Freight shipments, spending fell in Q1; capacity loosened

U.S. freight spending and shipments declined in the first quarter, but the market could be stabilizing, according to a new report. The two metrics decreased from the same period in 2022 and the fourth quarter, but the rate of decline in shipments was smaller.

The U.S. Bank Freight Payment Index report for the first quarter of 2023 shows continued macroeconomic factors and consumer purchasing shifting away from goods to services contributed to the declines. The rate of decrease was smaller regarding shipments; however, the declines suggest capacity has loosened.

Some of the challenges the freight industry faces include a soft home construction market and slowing manufacturing activity. According to the Institute for Supply Management, April was the sixth consecutive monthly decline in manufacturing activity.

Another challenge has been high inventory levels, but general merchandise retailers made progress in clearing out excess inventory in the first quarter, according to the U.S. Census Bureau. Relative to sales, inventories have declined to levels closer to the start of the pandemic. However, some supply chain managers don’t expect inventories to return “to normal until 2024,” the report shows. “It is an important development for truck freight in the quarters ahead, as inflated inventory has been a drag on freight volumes for the last year.”

In the first quarter, the U.S. Bank National Shipments Index fell by 6.1% from the same period in 2022 and by 0.8% from the fourth quarter of 2022. The first-quarter spending index declined by 0.3% from the same period in 2022 and by 0.2% from the fourth quarter of 2022.

According to the report, the smaller decline in the first quarter from the fourth quarter of 2022 “lends credence to the view that the freight market has stabilized, after back-to-back quarters with significantly larger declines.” The 0.8% drop in shipments was the smallest decrease in the past three quarters. The 0.3% year-over-year drop in spending was the first in the past 10 quarters.

Shipment volumes continued to slow as households spent more on services, such as travel, instead of goods. Also, higher interest rates have affected sales of more expensive items, including vehicles and homes – negatively affecting truck freight volumes.

First-quarter spending fell amid softer freight volumes and a 13% decrease in diesel prices from the fourth quarter. Spending likely didn’t decline further because larger carriers operated fewer trucks compared to pre-pandemic levels, and some fleets, primarily smaller ones, exited the business amid high costs and falling spot rates. According to DAT Freight & Analytics, dry van spot rates declined by 25.8% in April from the same month in 2022 and by 4.4% from March.

On a regional level, the U.S. freight market was mixed in the first quarter. Freight volumes in the Southwest, which includes Texas and Oklahoma, rose by 14% from the same period in 2022 and by 5% from the fourth quarter of 2022. The Southwest was the only region to post quarterly and yearly gains in shipments and spending. A rise in truck transport trade with Mexico helped to boost shipments in the region.

Meanwhile, the Midwest, which includes Kansas and Missouri, was the only region to see declines in quarterly and yearly spending. The large drop in the region was enough to reflect a decline in the national figure. The regional data for the Midwest suggested that capacity is not uniform across the nation. Some areas might have more capacity, while it’s tighter in others.