The Cost of Transporting Pretty Much Everything Just Won’t Stop Going Up Trucking and cargo-shipping rates are at their highest levels in years—and it isn’t just because of the price of fuel
(…) Among the key drivers is the soaring price of diesel fuel. It hit a record of $6.53 on Sept. 22, according to AAA.
Also contributing to the rise in trucking costs, companies say, is a shortage of truck drivers, a byproduct of the Trump administration’s tightened enforcement of rules on who can qualify for a commercial driver’s license. Tens of thousands of immigrants—often the ones most willing to handle the less popular long-haul trucking routes—have lost their certifications.
Container-shipping rates, meanwhile, are up. The Port of Los Angeles, America’s biggest import hub, handled a record number of containers in the June-to-August stretch, in large part because retailers were rushing in goods to avoid new tariffs.
There’s virtually no way for businesses to avoid paying higher freight costs these days. Railroads, parcel-delivery companies like FedEx, and even the U.S. Postal Service are also raising prices. (…)
The rise in transportation costs is likely to bleed through to virtually all corners of the U.S. economy, from food to clothing to construction materials. Refrigerated groceries and other perishable goods typically feel the squeeze faster than other products, as their deliveries can’t be delayed for long. Eventually other businesses are likely to feel the bite too. (…)
The U.S. Transportation Department says it has removed more than 28,000 truck drivers from the road for failing English-proficiency tests since early 2025. It has also pushed states to cancel over 30,000 commercial driving licenses illegally issued to foreign drivers and purged over 8,000 unqualified training schools from the federal motor carrier registry. There are around 3.5 million truck drivers in the country. (…)
“The cost of recruiting, advertising, onboarding, training, sign-on bonuses—help me if I’m missing one of them, we’re going to see about $25 million more in Q3 versus Q2,” said Delco at a Morgan Stanley investor conference. J.B. Hunt also faces at least a $10 million headwind sequentially from the rapid rise in fuel prices.
“We have seen some of the most radical and abnormal swings in fuel prices that we’ve ever seen,” said Delco. (…)
Customers moving products by truck paid an average contract rate of $3.11 a mile to move their goods in August, up 29% from a year ago and the highest since August 2022, according to data from DAT Freight & Analytics. That includes the cost of fuel surcharges that come on top of the contract rate.
A driver who drives 500 miles a day, six days a week would have paid $15,000 more in diesel since the war in Iran started, said DAT’s principal analyst Dean Croke. (…)
Existing customers of railroads—including chemical companies, manufacturers and agricultural producers—are facing higher bills. Farmers shipping grain paid a 48-cent fuel surcharge per mile per railcar in mid-September, more than double the 19-cent surcharge from a year earlier, according to data from the U.S. Department of Agriculture. (…)
The cost of shipping a ground-parcel package increased 5.2% on average in the third quarter compared with the same period a year earlier, according to data from AFS Logistics. (…)
Apollo Global Management Inc.’s Torsten Slok warned that record diesel prices pose a greater inflation threat than the Federal Reserve may appreciate because those fuel costs flow into the core consumer price index.
The breadth of diesel-related transportation expenses is different from gasoline’s, said Slok, Apollo’s chief economist. Demand is highly inelastic because shipping goods is vital for everything from retail supply chains to building out data centers, so price hikes will ultimately be passed on to businesses and consumers, he said.
(…) the traditional focus on core inflation — which excludes food and energy prices — doesn’t work with a fuel as crucial as diesel. “The rise in diesel prices does not stay in the energy line of the CPI but migrates with a lag into core goods and services, which is exactly the kind of pass-through the Fed cannot dismiss as transitory,” Slok wrote. (…)
Minutes from the July Federal Open Market Committee meeting showed that most participants believed that “earlier energy price increases” would wane, helping mute inflation over the rest of the year. But this week, in the wake of the Fed’s Sept. 16 rate hike, Chicago Fed President Austan Goolsbee warned the central bank cannot ignore repeated and persistent supply shocks. “Once supply shocks to inflation become persistent, some of the logic behind ‘looking through’ no longer holds,” he said. (…)
Slok identified the spending boom in artificial intelligence as the primary reason the economy has remained resilient despite higher interest rates, estimating that AI-related activity is currently adding roughly one percentage point to GDP growth. That accounts for about half of total growth at the moment, through data-center construction, energy demand, software spending and the wealth effect of elevated equity prices, he said.
