It's no secret that truckload rates aren't where they were a year ago. We don't expect prices to reach the same levels we saw in 2018, but we've been predicting a second quarter rebound for quite some time now -- really since last December, when we also said that we expected a softer than usual first quarter. A number of factors delayed that rebound, but there are signs emerging that it's finally here.
The first delay was the scope of flooding and bad weather in the Midwest and other areas. That affected cross-country traffic and many produce harvests. When the increased tariffs on Chinese imports were announced in mid-May, there was an instant damper put on movements from the West Coast until businesses could reassess plans.
Even with those disruptions, volumes haven't been bad this year, and now it looks like the volumes we've been anticipating have materialized. This includes both seasonal shipments associated with warmer weather, and stored goods from the West Coast moving into the eastern supply chain. No doubt, bonded warehouses are being emptied to avoid the increased levies. Short term, I expect we will continue to see elevated activity through June into early July.
When West Coast goods move in higher quantities by truck, it tightens the truck supply because the cycle time for a truck to complete a round trip is higher. In effect, it removes capacity that would otherwise compete on movements in the eastern half of the country.
The flipside is that there's a risk that the summer doldrums (July, August) could be worse than usual with the damper on international trade. Lower oil prices could be another factor. While flatbed activity picked up in late May, current oil prices are bearish, meaning a slow down in energy projects could occur, which makes for softer flatbed demand.
Sustained growth or summertime blues?
And while we are starting to see higher quantities of summer produce, USDA and DAT's own internal data suggest it continues to be a sub-par year for produce shipments. It could still turn around with a few weeks of favorable growing conditions, so this remains a wild card. This will also have a ripple effect across other segments of the supply chain, especially van freight since reefers compete for van loads when reefer demand slows. That's just one way in which the supply chain is an ecosystem where everything is connected: van, flatbed, refrigerated, and intermodal.
In the short term, Los Angeles, northern California, and Atlanta are much more robust in the last thirty days, both in load-to-truck ratios and, more recently, pricing. This could cause shippers that were planning to push for rate cuts to slow those demands. Plus, we could see a tighter market in the fall should some of the new entrants to the spot market start to exit.
Then there's the other X-factor: The AOBRD exception to the ELD mandate ends in December.