With another tariff on imported goods on China expected on Dec. 15, pre-tariff shipping to build inventories may be responsible for a recent uptick in freight.
 - Photo via ACT Research

With another tariff on imported goods on China expected on Dec. 15, pre-tariff shipping to build inventories may be responsible for a recent uptick in freight.

Photo via ACT Research

With another tariff on imported goods from China expected on Dec. 15, pre-tariff shipping to build inventories may be responsible for a recent uptick in freight, according to ACT Research.

The next round of tariffs is expected to hit an additional $300 billion in imported goods and will affect many consumer products such as electronics and clothing that have so far not been included in previous tariffs. Much like the increased inventory build that preceded other announced tariff increases, businesses are once again trying to get as much product as possible on American shores ahead of the tax.

“We remain very concerned about a variety of adverse economic consequences of US trade policy, from the inverted yield curve to the industrial downturn to lower confidence and elevated uncertainty, not just inventory swings,” said Tim Denoyer, ACT’s vice president and senior analyst. “While recession is still not our base case, risks are heightened.”

In the September installment of the ACT Freight Forecast, ACT Research noted that the tailwind from increased freight activity will be short-lived and maintained its view that truckload and intermodal contract rates will continue to fall this year due to overcapacity and weak freight demand.

Less-than-truckload pricing is expected to stay positive.

“We now expect another soft patch in freight when the current inventory build turns to a draw, likely this winter after tariffs are imposed,” said Denoyer. “This is similar to the dynamic of last year, but the main difference is that capacity has loosened materially. Truck sales have not softened yet, and amid ongoing excess capacity, this will hurt truckers’ negotiating position just as discussions begin for next year’s bid season.”

Class 8 truck orders are down significantly in 2019, as much as 90% year-over-year when compared to July and August of last year. Interestingly, truck manufacturers have still not lowered production rates, sending new truck inventories to all-time highs.

While backlogs continue to thin out, carriers are still spending aggressively and adding to capacity, according to ACT.

ACT Research’s Truckload Rate Gauge, which measures trucking industry supply and demand, improved this month on better freight volume. However, it still favors shippers with a -3 reading. A decline in Class 8 tractor build rates should begin bring the supply side more into balance, according to ACT, but inventory distortions are expected to become a headwind for freight in early 2020, pushing the gauge back to a reading of -6.

For more information about ACT’s Freight Forecast, U.S. Rate and Volume Outlook, click here.

0 Comments