He described a scenario in which the Fed’s implicit hope is that a resolution to the Iran war eases energy price pressure, relieving the central bank of the need to hike further. That outcome, he said, is “the Hail Mary right now.”
It gets slicker as John Dizard explained to IRA:
FYI, here’s what John told the IRA last spring:
We already have diesel prices that are going to be going up. If not hyperbolically, you know, very, very aggressively. And in the case of the Group III lubricants and even Group II lubricants that I’ve been obsessing about, we have an availability problem starting now.
(…) what was really destroyed in the Gulf, it’s not just a matter of escorting ships to the Strait of Hormuz. It’s the disruption of the productive plant. And that’s the problem.
John last week:
(…) The triviality of what’s being debated in the mainstream American media compared with the seriousness of what’s going on in the rest of the world is astounding. I’ve never seen any greater divergence. So, you know, what can you say?
Our little talk back in April about Group III base oils turned out rather interestingly. They’re on allocation now by the major suppliers. There will probably be panic buying by some people, which will make the allocation a little worse. I don’t think people ever quite realized what was going on with improving mileage for cars. Consumers thought that better mileage was for free. No, it was being bought at the cost of dependency on a type of oil that we weren’t actually making in the U.S. (…)
We’re going to be bidding against the Europeans for our synthetic oil which isn’t all synthetic, but which is definitely high viscosity. We’re going to be bidding against them because they’re not going to be getting lubricants from the Middle East and their oil refineries are not going to be supplied with crude by Saudi. (…)
The Houthi presence on the Red Sea does mean that yet more refining capacity has been knocked out. So product exports from the Saudi refinery at Jazan on the Red Sea, for example, are suspended. That’s the real choke point in the world, is not just crude supply, but it’s really product supply. And that’s one more refinery that’s crossed off the list. Did they actually destroy it? No, they didn’t destroy it. They damaged it, but they have said no Saudi ships. (…)
And for the Russian refineries, which have been knocked out, repeated attacks have an increasing effect on how long it takes to restore refinery capacity. You can fix something, and then if it gets hit again, yet more damage will be done, which will be harder to repair.
The Ukrainians have also gotten more sophisticated about which units and refineries they attack, so the fluid catalytic converters are the first thing they hit. Those take a while to fix and the Russians have responded to degradation by lowering the grades of gasoline and diesel they produce for sale. Russia is now on Euro 2, which is a grade of fuel you would buy 20 or 25 years ago. That type of fuel will do really bad things to modern engines. The Russians are facing significant problems. (…)
With Diesel, we’re close to seven bucks now. Does it get beyond that? Yeah. Is there a temptation for Washington to impose export controls for diesel? Yeah, but there are problems with that because you wind up also not being able to produce enough gasoline, because of the way refineries work. (…)
U.S. crude is not well adapted to diesel production. You need medium crude, at least, such as is produced in Canada, or heavy crude. Being able to produce a lot more Canadian oil would be good.
What’s even better than medium crude is medium sour, crude that has a lot of sulfur in it, meaning that you extract that sulfur, but then you use that sulfur to produce fertilizer, which I’ll get to in a second. The crisis in lube oil is here now. That shortage is here now. My advice to people, it’s practical advice they might need, is if you have a modern car and you need a 0W-20 oil, don’t put in a lower grade. You will wind up with problems with your engine. (…) To the degree people can’t get high viscosity oil, they’ll have problems with their bearings, pumps, generally their engines. Just don’t do it.
So anyway, back to the sulfur thing right now, what’s happened is the price of sulfur is kind of normalizing in a way around a thousand dollars a ton, which is up eight times from a year and a half ago. The problem is it can’t go up further because the fertilizer companies who buy it to make sulfuric acid can’t go higher.
