Daily Data: Freightcession

Freight is regressing to the mean

Supply chains have come unsnaggled, but that’s not great for the unsnagglers.

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Daily Data

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Freight recession

Demand for freight has disappeared relative to supply, and it’s leaving plenty of pain in its wake.

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Supply > Demand

Flatbed trucking demand is back to prepandemic levels:

Demand has converged across all regions (even if the growth of the South is a thing to behold).

Truck drivers are apparently ready and at the waiting:

Lots of available drivers is just another way of saying supply > demand.

The NY Fed’s “supply chain” snagglepuss detector seems to confirm that there is definitely no snagglepuss at the moment:¹

Supply chain “stress” peaked twice interestingly enough, but at this moment, supply chains appear to be running all too smoothly.

Supply-in-excess of demand is generally a bitter pill to swallow.

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Freight’s taking a beating

In terms of what’s happened as a result, among other things, formally high flying freight startups are being sold for parts to other high flying startups, which are also showing some cracks in the seams.

Putting aside the venture-backed darlings, real businesses are leaving a trail of tears littered with bankruptcy and layoffs. Truckers are losing their jobs and trucking companies are going under.

The pullback has been so dramatic, that it’s taken down at least one bank in Iowa (from

Bank Reg Blog

via Craig Fuller) :²

Add freight to the list of very bad industries (e.g. crypto, real estate, venture capital) to put banks in peril.

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What to make of it

A bearish interpretation of the freight pullback is that demand for stuff is imploding. Less shipping of things is a signal of less buying of things, and less buying of things, etc. etc.

That could be what’s happening, but there’s a simpler, less bearish story (although, to be fair, both can be true).³

The simpler, less bearish story is that this is a healthy (albeit unpleasant) correction. People got very excited about freight during peak pandemania, so they invested a lot of money and hired a lot of people, to meet what turned out to be an unsustainable level of demand. Combine the pullback in demand with a run-up in costs (of fuel, capital, and insurance), and the result is pain.

Business cycles are just part of how it is.

The funny thing is that I bet if you asked the investors etc. at the time “do you really think this level of growth is sustainable?” they would have answered “no, of course not, we are not stupid—we know this is a pandemania-driven bump.”

And yet, investors and operators still managed to talk themselves into the growth story, regardless.

The moral of the story is never underestimate the power of recency bias (and FOMO). The allure of “omg there is so much money being made right now” is an awfully hard thing to resist.

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1. The actual name is the Global Supply Chain Pressure Index, and not the supply chain snagglepuss detector.

2. Full post is available here:

A Bank Failure in Iowa

3. Indeed, very recently spot rates have perked up a bit (although still well off of pandemic highs):