Low labour force participation and tight transportation capacity in the coming year will keep freight demand high  as inflation is expected to worsen, according to American Trucking Associations’ Chief Economist Bob Costello. 

During a Nov. 30 U.S. Bank webinar, Costello said he expects freight will remain “robust” in 2022, with inventory-to-sales ratios at an all-time low, reports Fleet Owner.

“That’s why you see a lot of retailers try to get in as much product as possible,” he said. “People still have high expectations as to how fast stuff is going to get to their doorstep. So even if sales slow a bit early next year, retailers will have to bring in a lot of freight to get us back to where we were prior to the pandemic.”

Those healthy freight expectations, however, are in an environment where the labour force participation rate remains “stubbornly low,” Costello pointed out. There are more than 10 million job openings and a labor participation rate below 62%. 

“It’s going to get worse,” Costello advised, saying he expects more than 7% year-over-year increases for the CPI. “The Federal Reserve will continue to accelerate their reductions and purchases enough that by March, quantitative easing will be over. And once that is over it opens the door for interest rate hikes. 

“They don’t set interest rates for today,” he added. “They are setting interest rates today for 12-18 months down the road. There is a lot of debate on whether they will need to do this sooner rather than later.”

By the end of next year, however, Costello said he expects inflation will decrease to 3% year-over-year, rather than staying at the higher 6% to 7%. 

“The three buckets of freight are good, but inflation is going to get worse than it is right now,” Costello advised. “The pandemic is something we are going to have to live with. It’s something we are going to get used to, but it can still punch us in the gut.” 

“Now, you don’t need an economist here to tell you when you have a situation where you have demand outstripping supply and what happens to price? It goes up,” Costello advised. “It is no different in the truck driver market.

As to how vaccine mandates, come mid-January, all drivers will have to show proof of vaccination while entering Canada, Costello pointed out. 

“You should prepare for mid-January that all drivers will have to show proof of vaccination going into Canada and coming into the U.S.,” he said.” This is a real concern. Stay tuned on that. We will have more to come.”

Full story here.