I wanted to write a quick note about the tight freight market. We all know it is tight and certainly there are no lack of free webinars telling us how to be a "shipper of choice" and make our freight easier to handle. With this note, I wanted to outline a few key statistics which will help you quantify the issue.
Second, the infamous Inventory to Sales Ratio. This tells us how much "slack" is in the economy and the story supports the inflationary pressures cited above.
|Inventory v. sales|
This has two implications. First, it means that at some point, if sales stay strong companies will feel a need to restock inventory. When that occurs we will see even more pressure on the transportation infrastructure of the United States. This is not just a rate issue but rather has to do with the overall infrastructure of the country. Pressure on bridges, roads, capacity and congestion all will continue to drive a very inefficient transportation network (including rail).
Finally, we see the end results in the CASS Freight Index and it is not pretty.
These three pieces of data make it very clear we are in an inflationary environment for freight and it is not just an isolated lane or area of the country. It is a broad based inflation due to fiscal stimulus driving an incredible amount of business.
Like the "spiral downward" we experienced in 2007-2009, we are not seeing a "spiral upward" with the market driving a "wealth effect" and the wealth effect drives consumer spending which ultimately drives everything we are seeing in freight.
Having said all this, there are pressures on the macroeconomic horizon. Specifically, there are 4 things I worry about:
- Fuel Prices: When fuel prices increase (both at the retail level which we buy at and the wholesale level the carriers buy at) it is just an implicit tax levied on people and businesses. People have to drive for their work and their lives so it is really not a discretionary spend. More money spent on fuel is less money spent on other things.
- Interest Rates Rise Too Fast: We did get some good news last week with the Fed saying they may let inflation run above 2% but if the interest rate hawks take over, this could brake the economy hard.
- Student Loans: There is an implicit brake on the economy with the large overhang of student loan debt. If you think this is small, think again. Here is some information from the website StudentLoanHero.com:
- Total student loan debt: $1.48 Trillion
- 44.2M Americans have some student debt
- Delinquency rate is 11.2% (people who are more than 90 days behind)
- Average Monthly Loan Payment: $351
- Median Monthly loan payment: $203
Those 4 are the key ones which could put a stop to the party. However, as a planner who manages probability, I would plan on the "party" continuing for the foreseeable future (But have your contingency plan B ready).