ACT Research noted 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 questions relating to cycle length.
In the release of its latest Commercial Vehicle Dealer Digest, Kenny Vieth, ACT’s president and senior analyst, offered his market research firm’s response.
“To be fair, for the first time since Q2’20, transportation metrics stopped moving ‘up and to the right’ in Q1,” he said. “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.”
As to why he doesn’t think the sky is falling, Vieth explained that, despite the uptick in “caution flags,” there is still “much to like” about the current market situation. As a result, ACT’s 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,” Vieth said. “And, while the risk of stagflation has grown, part of the ‘-flation’ are hot US 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, he made two points.
“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,” Vieth said. “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.”
The Commercial Vehicle Dealer Digestreport, which combines ACT’s proprietary data analysis from a wide variety of industry sources, paints a comprehensive picture of trends impacting transportation and commercial vehicle markets. This monthly report includes a relevant but high-level forecast summary, complete with transportation insights for use by commercial vehicle dealer executives, reviewing top-level considerations such as for-hire indices, freight, heavy and medium duty segments, the total US trailer market, used truck sales information, and a review of the US macro economy.