Diesel Connect Recap: The State of Freight

On the second day of DC
Fullbay brought to me
A report on the freight economy!

Diesel repair doesn’t exist in a vacuum. While it’s very easy to see your shop (or yourself) as its own thing, the reality is repair itself is part of an ecosystem that is impacted by all kinds of things—economics, infrastructure, regulations, global events, and much more.

But Fullbay, you might be saying, I’m a technician or shop owner, not an economist! What do numbers have to do with me?

Well…what do most diesel repair shops work on?

Big rigs.

What do big rigs do?

They carry stuff. You know…freight.

Ohhhhhh.

Diesel repair shop owners don’t need to turn themselves into economic analysts. But keeping an eye on how the freight market is doing can tell them a lot—if it’s booming, for example, they’ll likely have plenty of vehicles that need service. If freight itself slows down, work might slow down, too.

Enter Lindsay Bur, Senior Economic Analyst at American Trucking Associations (ATA). Her fascinating presentation at Diesel Connect explored the country’s overall macro economy and the trucking economy itself, including pandemic impact and recovery and how the issues affecting those trying to buy homes also tend to influence the freight market.

She goes into a lot of detail we simply can’t capture here, so we encourage you to watch the entire presentation. But we have gone ahead and recapped three facts we found interesting—so keep on reading!

NEAT FACT #1: CONSUMER SPENDING & THE POST-PANDEMIC RECOVERY

The lockdown period saw a large uptick in people purchasing goods—no, not just toilet paper; a good chunk of the population who were abruptly confronted with working from home invested in gear for home offices, for example. Lindsay also identified “durable goods” (appliances and the like) as an area where people spent money: think dishwashers, cars, and so on. Items that will ideally last years.

Most of those items were carried—you got it—via truck.

But, she said, “as pandemic restrictions lifted, there was a huge pent-up demand for experiences.”

People wanted to travel. They wanted to go to concerts. They wanted to do all the stuff they couldn’t during the pandemic.

This led to 2023 being only a moderate year for the purchase of goods. And subsequently freight demand dropped.

“We do anticipate good spending [in 2024] to be a little bit higher than it was in 2023, but nothing significant, and we do expect the consumer to continue to be focused on experiences,” she concluded.

ATA has also seen “a significant drawdown in inventories,” Lindsay told us. General merchandise stores like Target, Walmart, and so on are not keeping as much inventory in their back rooms.

That’s pretty important for freight. If stores already have plenty of inventory ready to go, they’re not going to be demanding trucks bring more in, right?

NEAT FACT #2: WAGES & FUEL ARE HUGE COST PRESSURES

A lot of driver wages went up during the pandemic. “Drivers!” carriers shouted. “We need drivers!”

So they hired drivers. They gave them raises to stick around. From 2020-2023, Lindsay told us, “the increase in average hourly earnings was much higher than any five-year period preceding it.”

Except now things are normalizing, or even receding. And you can’t just claw back those higher wages.

(Nor should you try—Lindsay pointed out that “the good thing about average hourly earnings growing year over year, is that it’s going to attract good drivers to the industry … that’s always a good thing.”)

Now, couple the high salaries with the cost of fuel, and you’ve got two heavy cost pressures for carriers to deal with. “We do expect an increase [in fuel prices] in 2024 and 2025,” Lindsay told us. She clarified that they probably wouldn’t hit 2022 levels, but they definitely weren’t going to hit 2019 levels.

(Everybody now! “Aw, man!”)

These cost pressures—and others—have put the squeeze on a lot of carriers, and have driven some out of business entirely. Nobody needs to panic yet; it’s not a mass exodus by any means. But carriers are exiting the market; in December of 2020, there were around 270,000 carriers in the country. More sprouted up as freight demand surged in the pandemic, so some of the decline may be a form of correction. Lindsay did point out we have not returned to that 270,000 number yet, however.

NEAT FACT #3: REPAIR CAN BOOM, EVEN IF FREIGHT IS NOT

One particular audience question struck a chord with a lot of attendees. We’ve paraphrased it below:

The freight market is down … but folks here are talking about how business is booming. HOW?!

The freight market and diesel repair are kind of symbiotic; a plunge in freight translates to fewer wear and tear on engines and trucks, which means less work to do, right?

Usually. But the trucks that are still on the road do need service and repairs. Lindsay also posited that carriers might be hanging onto older Class 8 equipment longer, which could spur additional repair work.

WATCH THE WHOLE PRESENTATION!

In the full presentation, Lindsay explored the impact of interest rates, inflation, truckload and spot market metrics, and cost pressures, among other things. She also stuck around for several other questions. We encourage you to give it a watch!