Truckload Freight Volume and Rates Drop. Will They Rise Again?

Spot market freight availability and rates just kept going up, week after week. We were in new territory, with national average van rates well above $2.00 per mile for six consecutive weeks.

Those rates are still high, but they did begin to slip last week. This is the typical pattern on the spot market for the month of July: rates peak in June for both reefers and vans. Flatbed rates also trended up steadily until last week, even though that segment usually tends to hit a peak in April or May.

Demand is still robust, and capacity is constrained. That means we may even see another peak before the end of Q3.

A few factors might push rates to new highs in August or September. First, on the demand side:

Manufacturing, construction and imports are all on the rise. Whether you think the economy is weak or strong, there is definitely a significant improvement in sectors of the economy that generate lots of freight, including: manufacturing, construction and imports. That last item, import traffic, has an even more intense effect right now because of uncertainty surrounding contract negotiations with port workers on the West Coast, but analysts also expect a record amount of freight to arrive on U.S. shores in July.

California harvests are reduced, but other regions are over-compensating. Crops are abundant this year, including cherries in Oregon and Washington, vegetables and melons in Florida, tomatoes and peaches in New Jersey. The primary impact is local, of course, and reefer fleets have been enjoying strong rates in many areas of the country for the last two or three months. That contributes to a national average of $2.44 per mile for reefers, even after last week’s 5¢ decline .

Capacity constraints are not going away any time soon:

HOS-related productivity losses will not be restored. Fleets lost between 3% and 5% of their productivity when the new HOS rules went into effect. Industry groups urged Congress to roll back the law, but a proposed amendment was tabled following a highly publicized and ultimately tragic accident, when a semi-trailer collided with a limo full of celebrities.

Trucking company failures took capacity off the road. Between HOS last July and the beginning of those terrible storms in December, a lot of fleet owners just couldn’t keep going. Although fuel costs and demand were stable during the period, more than 10,000 trucks were taken off the road due to trucking company failures. One industry analyst attributed the bankruptcies to the mandated use of Electronic Logging Devices (ELDs) among trucking companies with HOS violations.

Large fleets can’t find enough experienced drivers, and turnover remains above 90%. That means there is a significant level of capacity that can’t be deployed because the trucks are “unseated.” You would not expect those fleets to add capacity until they can use the trucks they have. In fact, if they can’t find drivers, the fleet owners might sell their used trucks without replacing them.

Intermodal is not riding to the rescue. Lots of shippers want to take advantage of rail intermodal, because it costs less than truckload transportation and intermodal is well suited to certain cargo types. At the same time, a lot of the rail capacity is full, with petroleum from our vast energy boom, as well as abundant grain and other traditional rail cargo types. Railroad capacity can be expanded to an extent, using double-stacked cars and longer trains, but trains can only go so fast. Plus, you still need trucks for drayage at either end of the trip, those trucks need drivers, trains don’t cover the whole country, their schedules are not infinitely flexible, etc., etc. Trucks are more nimble and versatile. Trains just can’t replace them on a grand scale.

What happens next to spot market rates? It seems likely that these pressures will result in unusually high rates for the third quarter. I see two possible paths:

We might have a significant slump in July, which would bring rates more into line with last year’s trends, and then rates would peak again in August or September.

Alternatively, rates could stabilize at their current level, remaining there into the fourth quarter. I am leaning toward this scenario, based on this week’s developments. Heightened demand in Memphis and Houston is balancing the softer trends in Chicago and Dallas, and the national average could hold steady. We’ll know more in a week or two.

If you’re interested in the big picture, you can get a broad overview of truckload transportation trends every week on DAT Trendlines. If you are actually moving freight, however, you really want access to DAT RateView, which gives you continuous updates of rate and capacity trends for vans, reefers and flatbeds, in every major lane in North America. Call 800-551-8847 or fill out this form to ask for a demo.