January Freight Surge Defies Seasonal Norms

Rates are trending up on the spot market. This is a surprising move for January and February, typically the slowest months of the year. Van and flatbed rates are up, but reefer rates are declining as expected. Reefers seem to have hit bottom, though, as rates are stabilizing now; they will likely begin to rebound next month. Rates should continue to rise seasonally in Q2, if the typical pattern asserts itself.

Focusing on vans, the rate increases of the past two weeks followed a surge in demand on the spot market in January. Capacity was still loose in January, but it began to tighten in many major markets in the first week of February, and rates responded to the pressure. If you have DAT RateView (formerly known as DAT Truckload Rate Index) with spot market rates, you can verify this in your lanes. Ten of the top 13 van markets saw rising rates two weeks ago, and many of those increases were sustained last week, as well. The exceptions were mostly clustered in the Northeast and along the West Coast.

Where is the demand coming from? Spot market freight doesn’t exist in a vacuum, and the American Trucking Associations (ATA) January for-hire tonnage index exceeded historical norms in January, confirming the trend we reported last week. Consumer demand, on the other hand, is giving mixed signals, and big chains including Walmart have hinted that the Q1 retail outlook is relatively weak. Meanwhile, exports are up, with freight moving from the U.S. to Brazil, China and Mexico. Much of this is industrial freight, which tends to move on the spot market, including the land-based portion.

Spot market is a bellwether. Freight trends often emerge first in the spot market, because it is driven by a mismatch between the available cargo and the available trucks. The mismatch can be a localized issue or a broad one; it can be caused by economic shifts, changes in supply chain practices or seasonal factors, including weather-related events. If the impact is broad, it will eventually become visible in the general freight market, including the ATA Tonnage Index.

You’re thinking: Nemo. Right? But rates in February do not seem to have been affected by the major snowstorm that hit the Northeast. Some freight movements may have been delayed due to road conditions, so you would expect pent-up demand to boost rates in the affected region. The post-storm impact was limited to a few key lanes, however, and it certainly was nothing like the aftermath of Hurricane Sandy.

Back to the key question: why are rates gaining strength in February? This is usually the off-season. On the other hand, carrier costs have been rising for the past year, and the recent spike in fuel prices makes profitability even more elusive. Freight and capacity appear to be fairly well balanced in the spot market right now, but if carriers don’t see a way to cover costs, they could park their trucks until spring. When (or if) a surge of freight materializes in Q2 as many economists expect, that balance will begin to tilt in favor of the carrier. Eventually, rates will rise further. This atypical spike could be the start of an emerging trend.

Are you seeing any unusual trends in your lanes? Please comment below.