Economist: Trucking sector turnaround not likely in 2025

The freight and logistics industry has been in a recession more than two years with excess capacity and weaker demand driving rates lower. The negative factors aren’t likely to soon improve.

Despite temporary demand from front-loading of imported goods ahead of proposed and implemented tariff hikes by the Trump administration, a sustained turnaround is not in sight, according to Bob Costello, chief economist with the American Trucking Associations. He said the freight recession is not in its third year.

He said a closely-watched date is July 9, the deadline for countries to make trade deals with the U.S. The effective tariff rate to start the year was 2%, is now around 15%, and will go higher if deals are not made, he said.

He said uncertainty around tariffs makes it difficult to forecast a recovery, but he expects tariff volatility to settle down by this fall. Costello said there are many moving parts with the tariffs, and the front-loading of goods ahead of the proposed tariffs boosted demand by the end of the first quarter, only to have it slow down again. Since the 90-day pause with planned tariffs, freight has picked back up slightly, but many companies are waiting to see what happens, Costello said.

A concern in the industry is a chassis and container tariff, products only available from China. He said if there is a tariff on 53-foot containers, the cost of shipping for anyone exporting or importing will rise. He said freight into and out of Canada is down about 2% this year, but it’s been a whipsaw effect with extreme choppiness on to month-to-month basis.

Costello also said tariffs are not likely to have a positive impact on U.S. manufacturing. The reason is that half of U.S. imports go to parts or inputs for U.S. manufacturers. He said if the cost of those parts goes up, then margins go down unless prices to customers are raised. He said it takes time to move manufacturing, and there has to be infrastructure to support the industry.

For example, Apple could move some manufacturing from China to India, but the parts must still come from China because India does not have the infrastructure to supply all the parts needed to make an iPhone.

“There are some things that should not be made in the U.S. But durable goods like cars, wheels, oil rig parts, or power drills are and should be made here,” he said.

Costello said China is responsible for 31% of global manufacturing output, the U.S. is second at 16% and Japan is third at 6.5%. The problem is many U.S. manufacturers need parts from China to make their finished goods, and there is no easy solution to replace China. He said many who could relocate from China to Mexico did so within the past five years after the United States, Mexico, and Canada signed a new free trade agreement.

He said factory output is expected to be flat or down as consumer spending on discretionary goods slows. A big negative for the freight industry is a decline in new home construction. Housing starts fell 9.8% in May from a year ago, and homebuilder sentiment for July 3 was the lowest reading in 12 years. Costello said this is negative for the trucking industry, and he does not anticipate the Federal Reserve lowering rates this summer. Higher import costs, higher insurance rates, and high home prices are negative for the housing industry and ultimately a problem for the freight industry.

Costello does not see much improvement in the freight industry through the balance of this year, and expects more of the same with low freight rates.