Analyst on X: Trucking is set up for inflationary cycle

Market analyst May Ling (@MarketswithMay) recently highlighted an intriguing trend in the trucking industry through her X (formerly Twitter) post, drawing attention to logistics as a significant component of the Producer Price Index (PPI). Her observations come at a pivotal time for the transportation sector, which has experienced dramatic fluctuations since the COVID-19 pandemic.

Specifically, Ling noted that within the PPI, logistics seems to be the first sector that cut capacity in response to soft demand, rather than raising prices to make up for smaller batches.

“Most producers DID NOT reduce capacity — instead, they raised prices to coincide with smaller batch sizes (mostly in goods, but also true in some services),” Ling wrote. “This is what was causing Inflation in many areas and should be deflationary once you get volume increases.”

The PPI is a critical economic indicator that measures the average change over time in selling prices received by domestic producers for their output. Unlike the Consumer Price Index (CPI), which tracks retail prices paid by consumers, PPI captures price changes from the seller’s perspective. As Ling emphasized in her tweet, “Unlike CPI, PPI is a leading indicator for inflation,” making it particularly valuable for forecasting broader economic trends before they affect consumer prices.

The U.S. truckload market has undergone significant transformation since the pandemic, characterized by extreme swings in capacity, demand and pricing. Following the COVID-19 freight boom, the industry found itself with excess capacity as demand normalized and consumer spending patterns shifted. This oversupply situation was further complicated by volatile trade policies and tariff rhetoric, creating uncertainty in import patterns.

As market conditions deteriorated, thousands of small and midsize trucking carriers faced unsustainable economics. According to research from freight brokerage RXO, “the average cost to operate a truck is 34% higher over the past decade but absolute spot rates are largely the same as they were in 2014.” This economic reality triggered widespread business failures and market exits, initiating a painful but necessary adjustment mechanism to rebalance the supply-demand equation.

This newfound balance has begun manifesting in key market indicators. The national average Outbound Tender Rejection Index, which measures the percentage of tendered loads rejected by carriers, climbed to 6.67% – reaching the threshold where rejections start putting inflationary pressure on spot rates. Truckload spot rates (excluding fuel) rose 9.1% year over year in the first quarter of 2025, following an 11.6% growth rate during the fourth quarter of 2024.

A notable development has been the emergence of significant regional disparities. By June 2025, tender rejection rates for truckload shipments originating in the Southeast surpassed 10% – the first time in nearly three years they had reached that level. In contrast, rejection rates for freight departing the West Coast remained well below the national average. The “interior” markets of Atlanta, Chicago and Dallas showed the tightest capacity conditions among major freight centers.

Ling’s observation that “logistics is a major component of PPI Services” highlights the sector’s importance in the broader economic landscape. Her tweet identified trucking as the first area within PPI where capacity reduction has begun, potentially signaling a shift in the inflation narrative.

In her analysis, Ling pointed to a “period of reverse economies of scale” that has persisted for almost two years. She explained that inflation has been driven by “small batches, not shortage-driven price increases,” contrary to common misconceptions. Most producers maintained capacity but raised prices to accommodate smaller batch sizes, creating inflationary pressure across goods and some services sectors.

Looking forward, Ling outlined several scenarios. One possibility involves producers eventually capitulating and cutting capacity, which could become inflationary if GDP growth follows. Alternatively, rate declines might arrive in time to drive volume growth, restoring profitability before businesses make significant capacity cuts.

The market trajectory for truckload rates remains “inflationary,” according to RXO, though trade policy presents a significant wild card. Transportation prices were forecast to be significantly higher a year from now, with industry respondents returning a reading of 75 for the pricing outlook in the Logistics Managers’ Index.

Ling noted that demand patterns, while showing some strange variations by industry, aren’t the core issue. Instead, she pointed to “weirdly choppy purchasing behavior that is not helpful to Trucking” and emphasized the binary impact of tariffs on the sector.

Ling’s analysis provides a valuable framework for understanding the relationship between logistics, the Producer Price Index and broader inflation trends. By identifying trucking as the first sector where capacity reduction has begun, she offers an early signal of potential shifts in the economic landscape.

The trucking market’s gradual healing has finally restored equilibrium between supply and demand, enabling carriers to regain pricing power. However, as Ling cautioned, the market remains sensitive to external shocks, particularly trade policy developments and potential economic headwinds. The significant reduction in truckload capacity has made the market more responsive even to modest demand changes, positioning the sector for potential volatility in the coming months.

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