Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Trucking Industry
Transcript
- Lucas: If you've driven past a truck stop lately, you may have noticed a lot of rigs sitting idle—and that's actually a pretty good window into what's happening in the economy right now. Luna: Yeah, I've seen that. And the headlines about factory job cuts hitting levels not seen since the financial crisis and Covid... that's directly connected, isn't it? Lucas: Exactly. And look, this show stays ad-free because a small group of listeners chips in through buy me a coffee dot com slash fexingo. It's what lets us dig into these connections without any commercial noise. Luna: Right. And we really appreciate that. Now, the trucking piece—let's talk about why it's such a leading indicator. Lucas: So the trucking industry moves about 70 percent of all freight in the U.S. by weight. When the economy slows, trucking feels it first—and when inflation is sticky, like we've seen with CPI still running above 3 percent on a core basis, the trucking squeeze gets worse. Luna: And we're not just talking about the big carriers. The real story is what's happening to the small and midsize operators. Lucas: Right. There are about 900,000 trucking companies in the U.S., and the vast majority are owner-operators with fewer than six trucks. During the pandemic, freight demand spiked and spot rates went through the roof—at one point over $3 per mile. That drew a ton of new entrants. Luna: And now rates have fallen sharply. I think the spot rate is around $1.70 per mile on some lanes. That's below break-even for a lot of operators, especially with diesel prices still elevated. Lucas: Exactly. The Cass Freight Index, which tracks shipments and expenditures, has been negative year-over-year for months. Shipments in May were down about 3 percent from a year ago. That's the freight recession we keep hearing about. Luna: And it's not just demand—costs are up. Insurance premiums for trucking have risen something like 20 percent year-over-year. New truck prices are up. And financing costs are higher with interest rates where they are. Lucas: Let's talk about the bankruptcy of Yellow Corp in 2023. That was the largest trucking failure in U.S. history—30,000 jobs lost. At the time, people said it was a company-specific story. But the pressures that took Yellow down—high debt, high labor costs, a shift in freight mix—are now hitting the rest of the industry. Luna: So what's the stagflation angle here? Because we've got inflation above target and GDP growth at 1.6 percent annualized—that's the classic combination. Lucas: The stagflation piece is that trucking is caught between rising input costs and softening demand. That's the textbook definition of a stagflationary squeeze. Normally, in a recession, demand falls and costs fall too—but here, costs are still rising because of structural inflation in insurance, equipment, and labor. Luna: And the labor market is weirdly tight. Unemployment at 4.3 percent, but job openings in transportation are up. It's hard to find drivers even as some companies are going under. Lucas: That's the churn. Experienced drivers are leaving because they can't make money with rates this low, and new drivers aren't coming in fast enough. So there's a mismatch. The JOLTS data showed over 7.6 million job openings in April—that's actually up from the previous month—but in trucking, many of those openings are for jobs that don't pay enough to cover the costs of training and licensing. Luna: So we've got a two-tier market. The large carriers with long-term contracts are still doing okay—but the spot market, where small operators live, is brutal. Lucas: Right. Contract rates have held up better because they're tied to fuel surcharges and longer-term commitments. But spot rates—which are more of a real-time barometer—have been sliding for over a year. And that gap between contract and spot is a signal that the market is out of balance. Luna: And it's not just domestic. The headline about Hormuz relief—easing tensions around the Strait of Hormuz—that could lower oil prices and help with diesel costs. But analysts say the economic damage is already baked in. Lucas: Right. Even if diesel drops fifty cents a gallon, the demand side isn't coming back quickly. Factory output is weak—the S&P report on factory job cuts is a big red flag. Those cuts mean fewer goods to move. So you've got structural supply overhang in trucking capacity that won't clear until demand recovers. Luna: And that recovery might be delayed if consumer spending shifts more toward services and away from goods. That's been a theme since the pandemic—services inflation has been stickier than goods disinflation. Lucas: Exactly. The PCE price index is still climbing—April was 130.9, up from 130.38 in March. Core PCE isn't falling fast enough. So the Fed stays tight, borrowing costs stay high, and trucking companies can't finance new equipment or even meet their current obligations. Luna: What's the endgame here? More bankruptcies? Consolidation? Lucas: I think we'll see a wave of consolidation. The large carriers with balance sheet strength—like J.B. Hunt, Schneider, Werner—they'll acquire smaller operators at distressed prices. That's already happening quietly. And the owner-operators who survive will be the ones who locked in long-term contracts or diversified into specialized freight like refrigerated goods or hazmat. Luna: So for listeners who aren't in trucking—why should they care? Besides the fact that everything they buy was on a truck at some point. Lucas: Because trucking is a leading indicator. If spot rates start to recover, that's a signal that industrial demand is picking up. If they keep falling, it's a sign that the stagflationary environment is deepening. We're watching the Cass Freight Index and the ATA's For-Hire Truck Tonnage Index each month. Those numbers tell you more about the real economy than a lot of the headline GDP figures. Luna: And one more thing: the driver shortage narrative. It's not really a shortage if wages don't rise enough to attract workers. In a stagflation, wages are sticky but not sticky enough to keep up with inflation. So you've got this chronic under-supply of labor in a sector that's essential. Lucas: Right. The average hourly earnings in the private sector were $37.50 in May—up from $37.41. That's less than 2 percent annualized growth, while core CPI is still running over 3 percent. So real wages for truckers are falling. That's not sustainable. Luna: So we're in this weird spot where the economy is creating jobs, but the jobs that exist don't pay enough to make the career attractive, and the costs of doing business are eroding margins. That's the stagflation trap. Lucas: Exactly. And the trucking industry is ground zero for that trap. If you want to understand where the economy is headed, don't just look at the S&P 500—look at the number of trucks parked at a rest stop on I-80. Luna: Good place to leave it. Next episode we'll look at another industry getting reshaped. Thanks for listening.