A recession during the first half of 2023 is looking more likely, but the unusual nature of this economic and trucking freight cycle should help keep trucking from feeling the brunt of it, according to an update on the economy at the American Trucking Associations’ Management Conference and Exhibition in San Diego Oct. 25.

The Macroeconomic Picture: Unprecedented Global Synchronization

Looking at the global economy through a banking and investment lens, Tom Joyce, managing director and global head of investment banking capital market strategy, Mufo Bank, said a unique aspect of this economic cycle is synchronicity.

“Every major economy in the world is slowing at the same time,” he said. And we likely haven’t seen the bottom of it yet.

Inflation, too, is affecting the world’s major economies, and governments and banks are using fiscal policy to try to slow it at a pace he has never seen in his career.

Monetary policy works with a lag, he explained. You don’t feel the full effects of an increase in interest rates until about six months later. “I think early next year we’ll see the impact of bank tightening, energy prices, and the maximum impact of peak inflation. The consumer can handle high inflation for a handful of months but it’s harder for 12 to 18 months, and that’s where we are.”

“I do believe the global and U.S. economy is going into recession in the first half of next year,” he said. It’s happening in Europe and the UK already, because the Russia-Ukraine war is having a more direct effect there.

Joyce also stressed that recessions are reasonably rare. “And more rare than a U.S. recession is a global recession. We’ve had only six since World War II. I think it will be mild for the global economy and we hope for the U.S., and a deeper one for Europe and the U.K.”

He predicted the low point would be in the next six to nine months. Even though the economic decline has been largely synchronized across the globe, he said, the recovery will be desynchronized, with some economies coming back sooner than other.

“I think we’re going to have a desynchronized recovery in the latter part of next year. But the U.S. is more resilient (so should come back sooner).”

A 'Really Different' Trucking Cycle

“Every cycle’s different, but this one’s really different,” said ATA Chief Economist Bob Costello. Costello also predicted that we will have a mild recession early next year, with the U.S. likely to fare better than many other economies — trucking even more so. “I think there are some unique things going on in our industry that will isolate many of us in this room,” he said, although smaller fleets will likely have a harder time.

While there has been a lot of attention to how the spot market has fallen this year, Costello said in reality it’s about returning to a more typical balance between the spot market and the contract market rather than a freight recession.

“I’ve been hearing people talk about how the truck freight market is collapsing,” he said. “Lets’ go back to 2020 and 2021.”

During the COVID-19 pandemic, he explained, consumer spending on services shifted to goods. More goods spending meant more truck freight.

Many shippers found out their contract carriers didn’t have the trucks or the drivers to handle the extra freight, so they were forced to go into the spot market. “We saw incredible increase in spot market load postings; it went up over 100%. We’ve seen load postings this year fall 65%. But contract freight is growing. It actually contracted in 2020, bottomed out in 2021 and has since come back.”

For one thing, he said, U.S. households are transitioning back to a more typical distribution of spending on goods vs services. “We are now transitioning back to more normal spending on services vs. goods,” he said.

Although he predicts that the number of loads will be down almost 1% this year and 1.3% next year, he said, “if you look at the level of that spending, we’re still going to be the second and third highest ever. We’re not falling over a cliff.”

Breaking the Capacity Cycle

In a typical economic cycle, what happens in trucking as the amount of freight goes up, capacity tightens and rates increase. So trucking companies add trucks to take advantage of the opportunity. Eventually the economy softens, all those new trucks now equal over-capacity and rates drop.

In this cycle, one of the biggest post-COVID frustrations for fleets has kept the industry from adding capacity. Global supply-chain problems meaning trouble obtaining parts and components have kept truck makers from being able to deliver as many trucks as fleets wanted to order.

Capacity is loosening, Costello said, as the supply-chain problems have started to ease. At the same time, with the goods-vs-service spending tilting back toward normal, demand is softening as well.

“I think it will level off or not grow as quickly, but in no means has the freight market collapsed on us. We’re just going back to more normal split of contract vs. spot market.”