About half of all sulfur produced in the world goes to sulfuric acid then most of that goes to producing phosphoric acid, which is then used to make phosphate fertilizers. So the problem is that with the price of sulfur having gone up as much as it has, farmers can’t afford more fertilizer.
They can’t afford those prices. So rather than raise prices, the fertilizer companies are simply cutting production, partly because farmers can’t afford it and partly because there’s not the physical availability of the sulfur to make it.
This is going to result in food shortages. We had a good harvest for grains this year. There were favorable crops most of the world, including, by the way, Iran, which is why they’re not going to starve to death. But that carryover will be limited. And crop yields are already declining in the US.
And next year, they’ll decline not only in the US, but around the world because farmers will not be applying as much from winter planting, spring planting on. There will be a food crisis starting next year.
Every dollar they have to pay for diesel is a dollar they can’t pay for fertilizer. And the farmers, even at higher grain prices than they have now, can’t cover their costs. They’re losing money. You know, there is no transfer payment that’s going to change that. So they’re are hurting badly.
Bankruptcies are up. Farm income is down. So there’s going to have to be a major, major increase in food prices next year. We’ll see how much of the Russian and Ukrainian crops actually manage to get to market because they can’t ship out to the Black Sea because both sides, neither side will agree on it. (…)
The food crisis is going to be the crisis of next year. I mean, it’s bad when you can’t drive as much as you feel like. It’s much worse if you don’t have the food. And it’s already baked into the cake. There a were about 75 million tons of phosphate fertilizer used in the world last year. Next year, 30 million tons of that will not be there.
Think about that and there’s a multiplier on food production when you don’t get a phosphate application or for that matter enough nitrogen fertilizer. (…)
I think that you’ll get to the price levels that destroy economic activity in the east that you have in the west. So $7-8 diesel, perhaps higher after the midterms. Maybe $7 or $8 regular gas.
At $10 diesel, you start to get projects canceled, you know, shipments canceled, you start to get real demand destruction. (…)
What’s amazed me is how poor is the response from the high end of the U.S. government. The command levels just have responded to this very badly. Why do you think the Chinese satellite images of US bases in Jordan can be seen in the rest of the world, but not in the US? That’s not for security reasons. That’s for PR reasons.
The Trump Administration does not want US media to report how badly the US bases were hit. And by no coincidence, JPMorgan suspended issuing its estimate of oil prices for next year.
- Modeling Potential US Diesel Export Restrictions (GS)
GS estimates that, “initially while storage remains available, each week of a US diesel export ban would be associated with $0.25/gallon of downward pressure on average US retail diesel prices, or just under 4% of the current $6.5/gallon.”
- the longer a diesel export ban lasts, the more disruptive it would likely be by putting upward pressure on gasoline prices because diesel, gasoline, and jet fuel are largely produced together.
- restrictions on US diesel exports would add upward pressure on ex-US diesel prices.
- post-ban global refined oil product prices would likely be higher
- Gasoline markets are tightening rapidly.
- Any future potential inclusion of gasoline in US product export restrictions would tighten ex-US gasoline markets.
- Europe’s gasoline SPR reserves are 4x smaller than its diesel reserves.
In effect, Trump would hit Europe directly after having hit it indirectly with his war on Iran.
Trump last Thursday:
This is the “HOTTEST” Economy in the World — and the Media is working overtime for the Democrats to convince Voters that the opposite is true.” He added that the economic outlook was good for working people “because it gives them more wage leverage.
The last thing the US economy, the bond market and the Fed need right now is accelerating wages. The Atlanta Fed Wage Tracker troughed at +3.5% YoY in May but reached +4.1% in August. Job switchers are getting +5.0%, highest since 2024.
Job Postings on Indeed are up 3.4% since their early June cyclical low, pointing to accelerating employment growth. The labor force is down 1.0% so far in 2026 with the participation rate slumping 1 full point to 61.6. The participation rate was 66.4 in January 2007, 63.3 just before the pandemic. Declining supply against rising demand.
The September flash PMI released last week:
- The headline flash S&P Global US PMI Composite Output Index rose from 56.0 in August to 58.4 in September, registering the fastest expansion since July 2021 and an acceleration of growth for a fourth successive month.
