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Trucking Trends: Conditions Feel Ripe for a TL Rate Hike

By Mark Montague, DAT Solutions

We're between seasons in the spot truckload freight market, as summer peach and plum harvests and back-to-school retail give way to fall apples and Halloween. Van and reefer rates typically hold steady and even decline a little from July through September. Same with freight volumes.

It's different this year.

Spot market freight availability caught up with 2015 levels in July and have remained steady all summer.

Compared to July 2015, van freight volume increased 17% in July while reefers gained 5.2%. Despite these higher volumes, truckload rates fell for all spot market equipment year over year—a persistent trend for 14 months. But the rate declines in July were less steep compared to the first half of 2016, especially for vans and reefers which fell 6.5% and 6.0%, respectively compared to July 2015.

Bucking the typical trend, July's van rates exceeded the June average for the first time in the six years since DAT began publishing spot market rates, with a 1.4% (2 cents per mile) increase. Reefer rates fell 1.7% (3 cents per mile) but that's relatively strong compared to the 5.2% average decline in July of the previous six years.

After a year of significant declines, the DAT Freight Index was virtually unchanged year-over-year in July, signaling stronger spot market conditions.

So are we seeing more volume?

It's more like there's less capacity, attributed to recent cutbacks by the large fleets that typically work with shippers on a contractual basis.

Stifel analyst John Larkin summed up the capacity outlook for the foreseeable future in a recent research note:

"The market is entering a period of capacity reduction thanks to soft demand and aggressive pricing (on behalf of shippers)," he wrote. "We've

long warned of an impending period of looseness in supply in demand in the trucking and logistics space, however the current market continues to slide into softer than anticipated territory."

What does that mean for rates?

With large fleets withdrawing trucks from the marketplace, shippers are beginning to assign a larger portion of freight to third party logistics providers and freight brokers. If trends continue, load-to-truck ratios may continue to gain and spot market volume could exceed 2015 levels this quarter.

The likely result? Higher rates on the spot truckload freight market.

"Shippers have taken full advantage of the current capacity lull as indications are that the bid season has been difficult for carriers," said Larry Gross, partner at FTR, a market research firm and publisher of the Shippers Conditions Index, a measurement of various factors affecting the shippers' transportation environment.

Now, he said, rising spot rates may be signaling the start of a slow reversal in circumstances back toward the carriers.

Mark Montague is industry rate analyst for DAT Solutions, which operates the DAT® network of load boards and RateView rate-analysis tool. He has applied his expertise to logistics, rates, and routing for more than 30 years. Mark is based in Portland, Ore. For information, visit www.dat.com.