Ukraine Invasion Increases Downside Risks to Trucking Conditions

A record surge in fuel costs in the wake of Russia’s invasion of Ukraine will hit trucking conditions in the near term, but the longer-term effects of geopolitical tensions are not yet clear. For now, FTR’s Trucking Conditions Index outlook remains positive, but the downside risks have increased greatly. 

FTR’s Trucking Conditions Index for January fell to 11.46 from 14.45 in December. Although more robust freight rates more than offset the effects of higher fuel costs, freight volume was a significantly weaker positive factor than it had been in December.

“The war in Ukraine has introduced a high level of uncertainty into the dynamics of truck freight,” Avery Vise, FTR’s vice president of trucking, said in a press release. “Sharply higher fuel costs for carriers are a given, but we do not yet know whether sharply higher gasoline prices on top of strong pre-existing consumer inflation and big swings in the stock market will lead to a drop in consumer spending.”

Vise adds that many small trucking firms – especially the tens of thousands of for-hire carriers created since mid-2020 – may fail following the unprecedented surge in diesel prices.

“Whether that outcome strengthens or weakens today’s rate leverage for carriers depends greatly on whether failing carriers’ drivers quit the industry or return to driving positions for larger carriers,” Vise said. “We generally would presume the latter, which could relieve some rate pressure, but the labor market has changed too much during the pandemic to make that a sure bet.”

The TCI tracks the changes representing five major conditions in the U.S. truck market. These conditions are: freight volumes, freight rates, fleet capacity, fuel price and financing. The individual metrics are combined into a single index indicating the industry’s overall health. A positive score represents good, optimistic conditions. Conversely, a negative score represents bad, pessimistic conditions. Readings near zero are consistent with a neutral operating environment, and double-digit readings in either direction suggest significant operating changes are likely.