Tariff Pendulum Drives Market Volatility for Trucking
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The trucking industry is facing a tepid financial outlook amid volatile market conditions compelled by the ongoing tariff-fueled global trade war, experts said.
found in its monthly data analytics report for May that while long-term freight contracts should see a modest increase of between 2% and 4% this year, the spot market is expected to see increased volatility as it absorbs the tariff impacts.
“The spot side is just impossible to predict because it’s so dependent on the overall trade picture as we head into the fall,” said Ken Adamo, chief of analytics at DAT. “We could have a busy tropical weather season this summer, which could provide a tailwind. That’s a demand catalyst. By all accounts, we should see a busy back-to-school and peak shipping season. That’s a demand catalyst. So I think there’s going to be a lot of chop in these spot rates.”
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Another complicating factor, Adamo noted, is that the industry still has oversupply of trucks and carriers. That means any recovery for the freight market is unlikely to be supply driven. Rather, he suspects the industry is waiting for some catalyst that will drive freight demand.
The volatile nature of White House moves regarding tariffs keeps those hopes on edge, noted Jenna Slagle, senior data analyst at Project44.
RELATED: Tariff Revenue Hits Record $23 Billion in May
“On any given day, the status of tariffs can change, which directly impacts demand,” she said. “As tariffs increase, lower volumes can lead to extra capacity in the truckload and LTL market, allowing for lower prices. However, if tariffs are paused or lowered, surges in demand result in lower market capacity. These swings are going to be directly reflective in the spot market.”
Slagle stressed that overarching uncertainty is the main driver impacting the market. That uncertainty is primarily fueled by tariffs, but the general economy and a strained labor force are also factors, she said. But as tariff policies change on a sometimes daily basis, the economy is left grappling with recession concerns and an unsettled labor force that is facing increased strain.
“The strong chance of supply chain disruptions due to the uncertainty over tariffs will cause rapid swings in share between spot and contract,” said Noël Perry, chief economist at Truckstop. “Initially, the swing will be towards contract as volume dips because of the gap in shipments from China. Periods of adequate capacity always favor contract operations. Once that period is over, the pendulum will swing the other way as rapid increases in demand tighten capacity.”
Truckstop data indicate that contract volume is ahead of trend by 4.3%, while spot volume is tracking below trend by 1.3%. Perry suspects supply disruptions will increase the demand for spot capacity. The wild card, as he sees it, is the state of the economy.
"So these higher tariffs we’ve been dealing with, they’ve been hurting manufacturing. That hurts truck freight in addition to the finished goods that we import," ATA Chief Economist Bob Costello says. (John Sommers II for Transport Topics)
“You can throw out the crystal ball, because it’s so hard to predict this stuff when we don’t know the environment,” Chief Economist Bob Costello said. “What’s going to happen with tariffs, so much hinges on that. Almost 50% of what we import into the U.S. is inputs to our manufacturing process. So these higher tariffs we’ve been dealing with, they’ve been hurting manufacturing. That hurts truck freight in addition to the finished goods that we import.”
RELATED: Manufacturing Activity Shrank in May for Third Straight Month
Costello pointed out that increased tariffs — as with any higher tax — likely lead to price increases. That’s bad for trucking since price hikes generally dampen freight demand. But he noted that trucking groups have been working to offset choppiness in the freight market.
Uber Freight estimates that a 1% increase in tariff rates could reduce truckload demand by up to 0.25%. This could limit the upside of the freight market and further delay a recovery.
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“On the truckload side, [request for proposal] contract rates have remained flat for three straight months, with most shippers opting to stay with incumbents where possible,” said Mazen Danaf, senior economist at Uber Freight. “Meanwhile, spot rates saw a seasonal rebound in late May and early June. After the Fourth of July, the market typically softens as produce volumes decrease.”
RELATED: Inflation Up Slightly in May as Grocery Prices Ticked Higher
Danaf warned that tariff uncertainty is already creeping into carriers’ Q3 expectations.
“They’re focusing less on chasing all volume and more on preferred freight, which could influence how competitive the spot market remains in the back half of the year,” he said. “They are also ordering fewer tractors and trailers amid tariff uncertainty, which could have inflationary implications several months down the line. On the shipper side, we’re seeing continued use of supplemental procurement strategies as shippers work to stay flexible.”
Uber Freight ranks No. 14 on the Transport Topics Top 100 list of the largest logistics companies in North America.
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