Just a few weeks after our March State of Freight webinar, Craig Fuller, CEO of FreightWaves and SONAR, and Zach Strickland, SONAR’s Head of Market Intelligence, took to the same platform to see a significantly changed freight landscape.
In March, the U.S. was discussing auto tariffs, which are now on hold. But in a relatively short period of time, the U.S. has seen liberation day and an escalating tariff war with China, the largest supplier of U.S. imports, on which the U.S. has imposed a 145% tariff.
Here are five takeaways from Fuller and Strickland’s discussion.
The freight market needs volume; what is the current situation?
During the webinar, Strickland and Fuller used several data series from SONAR to show what the market looks like in the era of tariffs.
One of those indicators, the Outbound Tender Volume Index (OTVI), one of SONAR’s most important data series for measuring the direction of freight volume, has seen a significant decline in recent weeks. A few anecdotes relayed by Fuller corroborate the OTVI’s trend.
“I was meeting with a large carrier this week and they said a lot of their customers are asking for faster shipping times,” Fuller said. Given the often time-critical nature of the logistics industry, Fuller’s request is somewhat comical, since it implies that end customers want “warehouses on wheels or tracks.”
“That’s because no one wants to own inventory,” Fuller said. “There’s something good about mobile warehouses because you don’t have to worry about it.”
Trucking Market Still Holding Up
Perhaps because of the “mobile warehouse” effect, indicators of strength in the trucking market haven’t fallen sharply in response to tariff uncertainty.
The outbound bid rejection index, a measure of truckload capacity, is about the same as it was in February, though it has slipped in recent weeks.
The OTRI operating rate is about 5.6%, up from less than 4% a year ago, indicating that capacity is tight right now. Fuller said the rejection rate “suggests that the market is still in the recovery phase. What I’m worried about is what happens next.”
“It’s not really that dire,” he said, adding that if the OTRI data holds at current levels, it could be seen as the end of a three-year freight recession.
If the market falls from current levels, Fuller said, it won’t just be a new phase in the three-year downturn. Instead, he said, “We’re looking at a completely different cycle triggered by this economic blow, and it could ripple through the freight market and the economy as a whole.”
The worst could be coming soon
Neither Strickland nor Fuller are optimistic about the future.
One statistic they cite is SONAR’s IOTI.USA, which is a 14-day moving average of import bookings per twenty-foot equivalent unit (TEU). The index has fallen significantly in recent weeks.
Just a few weeks ago, import activity was at near-record levels, Fuller said. “But if you look at the daily trade data, the orders are falling off a cliff, and we’re seeing orders down 60% from where they were.”
This will hit intermodal, because a lot of cargo first arrives at major ports like Long Beach/Los Angeles and then is shipped to other parts of the country by rail and cross-country or long-haul trucking. “There was a surge in import activity in the summer, and I don’t know if we’re going to see that this year,” Fuller said. “I’d be surprised if it does.”
Fuller ominously warned that he expects short-haul activity in California to begin to collapse within weeks due to falling imports.
How Small Importers Might React
Fuller said the 10% across-the-board tariffs imposed by the Trump administration are probably what most businesses would consider a tolerable cost. Even when discussing 54% tariffs from China, “it feels like a lot of businesses can handle it.”
But a 145% tariff “effectively cuts off a large portion of trade. It’s basically sending a message that the administration doesn’t want to see trade with China.”
Fuller spoke from the perspective of owning several small e-commerce businesses that sell things like model airplanes.
But the most stark observation Fuller said he heard was from a freight forwarder.
“I was told that a lot of our customers are going to go out of business,” Fuller said. “The reason is that companies that have a single supply chain in China don’t have enough time to deal with a short-term shock. For them, they just cancel it completely.”
In his own business, he said, some products are subject to tariffs of 145%, “and we don’t make any money. It’s easier to cancel all of these tariffs.”
And the shutdowns come with a wish: “We hope this problem can be solved as soon as possible,” Fuller said. But it’s hard to predict because, as Fuller added, “A lot of times, suppliers don’t even know what’s going on.”
The Chinese may have an advantage in waiting
Fuller doesn’t expect China to back down anytime soon.
He noted that Mao Zedong remains a revered figure in China. Fuller noted that during the period under Mao’s leadership, various policies led to the deaths of 40 million to 60 million people. Xi Jinping, hailed by historians as China’s most powerful leader since Mao, “wants to be the second incarnation of Mao.”
For this reason, Fuller doesn’t think China will back down anytime soon.
“How long can we keep Donald Trump slapping tariffs on China at 145% and China saying, ‘We’re going to take the pain,’ ” Fuller asked. “The Chinese may suffer much longer than the Americans.”
Fuller believes that the American people “care more about business and enterprise than the pain and sacrifice we endure.” He said that Americans support rebuilding manufacturing in the United States, “but how long can this support last?”
