East Bound and Down, Loaded Up and Truckin’

Growing up in the 1970s, I really wanted to be a truck driver. Credit Smokey and the Bandit and a love of the open road. That, and the whole CB radio craze of that decade.

I could certainly have my chance now; truck drivers are hard to find and with rising fuel prices the cost of shipping via 18-wheelers is rising dramatically.We’ve even read entire bearish macroeconomic arguments anchored on this fact. With online shopping still growing in popularity, we can see the concern of inflationary pressures dressed in brown polyester shorts and jackets.

The Producer Price Index tracks many forms of shipping, but we will concentrate on the basics: the cost to ship a truckload of goods, and less than truckload. Here is the most recent data for each:

• Truckload shipping costs rose 9.4% year-over-year in June 2018. Prices have been climbing since February 2017 after falling by 6% from 2014 – mid 2016. [su_spacer] Average annual inflation for truckload shipping from 2010 to today has been 1.9%.

• Less-than-truckload shipping costs were up 8.9% over last year in June 2018. Less-than-truckload pricing held up a little better during the decline in oil prices during the mid-decade, down 4.6% year-on-year at their worst in August 2015. [su_spacer] Average inflation from 2010 to today for less-than-truckload has been 4.2%.

This makes recent increases in shipping costs a “Tale of two trucks”. Both sorts are seeing strong pricing power, to be sure. But truckload shipping is really just making up for lost time after a long period of underperformance. Its long term pricing power remains suspect. Less-than-truckload is another matter entirely – its pricing fundamentals have been strong the entire decade.

The sharp-eyed reader will be asking the obvious question at this point: “Those look like pretty hefty price increases – do they signal that we are at the top of a business cycle?” Here’s the data:

• Truckload: going back to 2004, there are only 2 months where annual price increases top current readings. They are in July/August 2008.

• Less-than-truckload: here, the only readings higher than current comps are in Q4 2000 and Q3 2011.

So is the truck shipping expense data a clear sign the US economy is at another top? Looking purely at the data, the answer must be “Yes”. Truckload comps look like 2008. Less-than-truckload look like 2000. Both are obviously the peaks of prior cycles.

And yet… We also know from sources as varied as public company earnings reports to Federal Reserve Beige Books that truck drivers are in short supply in the US. This, combined with rising diesel fuel costs, is pushing the cost to ship by truck higher. So it is far from clear that the PPI data is only capturing an economic signal. There are secular factors as well.