- New order inflows also gathered pace in both sectors, with growth reaching the highest since March 2022 in the service sector and the highest since April 2022 in manufacturing. In both cases, demand was buoyed principally by the domestic market.
- Companies’ backlogs of uncompleted orders, a key indicator of capacity utilization and future business growth, rose in September at the sharpest rate since May 2022, having accumulated at increased rates in both manufacturing and services.
- Employment consequently rose in September at a rate not seen since June 2022 and a pace rarely exceeded since comparable data were first available in 2009. Both service sector and manufacturing payrolls increased, the former at the fastest rate since June 2022 and the latter notably to the greatest extent since February 2021.
- Price pressures intensified in September. Average input costs measured across both goods and services surged higher, the overall rate of inflation hitting the highest since October 2022. The increase was blamed widely on higher fuel and transport costs, though wage pressures were also noted to have picked up in many cases. Service sector input cost [mainly wages] inflation hit the highest since November 2022.
Timely enough?
Fitch Ratings reports that the 60-day delinquency rate for U.S. subprime auto loans reached an all-time historic high of 6.9%, exceeding the peak of the 2008 financial crisis which topped out around 5%. This is the highest level recorded since Fitch started tracking the data in the early 1990s.
Credit corrections always come from the bottom up. When the economy shifts and credit tightens, defaults and financial strain almost always show up first among the lowest-rated borrowers and subprime consumers before eventually moving up to impact prime borrowers and corporate credit. This is why people talk about a “K” shaped economy, but that K is fast becoming an L.
The delinquency rate for prime car loans has held incredibly steady at under 0.5%,suggesting that delinquency is concentrated among lower-credit borrowers. But will rising inflation and energy prices start to cause default rates for prime consumers to move higher? Will the “K shaped” distribution for consumer credit now become more lopsided as delinquency rises from the bottom of the consumer cohort? The chart below shows the Auto Indices for net loss from Fitch Ratings. (IRA)
Source: Fitch Ratings
Qatar Has a Message for the ‘Troublemakers’ and ‘Saboteurs’ Blocking Peace
Sheikh Mohammed bin Abdulrahman Al Thani, Qatar’s prime minister in conversation with Bloomberg:
(…) What’s really concerning [is] that a red line — targeting civilian facilities, schools, hospitals, bridges, power plants, energy facilities — became the new normal. It’s been deliberately crossed not only in that conflict, but elsewhere in the world. The parties who are crossing these red lines are bragging about it. There is a huge responsibility on the international community to stand up to these kind[s] of violations, otherwise we will end up in a different world.
Are you referring not only to Iran but also to the United States and Israel?
Any targeting [of] civilian facilities should be prohibited and we should stand up for this. (…)
Bring us up to date on the situation now.
The situation is deeply concerning. Qatar is not a party of this war. Iran is our neighbor. [The] US is our strategic ally. [The] Gulf is our national security coalition.
We are trying to convey messages between parties, but also need to acknowledge this conflict is very complex. Unfortunately, developments we are witnessing every day — very reactive events — are changing the course of negotiations.
There is no clear master strategy we are following. That’s basically what we are missing today. (…)
How and when do you envisage a change in the situation of the Palestinians?
In Gaza, unfortunately, we are dealing with a party who is reckless; keep[s] killing; preventing humanitarian aid from entering. The world is not doing much about it.
Do you mean the Israeli government?
Of course. It’s very clear that the commitments stated in the agreement are not fulfilled yet. We are calling for the Israeli government to fulfill their commitment.
In our world, countries are either peacemakers, troublemakers or saboteurs — or those who sit back and do nothing. All countries need to step up and to stop the saboteurs, stop the troublemakers and work together collaboratively in delivering a real peace. (…)
The Palestinian issue will never be resolved [with the] policies adopted [by] the current Israeli government. What’s happening in Gaza is one thing; the West Bank, another. We have seen violations happening [in] Lebanon, Syria, Iraq.
Is Iran a troublemaker?
