Auto freight rolls strong as economy hits the brakes

Chart of the week: Motor Vehicles and Parts Truckloads – USA, Outbound Tender Volume Index – Detroit SONAR: RTOMV.USA, OTVI.DTW

Auto parts freight volumes are still recovering as demand for many durable goods slows. Is it sustainable?

Carloads for automobiles and parts were up an average of 11% year-on-year in October as part of a recovery trend that started earlier in the year. The Detroit Outbound Tender Volume Index (OTVI) shows a historic surge in activity since this spring. The Detroit market is the best indicator of truckloads of automotive freight in the US due to the large concentration of plants and suppliers. These moves contradict most data from other sectors and markets.

Retail was the first to respond to slowing consumer demand. After the Omicron variant declined, the populace began spending more dollars on travel and experiences.

And while electronics and furniture are items bought to stay at home, automobiles allow consumers to leave the home, which they haven’t been able to do as much in the past two years.

Combined with the reduction in supply chain congestion, automakers are now able to complete vehicles that have been waiting to be completed. This sector is also experiencing a small renaissance with growing demand for electric vehicles.

The average age of cars hit new highs earlier this year as consumers held on to their vehicles after driving less during the pandemic. The reasons are not entirely clear, but some of this trend may be reversing.

Similar mechanisms play a role in commercial vehicles. Truck OEMs are also experiencing a delayed demand recovery, according to ACT Research, as Class 8 orders hit an all-time high in September. Shippers, who have built liquidity thanks to a booming market, have also aged their fleets as new equipment has not been as readily available.

While earnings were somewhat mixed for many consumer vehicle manufacturers, their earnings were mostly positive. Ford (NYSE:F) reported a 10% increase in sales in the third quarter, although its profits were hampered by supply and capital expenditure problems.

Ford and GM (NYSE: GM) reported double-digit growth in new car sales last quarter. While Ford’s growth was lower than expected, it’s an example that the auto sector hasn’t yet felt the same drop in demand as retail.

While this particular segment of the economy appears somewhat immune to the broader direction of the economy at the moment, its leadership teams have sought to temper expectations for the year ahead due to tougher consumer conditions.

The lesson for transportation providers working with the auto sector is simply to capitalize on volume while it lasts. Short-term demand still looks good and supply issues will persist into 2023. Electric vehicles could also provide a softer landing for this sector. But the long-term prospects have weaknesses.

Consumers return to some bad buying habits by overexerting themselves. Auto loan defaults are at about 10-year highs. Ultimately, the health of this sector depends on the fiscal health of the consumer.

Much of automotive freight moves under special arrangements with somewhat specialized carriers, which means there are high barriers to entry for new entrants. Opportunities to enter this space have increased in recent years, but this window may be closing.

And while the auto industry has ridden a latent wave of post-pandemic activity, it is bound to align more closely with the rest of the consumer economy.

About the chart of the week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point for describing the state of freight markets. A chart is selected from thousands of possible charts on SONAR to help participants visualize the freight market in real time. Each week a market expert will post a chart live on the front page along with commentary. Thereafter, the chart of the week will be archived on for future reference.

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