August through October is typically known as the “peak season” for domestic freight transportation. Due to the holiday season quickly approaching, the peak season is when truckers are under more significant stress to move cargo. The costs to move freight domestically usually rises due to the limited capacity during this period. This year’s peak season has seen an opposite trend, with transportation prices decreasing and increased trucking capacity. While the cost to transport cargo has fallen in the last three months, transportation capacity has risen in the past six.
The Logistics Managers’ Index (LMI) is a tracking metric created for tracking supply chain activity in the U.S. In September 2022, the LMI reported that the Transportation Capacity Index rose to 71.8% from 64.3% the previous month. This is 2nd highest documented number in six years, with the first being in April 2019 due to a freight recession. Any number over 50 means growth, and any under 50 means shrinkage. The LMI forecast for next quarter similarly has a number over 50 for transportation capacity.
The cost to transport goods decreased to 44.5 in September 2022, making it the second-lowest record level in LMI history. Capacity and transportation costs usually are connected with both rising or lowering simultaneously; however, the difference can be concerning. The September LMI report noted that it might be too soon to explain the cause of the difference. It is important to note that warehouse inventory levels remain high on the LMI, as well as inventory costs. The amount of merchandise stored in some warehouses has risen to a point where goods are being stored in containers.
What is Causing the Current Trends
Transportation costs and trucking capacity change results from several reasons, including low demand. Customer spending demands may be lowering due to fears that the current recession will worsen. Similar LMI trends were shown in April 2019, marking a freight recession beginning after COVID lockdowns. The U.S. has also been facing its highest recorded inflation levels in 40 years, contributing to low demand.
A surge in warehouse inventories is also the result of reduced demands, leading to decreased transportation costs. High warehouse inventories may support the need for trucking this coming holiday season. Despite the current trend in spending, a holiday-season spending rush may act as a catalyst for many supply chains. However, there are doubts that a spending demand may not last past the holiday season.
With transportation prices dropping, moving shipments by truck at the current moment can be cost-saving. However, other aspects of the supply chain, such as warehousing costs, may be affected due to market conditions. Prepare for what may happen in the transportation market in the coming months is essential. The help of an experienced freight broker like A1 Freight Solutions is the best way to prepare. If you need a quote for transporting cargo, contact A1 Freight Solutions at 786-375-9420 or at info@a1fsinc.com to get started. We have a network of dedicated carriers prepared to move your freight anywhere domestically.