With what they have created for the region as a response to the American-Israeli war, [it’s] appeared very clearly that they are not a peacemaker. (…)
Let me clarify something. When you ask Is Iran [a] troublemaker? We are talking specifically [about] the trouble Iran made for the Gulf.
(It’s interesting that the prime minister chose to come back to clarify his words on Iran: suggesting, I think, that Qatar had no problem with Iran before the events of this year. Sunni Arab countries had worked to improve ties with Tehran in recent years, but the wider backdrop was persistent concern over Iran’s nuclear ambitions and its relationships with Hezbollah, Hamas and Yemen’s Houthis.)
Iran is our neighbor. Without a security framework that brings us all together as Gulf countries with Iran — ensuring that none of us is posing a threat [to] the other — this region will not [continue] in the same way as it used to.
We have to act together responsibly as a region and make sure that we [have] good relation[s] with Iran, and Iran has a good relation[s] with the Gulf. We are working toward that; our regional partners believe in this. We are hoping this war is a wake-up call for everyone. It’s time for it to happen. (…)
The Moves That Backfired on Trump and Drove Interest Rates and Inflation Higher
In the early days of President Trump’s second term, his economic advisers laid out a simple theory: Show the bond market that Washington was serious about closing its gaping deficits, and long-term interest rates would fall on their own. Trump could leave the Federal Reserve alone. (…)
The White House theory rested on fiscal restraint that never arrived and overlooked how much of Trump’s own agenda would feed the price pressures now pushing rates higher. Tariffs raised the cost of imported goods. The war with Iran sent oil and diesel prices soaring. Immigration restrictions shrank the labor force. (…)
Bessent made deficit reduction a centerpiece of his pitch during the 2024 campaign. Then a hedge-fund manager advising Trump, he championed an agenda called 3-3-3: cutting the deficit to 3% of GDP, lift inflation-adjusted growth to 3% and increase domestic energy production by the equivalent of 3 million barrels of oil a day.
Once Trump took office, advisers trotted out a series of fixes for the deficit.
First came the Department of Government Efficiency, which Elon Musk said could find $2 trillion in savings by eliminating wasteful spending. It delivered very little. Then came tariffs, which brought in record customs revenue until the Supreme Court ruled this year that Trump lacked the authority to impose many of them.
Now the message is that strong economic growth will generate the revenues needed to reduce deficits. “We can grow our way out,” Bessent said during a television interview on Aug. 20. (…)
Bessent also said last month that a deficit-reduction plan would be unveiled within days, though he later said it wouldn’t be released for weeks or months. Trump, meanwhile, pledged this month $5,000 for every adult if Republicans keep control of the House and Senate in this fall’s election. (…)
The deficit doesn’t rank high among Trump’s priorities, if it registers at all, advisers said. These people say his main preoccupation has been Fed rate cuts, which he saw as a shortcut to shrinking the government’s interest bill. (…)
BTW, from the US Government Accountability Office, when the US debt just surpassed $40 trillion:
In FY 2025, 15 federal agencies reported a total estimate of about $186 billion in improper payments across 64 programs, an increase of $24 billion from the prior fiscal year. Most of these improper payments were a result of overpayments.
Improper payments have been a government-wide issue for more than 20 years, with estimates since FY 2003 at about $3 trillion.
Of the programs reporting improper payment estimates for fiscal year 2025, 19 reported improper payment rate estimates of at least 10 percent, including six programs whose rates exceeded 25 percent.
Improper payments—those that should not have been made or were made in incorrect amounts—have consistently been a government-wide issue. Since fiscal year 2003, cumulative improper payment estimates by executive branch agencies have totaled about $3 trillion, though the actual amount may be much higher.
Remember DOGE?
DOGE reported $110 billion in taxpayer savings — the GAO reviewed those claims and could verify exactly 4% of them. More than 22,500 contracts DOGE said were eliminated were never actually canceled. The GAO called DOGE’s numbers “not transparent” and “largely could not be verified.” The war on waste was mostly a press conference.
Even the World Cup couldn’t stop America’s tourism slide
- Despite hosting the World Cup, overseas travel to the U.S. was DOWN this summer.
