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Why Economics Matter in Trucking
You’ve probably noticed how at times our selective hearing defaults to fading out economic chatter from our consciousness, until economic shifts start to directly affect our daily lives, as in our wallet, conveniences and workload. There are countless factors, that can influence economic occurrences, such as, geopolitics, weather, financial vehicles, likes, dislikes, population count, historical events, disease, technology. Economics is complex and unpredictable, yet we often encounter experts on TV, online, or in print ‘confidently predicting’ the future.
These discussions might seem tedious, yet they are always at play and make a difference in every aspect of our lives. Rising fuel prices, unexpected maintenance costs, fluctuating freight rates, and change in prices for everything else —all these can catch you off guard if you’re not paying attention to the broader economic picture.
In this first article of our series on economic indicators in trucking, we will identify and break down how five key economic indicators, although there are many, affect consumers and the trucking industry, and offer ways you can make informed business decision.
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Key Economic Indicators and Their Impact
- Consumer Price Index (CPI) – aka Rate of Inflation
- Producer Price Index (PPI)
- Logistics Managers Index (LMI)
- Interest Rate
- Trucking Authority Entries and Exits
1. Consumer Price Index (CPI) 
- Definition: The CPI measures the average change over time in the prices paid by consumers for goods and services.
- Impact on Consumers: A rising CPI indicates higher living costs. Consumers may respond by reducing discretionary spending and prioritizing essentials like food and shelter. Common behaviors include cutting back on non-essential purchases, seeking discounts, and switching to cheaper alternatives.
- Impact on Trucking: Increased operational costs for truckers, such as fuel prices, maintenance costs, and new trucks. This often leads to higher freight rates to offset the increased expenses.
- Business Decisions:
- Adjust Pricing: Carriers should adjust their pricing to account for higher costs to maintain profitability.
- Implement Cost-Saving Measures: Practices like fuel-efficient driving and regular maintenance can help minimize the impact of rising costs.
- Budgeting: Use CPI trends to forecast future expenses and create accurate budgets.
- Growth Opportunities:
- Challenging Times: Focus on efficiency improvements to control costs and maintain margins.
- Prosperous Times: Invest in technology and equipment during prosperous times to prepare for future cost increases.
Current Data (June 2024): The CPI decreased by -0.1% MoM (month over month = over the previous month), and increased by +3.0% YoY (year over year = over the previous year). Source: U.S. Bureau of Labor Statistics
2. Producer Price Index (PPI)
- Definition: The PPI measures the average change over time in the selling prices received by domestic producers for their output.
- Impact on Consumers: Higher PPI can lead to increased prices for consumer goods, causing consumers to cut back on spending. Consumers might delay purchases, seek out sales, or switch to lower-cost brands.
- Impact on Trucking: A higher PPI can indicate increased costs for goods at the producer level, affecting freight rates and cost structures.
- Business Decisions:
- Contract Negotiations: Use PPI data to negotiate better rates with shippers.
- Supplier Agreements: Lock in long-term agreements with suppliers at current rates.
- Revenue Management: Adjust revenue management strategies to protect margins.
- Growth Opportunities:
- Challenging Times: Build strong supplier relationships to secure favorable terms during cost increases.
- Prosperous Times: Leverage lower input costs to offer competitive pricing, expanding market share.
Current Data (June 2024): The PPI for final demand goods increased by +0.2% MoM (month over month = over the previous month), and increased by +2.6% YoY (year over year = over the past 12 months). Source: U.S. Bureau of Labor Statistics
3. Logistics Manager Index (LMI) 
- Definition: The LMI reflects the economic activity within the logistics industry, including transportation, warehousing, and inventory levels.
- Impact on Consumers: Changes in logistics efficiency can affect product availability and prices, influencing spending behavior. Consumers may experience delays in product availability or price fluctuations, leading to adjustments in purchasing habits.
- Impact on Trucking: A higher LMI suggests robust activity, meaning more freight to move and potentially higher rates. A declining LMI might indicate a slowdown, leading to reduced demand.
- Business Decisions:
- Capacity Planning: Adjust fleet capacity based on LMI trends.
- Market Expansion: Identify and expand into high-demand regions or sectors.
- Service Offerings: Diversify services to capitalize on broader logistics activity.
- Growth Opportunities:
- Challenging Times: Optimize fleet utilization and focus on high-margin services.
- Prosperous Times: Expand fleet and services during prosperous times.
Current Data (June 2024): The overall LMI is 55.3. Source: Logistics Managers Index
4. Interest Rates
- Definition: Set by the Federal Reserve, interest rates influence borrowing costs and overall economic activity.
- Impact on Consumers: Higher interest rates increase borrowing costs, leading to reduced consumer spending and savings. Consumers might delay major purchases like homes or cars, and prioritize paying off debt.
- Impact on Trucking: Higher interest rates increase the cost of loans for trucks and equipment, affecting fleet expansion.
- Business Decisions:
- Financing Strategies: Refinance existing loans at lower rates.
- Investment Timing: Plan major purchases or fleet expansions when interest rates are low.
- Cash Flow Management: Ensure adequate cash flow to cover higher interest expenses.
- Growth Opportunities:
- Challenging Times: Focus on debt reduction and improving cash flow management.
- Prosperous Times: Take advantage of low interest rates to invest in expansion and modernization.
Current Data (July 2024): The Federal Funds Rate is 5.25%. Source: Federal Reserve
5. Trucking Authority Entries and Exits 
- Definition: This indicator shows the number of new trucking companies entering the market versus those exiting.
- Impact on Consumers: Changes in the number of trucking companies can affect delivery times and availability of goods. Consumers might experience delays or variability in product availability.
- Impact on Trucking: A high entry rate signals a competitive market, while a high exit rate indicates tough economic conditions.
- Business Decisions:
- Competitive Analysis: Monitor industry entries and exits to understand market competitiveness.
- Market Positioning: Strengthen market position during high exit periods by improving service quality.
- Growth Opportunities: Identify acquisition opportunities when many small players are exiting.
- Growth Opportunities:
- Challenging Times: Consolidate and improve efficiency during challenging times.
- Prosperous Times: Expand market reach by acquiring competitors during prosperous times.
Current Data (June 2024): New entries: 6,895; Exits: 7,684. Source: FMCSA; TruckingDive; Datawrapper
Now that you have a pretty good idea of what these indices represent and their impact, in Part II we will start breaking them down even further so that it all makes sense in the real world. Please ask any questions you have. We love to answer questions!!! And since there are only 50 of you reading this, for now, we expect questions – (Get the hint ; )
