Page 19 - ATR 3 2022 digital

DISRUPTION AND A MORE
RATIONAL MARKET
The economy has had strong
growth the past couple of years during
the pandemic due to government stimu- “THINK ABOUT IT THIS WAY: UNLESS ANY OF US
lus spending. After falling in the first PLAN ON LIVING FOR 30,000 YEARS, WE’LL NEVER
part of 2020, gross domestic product
rebounded in the second half of that SEE AGAIN WHAT HAPPENED IN THE SECOND HALF
year and grew 6.9% in the fourth quar- OF 2021. SO THAT’S HOW DISRUPTIVE THINGS WERE.”
ter of 2021.
But in the first quarter of 2022, –JACK ATKINS, STEPHENS’ SENIOR RESEARCH ANALYST AND
it fell 1.4%. The economy currently is MANAGING DIRECTOR OF TRANSPORTATION EQUITY RESEARCH
expected to grow 3.3% in 2022, but
forecasts have been falling. In 2023,
growth is expected to be 2.3%, which
returns it to the trend line for roughly
the decade before the pandemic.
Atkins presented a chart show- going on vacation. We’re getting on contractual decreases in the second half
ing the level of disruption in both the planes. We’re getting on cruise ships. of 2022.
U.S. and global supply chains that Our dollar as a consumer is getting The national tender rejection index
has occurred during the pandemic. In spent differently this year and will be — the percentage of loads carriers are
December, the level of disruption was a spent differently next year than when rejecting — is falling. The week of the
“one-in-every-300,000-instance event.” the way it was spent in 2020 and 2021.” conference, May 9, 2022, the percent-
“Think about it this way: Unless With a freight recession marked age was just over 8%. Large shippers
any of us plan on living for 30,000 by negative rates and volume “almost are telling Stephens that their rejection
years, we’ll never see again what unavoidable,” Atkins advised motor car- rates are 2–5%. Rates were much higher
happened in the second half of 2021. riers to limit spot market exposure to earlier.
So that’s how disruptive things were,” the extent they can. Spot rates are lower “It feels like it’s coming quicker
he said. than they have been during the pan- than I would have anticipated in
“And so my point is, no one could demic and are underperforming normal January,” he said. “I would have thought
have anticipated what happened over seasonal patterns. 2023 would be a more challenging
the last 18 to 24 months, and as we “What’s going on here? The market freight market. It feels like it’s getting
come off of this and unwind from it, is becoming more rational. Freight is pulled forward by maybe three months
it’s going to be very difficult to predict moving back in its more normal pat- or so.”
what’s going to happen on the other terns. The supply chain is catching its
side of it. … Be prepared for the unex- breath,” he said. INVENTORY, E-COMMERCE AND
pected, I guess is the point.” Atkins displayed a chart showing HOUSING FORECASTS
Atkins said spending on goods the volatility of truckload rates, mostly Inventory restocking has been an
versus services is perhaps the biggest contractual. Since the financial crisis important source of freight activity
factor to watch. Goods spending is still that began in the late 2000s, volatility the last two years. Inventories are at
above trend line, but that will normal- has increased on the cycles’ upsides and decade-low levels, but there are pock-
ize over the next 12–18 months, creat- downsides. Historically over the long ets where they are beginning to build.
ing a headwind for the freight sector. term, rate per mile has followed cost Anecdotally, retailers are saying they
Consumers may have already made the per mile, excluding fuel. Over the last have obsolete inventory and will need to
purchases they were going to make. couple of years, rates have risen faster have sales this summer. U.S. total sales
“During 2020 and 2021, not a than costs. are up 25.5% above pre-COVID levels in
lot of us took vacations, but a lot of Rates were about at their peak December 2019, while inventories are
us bought outdoor furniture for our during the first quarter of 2022, but up 10.7% above that same time period.
houses,” he said. “So, one of those two Stephens expects them to begin falling The biggest reason inventories are
things move in a truck, and it’s not in the second quarter and has begun to so low is because so much stimulus has
going to Disney World. So we’re getting include a reduction in contractual rates been pumped into the economy, driving
back out there. We’re going to concerts. in its financial models. Shippers are
We’re going to football games. We’re saying they are planning to have modest 

ARKANSAS TRUCKING REPORT | Issue 3 2022 19