august2022 - 37

ECONOMI C OUTLOOK
The rebound from -3.8%
in May 2020 to +23.4%
in June of this year is the
result of extraordinary
levels of demand,
constrained supply, and
robust pricing power.
elements are reflected in the revenue collected
by hauling freight.
According to the U.S. Bureau of Labor
1218381816 | sefa ozel | Getty Images
What freight & fuel have
to do with inflation
The Consumer Price Index is how we measure inflation,
but a look at trucking-related indicators like freight and
fuel also can help predict where the economy is heading.
The Consumer Price Index (CPI), the most
widely followed measure of inflation, has experienced
a relentless rise in its rate of change
over the past two years-so much so that the
subject now dominates discussions of current
and prospective economic conditions. Here's a
quick timeline of the past few years:
* February 2020: At the start of the COVID-19
pandemic, the inflation rate stands at 2.3%, a
level around which it fluctuates from the previous
five years.
* May 2020: As the country endures the lockdowns
that disrupt every facet of daily life, the
CPI drops to 0.2%.
* March 2021: The economy reopens and the
inflation rate climbs higher, reaching 2.6%.
* July 2021: The CPI jumps to 5.3%.
* January 2022: The CPI reaches 7.5%.
* July 2022: Inflation hits 9.1%.
While it has become quite fashionable among
the punditocracy to compare the current rate of
inflation to the rates of the 1970s and 1980s-
with headlines noting the recent CPI is the
highest in 40 years-those comparisons are
about as valid as saying a heart attack is the
same as a broken leg because both patients are
in the ICU.
The circumstances that brought about
By Robert Dieli
ECONOMIST, MACKAY & COMPANY
AND PRESIDENT, RDLB INC.
MacKay & Company specializes in market research for
commercial trucking, construction equipment, and agricultural
machinery. The company provides strategic
research and analysis to vehicle and component manufacturers,
distribution and service channels, industry
associations, and private equity firms. With a long career
managing portfolios and coordinating domestic economic
forecasting programs, Dieli began RDLB, Inc. in 2001. In
this role, Dieli serves as an advisor to many firms in the
trucking, consulting, and financial services sectors. He is
also an economist with MacKay & Company.
the waves (yes, there was more than one) of
double-digit inflation in the 1970s and 1980s
are completely different from the circumstances
that brought the CPI from 0.2% to 9.1%
over the past two years.
So, rather than dwell on the past, let's focus
on the signals we are getting now from several
prices that are important to you.
The most important prices are those associated
with hauling freight. Why? Because how
much maintenance a truck needs depends
largely on how much it is used. How much
maintenance that truck actually receives
depends largely on the ability of the truck
user to afford the repair. And both of those
Statistics (BLS), truck transportation prices
have risen 23.4% over the past year. In May
2020, they had fallen 3.8% from where they had
been in 2019. The price measured by the BLS
includes all the costs associated with moving
the freight, so special handling charges, fuel
surcharges, and any other fees are in the BLS
number. By the way, these price indexes can
be accessed at no charge from the BLS website.
The rebound from -3.8% in May 2020 to
+23.4% in June of this year is the result of
extraordinary levels of demand, constrained
supply, and robust pricing power.
Much of what happens next to freight rates
also will depend on what happens to fuel
costs. In February 2020, as the COVID event
was getting under way, diesel fuel stood at
$2.956. By May, the price was down to $2.437
per gallon. In early June of this year, we reached
$5.783 per gallon.
Over the next several months, we will be
looking at the level and trend of freight rates
to see just how much of the tensions that have
driven those prices higher over the past two
years are unwinding.
On the demand side, we expect to see the
seasonal patterns of freight movement begin
to reassert themselves. We will be looking
most closely at the freight volumes associated
with the retail sector where there are reports
of inventories still being out of balance. Also
of interest will be what happens in the agricultural
sector as the crop year progresses.
Recent news from the supply side has
employment in truck transportation rising
steadily as training, recruitment, and retention
programs appear to be having some success.
The pricing dynamic, which has lately
favored the truckers, seems likely to revert
to a more balanced situation where shippers
regain some element of control.
Structural changes are underway in the
economy that are affecting every aspect of
the trucking industry. The rapid rise in the
prices associated with trucking activity are
the proof of that. The structural changes are
far from complete, so the pricing environment
will remain volatile. Our task will be to make
the best use of the information being signaled
by those prices.
August 2022 | FleetMaintenance.com
37
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august2022

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