Freight Costs Are Surging — Here’s What’s Really Happening to Trucking Capacity | Freightonomics

Zach Strickland (0:15)

The Second Hour of FreightWaves today, also known as Freightonomics on Thursdays. I'm Zach Strickland, Head of Freight Market Intelligence, and joining me for the first half of the hour, our head economist, DJ. Donahue, and we're going to break down a few of the large economic releases, and then in the second half, we're going to bring on Thomas Wasson and break down some of the top transportation topics of the day, along with looking at some FMCSA data.

A lot of, I think probably some of the biggest questions I get, DJ., recently on the economic side, a lot of it, of course, AI derivative, what is this actually doing? We'll get into that here in a minute. But also just, they want to know a lot about what demand is going to do. We've got this inflationary overhang that people are still like, well, we've gotten away with it so far because consumers have been relatively, I guess, resilient. If expectations to start the year weren't super rogue, like they were good, then we had the Iranian conflict and then inflation came back on the table. And then the trade policy stuff kind of like muted out for a minute and now it's back on the table once again with the Canadian stuff which we'll talk about too. But we got some economic releases this week, one of them of course inflationary data, the PPI, producer price index. So I want to get first off your take here on the PPI and then we'll work our way downstream as we go through some of this data. So what did it tell us?

D.J. Donahue (1:48)

Well, PPI overall was up, the final demand figures were about 0.4 percent. That's July to August, month over month. The latest numbers coming out from BLS were the August numbers.

So a small gain month over month, a little bit of increase in prices, nothing to really write home about. But it was a substantial increase over last year, 5.4 percent year over year.

Zach Strickland (2:10)

That's a pretty big figure. I mean, the Fed's target is 2 percent and the PPI, it doesn't translate perfectly. We know that because it's largely upstream. It's not the finalized goods and the retailers, it's the all-sailors.

But it does have pressure on the downstream.

D.J. Donahue (2:27)

It does, and we actually saw some of those numbers and that difference come out in interesting places. The big number from PPI, the story was energy. Energy prices are usually pretty volatile of nature, but we've seen a lot of bouncing around, particularly with the Iran conflict, and this last month, energy was up 4.2 percent month over month overall, but 24 percent up year over year. So we saw nearly a quarter price increase in the year over year price for all of energy. Now, the biggest driver on that was diesel prices. Diesel prices, especially for freight and trucking, touch just about everything because you got to worry about diesel prices for trucking, diesel prices not just for the guys who drive the big diesel trucks coming out of, the duallys coming out of the backwoods, but diesel prices have a large weight of touching everything, because diesel electric locomotives. And so, the diesel prices remain high right now. John Kingston wrote a great article about it, and as of the last EIA reading on the 7th, we're looking at 5.967 diesel price right now. So almost $6 a gallon for diesel, very, very high prices.

That particular price is up 21.4 percent month over month, so it's still 24 percent higher than last month, and 77.8 percent year over year. That's insane.

Zach Strickland (3:42)

I mean, that's a huge jump. I mean, you can't ignore it. I mean, as much as you think it's transitory or whatnot at this point, it's been there, and that's a big jump, and it's going somewhere. Someone is paying for it, and of course, it translates largely into the earnings of the providers, the retailers, the retail diesel providers, as well as some of the upstream guys, the big oil companies, and their earnings show it.

D.J. Donahue (4:06)

Yeah, and that's actually some place we saw this breakout kind of happen. Whenever you're talking about cost of increase of producer prices, who actually pays for it is always a question. Does the consumer get all that cost or where does the cost actually show up? This time we actually saw it show up in some of the diesel retailers because while trade itself was down 0.2% month over month, not a big movement. We actually saw an 11.3% drop month over month in the fuel and lubricant index. Now this is a trade index. Trade index measure changes in margins received by wholesalers and retailers. So this is the change in their profits that they're seeing.