Bob Costello, Chief Economist and Senior VP of International Trade and Security Policy at the American Trucking Associations (ATA), delivered his 2025 Economic Industry Review. He outlined how these proposed tariffs would affect the trucking sector, from increased equipment costs to significant changes in freight patterns.

Tariffs and Their Ripple Effect

One of the proposed tariffs’ most surprising impacts is how they may alter freight patterns. Costello touched on the potential fees suggested by the U.S. Trade Representative’s office, which include up to $1 million per port call for Chinese vessel operators and $1.5 million for shipping companies using Chinese-built vessels.

Costello explained, “It absolutely could change freight patterns. I think it’s a really big deal.” Such high charges could discourage shipping lines from making multiple port calls, potentially consolidating their stops. “What they’re probably going to do is dump all of the cargo in one port and move on,” Costello noted.

This shift impacts not only imports but also export activities along the East Coast. Smaller ports that play a vital role in local industries may suffer. For instance, factories in Alabama rely on the Port of Mobile for exports. “There’s a good chance a lot of these ocean carriers are not even going to make that call and not go to Mobile anymore,” he added.

Consumer Behavior Drives Freight Patterns

Costello predicted a gradual return to standard freight patterns in 2025, following consumer-driven spending habits that delayed economic recovery. He warned, however, that implementing additional tariffs could trigger another economic downturn.

The proposed tariffs include an additional 10% on goods from China, 25% on steel and aluminum, and 25% on Canadian and Mexican imports. The latter is particularly concerning for the trucking sector as it directly affects the costs of tractors and trailers.

“If it in fact goes through … for any substantial amount of time, I think that brings in a real risk of macro recession, no doubt about it,” Costello stated. He emphasized that tariffs function as taxes, and price increases on goods will ultimately lead to consumers purchasing fewer items, dragging down freight volumes.

This follows the trend during the pandemic-fueled freight recession, where spending on goods skyrocketed due to limited entertainment and travel options. “We all remember; it was not fun. So, what did people start doing during that period? They just started buying stuff,” Costello recalled. Terms like “revenge travel” became popular as consumers shifted their focus from goods to experiences, attending concerts, or taking multiple vacations.

Now, with consumer spending normalizing and the economy showing signs of stabilization, the trucking industry faces an adjustment period.

Market Stabilization and Economic Outlook

Despite some turbulence, positive trends are on the horizon for the freight sector. Costello projects a 3.3% increase in goods spending and a 2.2% rise in spending on experiences this year. Notably, inflation for goods is currently lower than for services, encouraging higher spending on physical products.

Additionally, factory output, which declined by 0.4% in 2023 and 2024, is expected to rebound with a growth of 1.3% in 2025 and 2.5% in 2026. Although some subsectors may see slower recovery, overall manufacturing activity is anticipated to drive freight demand upwards.

The housing market also shows promise. Costello forecasted consistent growth in existing home sales, prompting an uptick in expenditures for home improvements. Meanwhile, new housing starts, estimated at one million, are likely to generate substantial freight opportunities.

“It wasn’t like the boom of the pandemic, but it’s certainly much better, and I think that is absolutely going to help,” Costello concluded.

Source: Commercial Carrier Journal

Image Source: Angel Coker Jones

The post The Unpredictability of the 2025 Freight Economy appeared first on Truck Drivers USA.

The industry has faced hurdles of over-capacity and low demand since the pandemic, and Costello admitted feeling “snake bitten” by a recovery that seemed elusive. “We haven’t seen normal since the pre-pandemic,” he explained. “Every cycle is different, this one included.”

While the overall economy is slowing, Costello reassured that a recession seems unlikely. Key drivers of truck freight are stabilizing, with some even showing signs of improvement. He anticipates a 2% rise in manufacturing output across sectors like chemicals and primary metals next year, with computers expected to see a 6% boost.

Consumer Behavior and Economic Trends

Post-pandemic, consumer spending shifted towards experiences over goods, but Costello observed a reversion back to pre-pandemic norms. Although housing remains challenging due to interest rate hikes, the Federal Reserve has begun reducing rates, albeit with long-term effects. “It takes a long time for decreases to work their way through the economy,” he noted.

The job market is also loosening, with monthly additions of 200,000 jobs and sustained low unemployment rates. Costello highlighted that there is approximately one job available per unemployed individual, boosting the Fed’s confidence to continue lowering rates. While fixed mortgage rates are declining, he cautioned against expecting drastic changes. “It’s not going to come down as much or as fast as the Fed Funds rate,” he remarked.

Looking ahead, Costello anticipates an uptick in home sales by 2025, with steady single-family housing starts and moderate growth in non-residential construction. Wage growth remains steady, contributing to increased purchasing power. However, he warned about record household credit card debt, which may hinder spending despite favorable delinquency rates.

Inflation has reduced to 2.4%, yet the cost of goods remains elevated, up 22% since 2020. This shift in consumer focus from services back to goods could stimulate freight movement. “Let’s go ahead and buy something,” Costello encouraged. “Remember, we haven’t bought goods in a while.”

Freight and Supply Chain Dynamics

Though freight recovery has been slow, Costello noticed signs of progress. Private fleets expanded during the pandemic, reducing available freight for hire, but as recovery continues, some carriers might exit the industry. Lenders are poised to demand repayments, potentially pushing fleets out as used truck valuations improve.

The digitization of freight has provided temporary relief to carriers, enabling quicker cash flow, albeit with negative margins. However, Costello warned that “eventually, it’s going to run out.”

While supply remains high, demand hasn’t risen enough to feel its impacts. Costello emphasized, “More companies need to fail.”

Since December 2022, around 34,000 carriers have left the market, often joining larger operators. This gradual supply-demand balance could mitigate driver shortages as freight demand rebounds.

Market and Political Pressures

The trucking industry faces pressures from both market conditions and rising costs. Revenue per mile has decreased significantly, while driver wages and operational costs hit record highs, up 35% compared to a 16% revenue increase.

Despite these challenges, Costello sees potential improvement in truck freight segments.

Source: Commercial Carrier Journal

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