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Trucking Trends: Mind the Gap

October spot freight declines seasonally as gap between contract and spot rates grows

By Mark Montague, DAT Solutions

It’s not unusual for the spot truckload freight market to experience a lull in Q3. But this year the slack demand combined with an increase in capacity has led to an extended slump.

Spot market freight volume declined 9.7 percent in October compared to September, according to the DAT North American Freight Index. By equipment type, van freight availability fell 13 percent, reefers lost 16 percent, and flatbed volume slipped 4.5 percent lower during October.

Line-haul rates on the spot market followed these trends, sliding 2.6 percent for vans, 4.5 percent for reefers, and 1.7 percent for flatbeds compared to September.

The declines are more pronounced when taken year over year.

Compared to October 2014, spot freight volume was down 44 percent in October. Van demand was down 42 percent, reefer volume fell 34 percent, and flatbeds dropped 50 percent, compared to October 2014.

Rates fell as well compared to last year.

Line-haul rates declined 5.7 percent for vans, 5.6 percent for reefers, and 5.4 percent for flatbeds year-over-year. Total rates paid to the carrier declined by 15 percent, however, due to a 48 percent decline in the fuel surcharge, which comprises a portion of the rate.

So what’s the takeaway from these numbers?

1. The gap has widened between shipper-to-carrier contract rates and the spot market rates that freight brokers pay to the carrier. By mid-October, that gap had grown to 18 percent (25 cents per mile) on national average line-haul rates for vans, not

including the fuel surcharge. In October 2014, the gap was much narrower at 8 percent.

2. The wider gap between spot and contract rates represents an opportunity for freight brokers, who can offer competitive pricing to their shipper customers while paying a fair rate to carriers who haul spot market loads.

3. Small carriers can get by with a lower rate in the short term, because fuel is relatively cheap. A declining fuel surcharge moderates the rising line-haul rate on the contract side, and gives the spot market rate an even more pronounced downward trend.

The gap may narrow again between spot and contract rates, for a variety of reasons. First, contract carriers will adjust their pricing to avoid losing market share to freight brokers and 3PLs. Second, small carriers will exit the market if rates drop below their breakeven threshold, or if increased costs and new regulations hamper productivity. An increase in overall freight volume would also tip the balance, as the additional demand would likely exceed contract capacity. Then spot market rates will rise, or perhaps contract rates will fall, as shippers adjust to the new conditions.

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.