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By Dean Croke, DAT Solutions
Every September, freight starts to accelerate through supply chains in advance of the end-of-the-year holidays. But this month is anything but predictable as shippers and logistics managers grapple with uneven consumer demand, volatile transportation costs, and wider-ranging searches for truckload capacity.
Conditions aren't going to change any time soon. Looking across the logistics landscape, here are three things to expect in the coming weeks.
1. Truckload rates remain elevated
Typically, freight rates start the year on a downward slope and then rise to a peak in June and July. But in 2020, by the end of March, spot van rates had jumped 15 cents per mile year over year only to drop to 15 cents per mile below 2019 levels by May 1—a 30-cents-per-mile swing in just four weeks.
Since then rates have increased 62 cents per mile in what's regarded as the longest continuous rate rally in the last five years.
In August, the spot van rate averaged $2.22 per mile nationally, up 19 cents compared to July and 41 cents higher than August 2019. Taking fuel out of the equation, the average spot line-haul rate for vans was $2.02 per mile, the highest monthly national average on record and exceeded the national monthly average contract rate for the first time since January 2018.
Rates continued to increase through the middle of September. The line-haul rate averaged $2.17 a mile during the week ending Sept. 12, 66 cents higher compared to the same week in 2019.
2. More freight on the spot market
When shippers need surge capacity, they have two options: appeal to their asset-based contract carriers or search for trucks on the spot market.
Asset-based carriers have continued to honor their committed volumes but have not necessarily provided additional surge capacity when shippers need to balance goods in their supply chains.
When the carrier can't fulfill the contract—in particular because the shipper wants to send a load to somewhere the contracted carrier doesn't go—those loads shift to freight brokers and the spot market. As a result, the number of available loads increased and prices rose to attract additional capacity.
DAT's Freight Market Intelligence Consortium, a price benchmarking service based on more than $50 billion in actual annual freight transactions supplied
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by major retailers, wholesalers, manufacturers, third-party logistics firms, and other organizations, reported that while July contract freight volumes were flat, shippers increased their load volumes on the spot market from roughly 12 percent on average to approximately 21 percent.
Nationally, the August load-to-truck ratio for vans rose for the fourth straight month to 5.3, meaning there were 5.3 available loads for every available truck on the spot market. The van load-to-truck ratio was 20 percent higher compared to July and more than double the ratio in August 2019 (2.3).
3. Intermodal is the wild card
There's another unexpected factor is putting pressure on truckload capacity: intermodal.
A sudden rise in imports due to e-commerce business and in-store replenishment has led to tight intermodal capacity and substantial rail surcharges at West Coast ports, forcing intermodal shippers to look to less-than-truckload and truckload markets to move high-value goods for core customers.
How much intermodal volume moves to the road remains to be seen on critical lanes, including Los Angeles-Chicago and Los Angeles-Dallas, but adding to the capacity shortage is the tight supply of 53-foot intermodal containers and TOFC (trailer on flat cars) railroad equipment. TOFC is also seen as a source of capacity for large asset-based motor carriers to move road freight by rail during busy times.
With the major railroads exiting this unprofitable segment, small shippers may have no choice but to move retail-season freight by road in the coming weeks. If that's the case, much of that freight would be posted to the spot market—ensuring that the cycle of higher rates will continue well into the fall.
Dean Croke is principal analyst at DAT iQ, the freight data and analytics operation at DAT Solutions. He brings 35 years of experience in the fields of data science, supply chain management, risk management, and human performance. For the latest market updates related to COVID-19, visit dat.com/industry-trends/covid-19 and follow @LoadBoards on Twitter.
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