as strong truck freight volumes with Mexico, helped avoid a much worse quarter for shipments.”
Overall, the U.S. Bank National Shipments Index declined by 4.9% in the third quarter from the same period last year, the largest year-over-year decrease in 2022. Shipment volumes fell by 2.6% while spending decreased by 2.4% in the third quarter from the second quarter. The Southwest region partially offset the decline, which experienced strong growth from the second quarter.
The overall spending decrease, the second since the third quarter of 2020, can be attributed to lower freight volumes, flat contract rates and falling diesel prices, the report shows. Diesel prices declined by 4.6% from the second quarter, and the result was lower fuel surcharges, contributing to lower truck freight spending. According to the U.S. Energy Information Administration (EIA), the average price for a gallon of diesel fell from $5.11 in July to $4.88 in September. But, as of Oct. 17, EIA data shows the average diesel price has risen to $5.33 per gallon.
According to the American Transportation Research Institute, fuel prices were ranked as the top industry concern this year, replacing the driver shortage, which had been the No. 1 issue for five consecutive years. The driver shortage and the lack of available truck parking were No. 2 and No. 3, respectively.
According to the U.S. Bank report, contract freight comprises the majority of its indexes, and unlike the spot market, the contract market didn’t have a significant decline. Third-quarter shipment volumes were at levels similar to the first quarter of this year. However, the volumes have flattened and are below 2021 levels. The volume decrease has eased the upward pressure on contract rates in the third quarter, but spending was up 10.6% from the same period last year.
“Lower freight volumes, as well as dropping diesel prices in the quarter, led to the linked-quarter spending contraction,” said Bobby Holland, U.S. Bank vice president and director of Freight Data Solutions. “Even with the third-quarter dip, spending by shippers is still at near record levels for the history of our index.”
In the third quarter, the Southwest region was the only region to post increases in quarterly and yearly shipment and spending volumes. The strong freight demand from this region can be attributed to crude oil production and related refined product production. According to EIA data, U.S. crude oil production remains at strong levels and has been rising in the mid-single digits in percentage terms compared to the same period last year. Also, freight volumes with Mexico continued to be strong. According to the U.S. Department of Transportation, the volume of truck-transported freight has risen significantly for both imports and exports between the United States and Mexico.
According to the 2022 annual report of Tontitown-based carrier P.A.M. Transportation Services Inc., 32% of the freight it hauls is transported between the United States and Mexico. In the third quarter, the carrier’s revenue rose to a record $252.63 million, up 38% from $183.08 million in the same period last year.