First-half 2025 dry van truckload outlook: Improving conditions ahead

The for-hire dry van truckload (DVTL) sector has been mired in a freight recession—which I define as a significant decline in dry van truckload activity that is spread across the economy and lasts more than a few months (1), which mirrors the definition of a broader economic recession as defined by the National Bureau of Economic Research’s Business Cycle Dating Committee—that began in the third quarter of 2022. Fortunately for DVTL carriers, there is increasing evidence that we are now past the trough in terms of freight volumes, and with several demand tailwinds expected to occur in 2025, freight volumes should improve. However, economic uncertainty due to potential major increases in tariffs on imported goods make forecasting for the second half of 2025 more challenging. Consequently, my outlook will focus on the first six months of 2025; once economic policy crystalizes, I will advance a prediction for the second half of 2025. 

Assessing current demand levels

The first figure plots seasonally adjusted demand for truck transportation as implied by the for-hire trucking ton-mile index (TTMI) co-authored by Dr. Yem Bolumole and myself, which estimates implied demand for truck transportation based off physical unit output for the 41 sectors of the economy that generate the most freight per the Census Bureau’s Commodity Flow Survey. After reaching a seasonally adjusted record in March 2022, TTMI fell but remained flat through August before beginning a steady fall starting in September 2022. Since then, it has trended down through summer 2024. This fall coincided with the Federal Open Market Committee (FOMC) starting its process of raising the federal funds rate to the highest level since early 2001. As inflation has cooled towards the FOMC’s 2% target and concerns have arisen about the health of labor market—the rate of hiring has fallen to levels not seen since 2013 and the unemployment rate has increased from 3.4% in early 2023 to 4.2% today—the FOMC cut interest rates in September 2024 by 50 basis points, with another 25 basis point cut occurring in November. I expect a further 25 basis point reduction in December before the FOMC pauses to ascertain the economic impacts.

Why demand should strengthen in the first half of 2025

Interest rate cuts are likely to increase demand in three areas that will ultimately benefit dry van truckload carriers. The first is lower interest rates make it more affordable for home builders to construct both single-family houses and multi-family housing complexes, in addition to making it cheaper for homeowners to finance improvements. One aspect of the sharp increase in trucking activity in the second half of 2020 through early 2022 was the importance of residential construction and improvements in stimulating freight demand, which is shown below using data from the Bureau of Economic Analysis. The sharp fall observed starting in the third quarter of 2022 is consistent with worsening trucking demand conditions. I expect we will see a strong uptick in construction activity by late Q1 2025, which will generate demand in manufacturing sectors such as cement & concrete, lumber & wood preservation, veneer & plywood, and millwork (amongst others).

 

The second sector that should receive a boost from falling interest rates is machinery wholesaling, which should spill over toward more manufacturing of machinery. As shown in the third plot, inflation-adjusted wholesale sales of machinery, equipment, & supplies began falling sharply in 2023 and reached a nadir in mid-2024, before rebounding slightly. However, inflation-adjusted inventories did not adjust to slowing demand, resulting in these wholesalers accumulating very large quantities of goods; today, while sales are up 9% from 2019 levels (adjusted for inflation), inventories are 17% above 2019 levels, which has driven this sector’s inventories to sales ratio to some of the highest levels observed outside of recessions. Reduced financing costs due to lower interest rates should spur more investment in machinery, which will allow these wholesalers to right-size inventories and pave the way for greater replenishment orders.

 

The third sector that should benefit from lower interest rates is motor vehicle sales. November’s seasonally adjusted sales of light trucks and SUVs were the third highest ever (see the fourth chart), which is a good sign for production of motor vehicle parts, which has slowed in the second half of 2024 due in large part to auto dealers seeing sharp increases in their inventories. Improved vehicle demand should further stimulate production of steel, which has been generally weak in 2024.

 

What indicators to watch

As most for-hire trucking demand stems from domestic manufacturing, I tend to focus attention toward manufacturing new orders and output in select sectors. In terms of measuring manufacturing new orders, my favorite measure—which is also released with minimal lag—is the Institute for Supply Management’s (ISM’s) subindex for new orders that is reported each month based on their survey of about 400 manufacturing firms. As shown in the fifth figure, we saw an encouraging jump in new orders in November to a slightly expansionary reading of 50.4. However, such a figure remains well below the historical norms that indicate a bull market is coming in the DVTL sector. For example, strong increases in TTMI in 2014 and the second half of 2024 were presaged by new order readings above 55 (and often above 60).

 

A second series I’ve found to be a strong indicator of trucking demand is industrial production by machine shops; turned product; and screw, nut, & bolt manufacturers (NAICS 3327) in the USA. Production trends in this sector tend to correspond strongly to demand conditions in trucking because most goods of this type are made domestically—the BEA estimates about 85% of goods of this type consumed in the USA come from domestic plants—with demand strongly tracking production of machinery, motor vehicles, etc. As shown in the sixth figure, production appears to have reached a nadir in August and September 2024, and will hopefully begin its upward rebound as we move into 2025 (assuming demand in downstream sectors strengthens). 

 

A tentative rate forecast

For a rate forecast, I will focus on the primary service producer price index for the dry van truckload sector. Including fuel, rates as of October 2024 were 13% above pre-COVID levels but down 3.1% year-over-year, though this is primarily due to diesel prices being down 17% year-over-year. My expectation is that by June 2024 we will see this PPI increase by about 4%, with stronger gains expected in the second half of 2025 to the tune of 6-10%.

 

References:

[1] Akin to the Business Cycle Dating Committee, three criteria to examine to define a freight recession are its depth (i.e., the amount of decline in trucking activity), diffusion (i.e., the extent the decline is national versus regional or within some shipper verticals but not others), and duration (i.e., how long the decline lasts from peak to trough). 

About the author

Jason Miller is the interim chairperson and Eli Broad Professor of Supply Chain Management in the Department of Supply Chain Management of the Eli Broad College of Business at Michigan State University.

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