Transportation Metrics No Longer Up and to the Right, but the Sky Isn’t Falling

In the recent release of its Commercial Vehicle Dealer Digest, ACT Research reported that in early April, following the publication of a “the sky is falling” op-ed in a transportation industry trade publication, ACT’s staff received many questions relating to cycle length.

“To be fair, for the first time since Q2/20, transportation metrics stopped moving ‘up and to the right’ in Q1,” Kenny Vieth, president and senior analyst at ACT Research, said when asked about ACT Research’s response to cycle-length questions. “While a mid-2022 deceleration in freight activity and rates has long been anticipated in ACT’s freight market research and the timing of the turn was as anticipated, the magnitude of the correction was considerably larger than expected.

“Recognizing the uptick in caution flags, there is still much to like about the current situation. As a result, our forecasts for 2022 and 2023 are virtually unchanged: Carrier profitability, pent-up demand and pre-buying remain large forces that should propel the industry into the end of 2023. And while the risk of stagflation has grown, part of the ‘-flation’ are hot U.S. and Canadian job markets. As well, consumer debt service as a percentage of disposable income is near trough levels and corporate profits are at all-time highs, so there is greater capacity economy-wide to absorb shocks.

“On the freight front, there are two points to make: First, carrier profits were at all-time record levels in 2021, and TL fleet contract rates are still expected to rise double digits this year. The second point is used vehicle prices. We are likely near the top, and valuations are likely to fall as freight market constraints ease, but currently used inventories are half their year-ago levels, which will cushion that decline. And when freight volumes do roll-off, there is considerable high-priced capacity that is likely to exit the market, thereby putting a pretty high floor under freight rates.”

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