How Inflation is Shaping the Current Freight Market Dynamics

At a time when freight demand remains depressed, coupled with excess truckload capacity and pricing remaining firmly in shippers’ favor, one can point to any number of economic metrics to come up with opinions, or estimations, as to what is driving market conditions.

To be clear, though, the metric leading that list still is very likely inflation, as it has been a major talking point in freight transportation and logistics circles for nearly two years, going back to when the Consumer Price Index (CPI), as measured by the U.S. Bureau of Labor Statistics, for April, saw a 3.4% annual gain, edging down from March’s 3.5% reading. April came in at slightly less than what was expected, there are indications that the Federal Reserve maintains interest rates will remain higher.

While that is a concern, coupled with these readings remaining short of the Fed’s 2% target, it bears repeating that in June 2022, the CPI reading stood at 9.4%, so there has been significant improvement on that front—even if it often still does not feel that way, for various reasons.

That leads to the question of how these mild, yet stubborn, gains in inflation readings are impacting freight levels and activity, both here in the United States and globally.

Matt Muenster, Chief Economist for Breakthrough, an innovator in transportation management, dedicated to creating transparent and fair strategies for the world’s leading shippers, explained that when looking at April, headline and core inflation did move in the direction that the Federal Reserve would like to see them go, adding that in terms of the outlook, there is still commentary from the Fed that while the CPI is trending in the right direction, it is maintaining rates into the latter part of the year.

“Based on the Chicago Mercantile Exchange’s FedWatch, September would seem to be the first month that would suggest there could be an interest rate cut, although it is a bit of a mixed response right now, in terms of the Fed dot plot and what members of the FOMC are suggesting would be the target month for a rate cut,” he said. “September or later would be the earliest that would happen.”

As for what this means for the freight market, Muenster observed that it is appropriate that not only are CPI trends returning to a normal path, coupled with consistent communication from the federal reserve, in terms of wanting to see inflation moderate further before additional rate cuts are made.

“It really means a kind of status quo for the freight market, and that what we have been seeing is a lull, in terms of total tonnage,” he said. “We’ve been trending lower for the better part of two years. When it comes to transportation service providers, they've seen their rates slump and actually remain relatively flat. They've really been in a trough now for about a year, going back to the second quarter of 2023. So, we don't see a lot of momentum for the freight market, both in terms of total tonnage and the rate environment for transportation service providers.”

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