Rate trends are contrary things. Sometimes, the national average rate will go up even when rates in all major markets are trending down. It happened last week, with van rates. We were showing an increase in the national average rate for vans, but rates were declining in most high-volume lanes. How is that even possible?
During seasonal transitions, rate trends usually follow a three-step sequence:
1. High-volume lanes move first. Rates in major lanes are usually the first to change, especially when there is an upward trend. There is more pricing pressure when lots of freight is available, because carriers may need a little extra incentive to re-position their trucks. Two weeks ago, it was already apparent that rates in the major lanes were losing momentum.
2. Moderate-priced lanes follow. The lanes that pay close to the national average will follow the high-volume lanes, whether rates are rising or falling. Van rates declined 1¢ last week, as a national average.
3. Back haul lanes counter the trend. Rate trends in the lowest-volume lanes often go in the opposite direction entirely. That's because the trucks that took a higher rate, for example, from Philadelphia to Boston are now stuck in Beantown with very few outbound loads to choose from. When the pressure recedes, and the rate declines from Philly to Boston, the outbound rate from Boston goes up. Last week, the head haul from Philly dropped 9¢ and the back haul out of Boston rose by the same 9¢.
Statistically speaking, the national average spot market rate is weighted slightly toward back hauls. That's because larger carriers are likely to have a direct contract with a shipper for the head haul, and freight brokers are also somewhat more likely to post loads in back haul lanes.
When demand starts to decline, as it typically does on the spot market at this time of year, and rates drop in the head haul lanes, some of the back haul rates are rising to lure a smaller number of trucks. That cushions the impact of the rate decline on the round-trip rate, and also on the national average rate. When the moderately priced rates start to drop, the national average follows.
You can see these patterns in action on DAT Trendlines. Van trends are the easiest to track, but the same sequence plays out with reefers and flatbeds on a regional level.