- We’re on pace for overseas visitors to drop by 2 million from last year — down 20% from our ’19 peak.
- “We’re the only major country in the world losing visitation, he told me. “It’s mind-boggling.”
This is hitting the U.S. economy hard. And it’s mostly self-inflicted: longtime allies like Canada (down 23% over two years) or Germany and France (down 16% and 15% YTD, respectively) are stiffing us, largely out of protest and fear.
Freeman said that high-end and low-end travel rise and fall in tandem historically.
- But high-end is booming domestically — thanks to business travelers paying a lot more for nice hotels and perks — with the rest flat or faltering.
Broadening?
From Callum Thomas:
Stealth Correction? While the headline market cap-weighted S&P500 has just been milling about, the equal-weighted version has dropped just over -5% off the 13-Aug peak. Breadth also paints a picture of market correction, with 200-day moving average breadth dropping from the high-70’s to just below 50%.
This is a classic stealth correction, on the surface headline index level it seems calm, under the surface there’s wreckage and weakness.
Stealth Correction — Flows: back on the idea of a stealth correction, this chart brings another angle on it. Investors have been raising cash at a similar pace to that seen during some of the previous major corrections and resets of the past decade.
So you could argue it amounts to a healthy reset (just in time for Q4 rally?)
Source: @MacroCharts via @RyanDetrick
Equal-Weight vs Cap-Weight: with the relative weakness in the equal-weighted index, the equal vs cap weight relative performance line has made new 20+ year lows; extending the already stretched excursion from its long-term uptrend.
Source: Topdown Charts Professional
Profit Prophets: in the background earnings expectations continue to heat up with this exhibit showing euphoric expectations for earnings margins.
But as I have mentioned before, there is such a thing as so good it’s bad, as Barclays notes: “the risk of course would be if .. growth/eps expectations for next year are unrealistically high …. every investor should take a long hard look at the ‘E’ in SPX valuations .. if they are going to buy into the ‘stocks are cheap’ narrative.”
Source: @carlquintanilla
Did you miss The AI Boost to S&P 500 Profitability?
Relative Value Rubber Band: then you also look at the relative value rubber band chart (I call it a rubber band chart when you have two things getting stretched and that will eventually inevitable snap back when something gives).
Tech (using the wider TMT definition to recapture some of the names that got spun out of the traditional tech sector) is trading on historically elevated valuations relative to the index (using a broad suite of valuation metrics).
Meanwhile defensives [healthcare, utilities, consumer staples]; the ones that investors shun in boom times, and look to for a buffer during downturns — are as cheap as dot com on a relative value basis.
Who’s Ahead in the Global AI Talent Race?
(…) That U.S.-China competition [on AI] has been most visible at the models layer. Every few months, a leading American AI lab releases a state-of-the-art frontier model, only to be followed by a Chinese open-weight model that nips at the heels of the U.S. frontier. As one of the most complex technologies in recent memory, AI’s advancements are driven by the world’s elite AI researchers and scientists. In other words, this layer is essentially a proxy competition for talent. (…)
China has established a commanding lead as the largest originating source of elite AI talent globally. Compared to 2022, the share of Chinese-origin AI talent, defined as those who received undergraduate degrees in China, increased 11 percentage points to 57 percent in 2025, while the U.S. share fell to 13 percent.
The United States remains a magnet for global AI talent, particularly Chinese talent. Despite U.S.-China tensions, among AI researchers working in the United States, the 2025 share of those holding undergraduate degrees from China rose by 4 percentage points. When it comes to brain gain vs. brain drain, the United States saw a net gain of +2,145 researchers in 2025 while China registered a net loss of -1,729 researchers.
However, more Chinese researchers are staying put in China than before. This is likely due to two factors: 1) It’s easier for Chinese graduates to find jobs in China’s booming AI industry, and 2) it’s harder for them to come to the United States as a result of tighter visa restrictions, particularly for Chinese graduate students in STEM fields. The share of Chinese-origin researchers who end up working in China increased from 57 percent in 2022 to 69 percent in 2025.
