Should we "wait and see" or totally freak out?

Hi all,

The weather in Chicago was unexpectedly nice this weekend until we were hit by a sudden downpour during a boat tour on Monday. Then there was a tornado watch. Ultimately, there was no tornado.

For perhaps the first time in documented history, (my hometown of) Detroit has better weather than either of the cities I've lived in for the past year!

My brain is working a bit slowly from the holiday weekend, but I'll get to the main point of this email.

Is there a freight recession?

This question has been on my mind (and probably yours, too) since the beginning of the year, when economic conditions in Europe were shaky, China tariffs loomed, and seemingly every Billionaire Hedge Fund Guy We Trust declared that we were hurtling towards a recession.

Meanwhile, key freight numbers were beginning to fall from their 2018 peaks. I reported in Jan. that new truck orders fell 43% year-over-year in Dec. 2018.

These indicators aren't just important for logistics folks — they point to where the economy at large is going. A dip in truck orders, for example, warns that manufacturers and retailers anticipate that they'll be moving less stuff. That means they're planning on scaling back on producing, selling, and other business activities.

Analysts maintained at that point that 2018's shocking momentum would simply slow this year. Shrinkage was not in the cards, though. Leaders I spoke to were largely positive for 2019.

I'd describe the tone as "optimistic uncertainty." At the most morose, they highlighted a need to "wait and see" as global trade headwinds sorted themselves out.

Fast forward to today

The tone has changed a few months later.

Cass Freight has reported shipment volume drops in trucking for the past five months, as have the Association of American Railroads for rail freight. Trucking spot market loads, according to DAT, are down a chilling 53% year-over-year this month. That's a considerable dip in how much stuff retailers and manufacturers are moving.

Just this morning, Bank of America Merrill Lynch dropped JB Hunt from Buy to Neutral, citing "secular headwinds" and "sustained pressure" in rail and trucking.

And internationally, the IATA, which monitors air freight, has reported contractions galore this year. "If March is down — oh my, we're in trouble," Kevin Sterling, managing director of Seaport Global Securities, told me about the dip in Jan. numbers. "That's a signal that the rest of the year is probably going to be bad."

The next month, the IATA announced that trade had dropped by a three-year record.

Are we ostriches with our heads in the sand?

Uncertainty is still the name of the game, as Allison Landry, a transportation analyst with Credit Suisse AG, told The Wall Street Journal's Jen Smith last week. At a rail conference, Landry said she kept hearing folks stick to the "wait and see" message and "I hope we don’t talk ourselves into a recession."

Baird's Ben Hartford said he's "cautious" in an analyst note.

Given the numbers above, it might strike some as confusing why industry leaders and analysts aren't sounding the warning bells a little louder.

But Cowen analyst Jason Seidl said we shouldn't take year-over-year numbers, particularly in t as gospel. "It's not that 2019 has been so bad," Seidl wrote in a note. "2018 was just really, really good."

A quick look at DAT's monthly rates from the past few years backs up his thinking. Prices on the van spot market for May 2019 are, yes, down by 16% from 2018. But they're also up by 6.5% from 2017 and up by 17% from 2016.

Still, that doesn't totally assuage other pressing warnings of a recession. Spot rates in all areas of trucking have been dropping throughout 2019 — not even including comparisons to 2018 numbers. Air freight have been seeing record dips. And, as the WSJ noted, factory and retail output is slowing.

What do you think? Do you think a freight recession is impending, or are we already in one? Or are you advocating for the "wait and see" approach? Send me a note at rpremack@businessinsider.com.

Thanks for reading, and see ya next week.

— Rachel