January 6, 2025 | Page 69

Annual Review & Outlook 2025 Surface Transportation

Tailwinds and unknowns

By Jason Miller
In 2025 , the US trucking sector is poised to exit a prolonged , 10-quarter freight recession that started around the third quarter of 2022 that coincided with a broad-based downturn in domestic manufacturing activity .
Several factors underscore expectations for improved demand conditions . First , reductions in the federal funds rate that began in September will have had time to percolate through the economy . That should spur more investment in residential structures , e . g ., single-family houses , which rose sharply starting in the third quarter of 2020 and then fell just as rapidly starting in the second quarter of 2022 as the Federal Open Market Committee ( FOMC ) raised interest rates . Improved residential construction should spur more production for cement and concrete , lumber and wood preservation , veneer and plywood , and millwork , among other things , all sectors in which production has fallen since recent highs in early 2022 .
Second , interest rate cuts , by reducing firms ’ financing costs , may encourage investment in industrial equipment and machinery , a sector that has seen a sharp downturn in manufacturing output since 2022 . More investment in machinery should aid machinery wholesalers in bring the ratio of inventories to sales back towards more normal levels , which should spur more replenishment orders that should trigger greater demand for production of various fabricated metal goods like machine shops and turned screw products as well heat treating , sectors that have seen production continue to slide through 2024 .
Third , lower interest rates should decrease consumers ’ costs for financing motor vehicle purchases , which should further stimulate demand . This should provide another tailwind for vehicle purchases above and beyond the increase observed in November , when light truck and SUV sales totaled 13.54 million units on a seasonally adjusted annual rate , the third-highest month ever . Increased sales of light trucks and SUVs should stimulate demand for motor vehicle parts , a sector that had seen a downturn in production in the second half of 2024 as dealer lots filled up with inventories .
All told , my best estimate is that we are exiting 2024 with freight volumes like those observed toward the end of 2019 .
Concerning capacity , available data from the Quarterly Census of Employment and Wages suggests that trucking capacity is right around where it was in late 2019 ; these data
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are pointing towards the monthly survey data of trucking payrolls being over-estimated by around 2 %, which would bring them in line with what was observed in 2019 .
Examining the dynamics of the truckload spot market in 2024 , demand and supply being around 2019 levels makes good sense given that we have seen more seasonal tightening in 2024 than in 2023 — albeit less than in 2019 — with shippers generally able to obtain capacity with limited routing guide failure .
The greatest wild card for freight demand is potential tariffs by the incoming Trump administration . It remains to be seen which — if any — tariffs are actually increased come January , which makes it more difficult to forecast freight conditions in the second half of 2025 .
email : mill2831 @ broad . msu . edu
Light truck sales strongest since April 2021 in November
US light truck sales , in millions of vehicles , seasonally adjusted
14 13 12
11 10 10
9 8
77 7
We are exiting 2024 with freight volumes like those observed toward the end of 2019 .
6 L 2020 2021
2022 2023 Nov 2024 , 2024
Source : US Bureau of Economic Analysis
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