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Trucking Trends: The End of the Freight Recession

By Mark Montague, DAT Solutions

Truckload volumes rose 8 percent in December 2016, capping off six straight months of increases. E-commerce and grocery items were major sources of freight in what is usually a period when the truckload market tapers off.

Six straight months. Maybe, just maybe, the Great Freight Recession is finally over.

It's been a long haul, starting with the fall of global crude oil prices in 2014. Domestic fracking and pipeline activity collapsed, and the freight that supports it—everything from heavy machinery to groceries at stores in towns throughout the oilpatch—dried up. Diesel fuel prices fell, and the declining surcharges meant lower revenues for motor carriers.

To add insult to injury, truckload freight rates fell. Spot (non-contract) freight plunged 15 to 20 cents per mile nationwide.

A freight turnaround began to materialize in May, and year-over-year volume comparisons turned positive in August. Although fall freight remained uneven, the longer term trend remained positive. Then, after Thanksgiving, freight activity was nothing short of robust for the van and refrigerated segments. This reflected a stronger overall economy: ISM's PMI measurement hit 53.2 in November and 54.7 in December (a reading over 50 means growth in manufacturing).

Going forward, truckload freight carriers and brokers can feel optimistic about capacity and rates. Why?

The ELD Mandate: In December 2017, electronic logging devices (ELDs) will be mandatory for tracking hours-of-service compliance. While most large for-hire carriers already use ELDs, many small fleets and owner-operators have yet to make the switch from paper logs. Some are put off by the expense, some are resistant to change, and others don't like an electronic device taking a strict measure of when they are and aren't moving.

By mid-year, carriers that still lack ELDs will find it increasingly difficult to maintain ongoing relationships with shippers, and with the large fleets and freight brokers that serve them. The prevailing wisdom is that late adopters will exit the business rather than switch to ELDs.

Rebounding Energy Sector: The Trump administration says making America great again includes a surge in domestic oil and gas production.

More drilling and pipeline infrastructure projects would affect trucking in several ways.

First, there would be more oilfield service equipment,

The December 2016 van load-to-truck was nearly 2 points higher year-over-year. An upward trend would help demand and push rates higher in early 2017.

infrastructure items, water, and frack sand to haul. Second, truck drivers in oilpatch regions would again be in high demand, and siphon drivers away from general freight carriers. These factors would cause general truckload capacity to tighten, and potentially lead to higher rates.

Spot Market Growth: Ecommerce is shortening planning cycles and highlighting the need for fast, data-driven supply chain management and a reliable connection to available truckload capacity. At any given time there are literally millions of available van, reefer, and flatbed loads—and available carriers—that are not under contract.

A factory ramping up, a bumper crop, a congested port—any of these things can generate "exception" freight that a shipper or broker will post to the spot market. Spot truckload pricing could become interesting in 2017 as it is those smaller carriers—the ones most affected by regulatory and economic shifts, as well as changes in fuel prices—that comprise the bulk of available trucks.

A Counter Opinion

There is concern among economists that abrupt policy shifts from the new administration in Washington will result in recession. More oil and gas production could lower prices, running counter to industry desires. Protectionist trade policies and tougher immigration enforcement could also hurt the movement of imported goods and produce.

Even if the economy doesn't take off in 2017, tighter truckload capacity would mean demand and rates may continue to climb.

So it's a tightrope. But in the long run there's hope that the crosswinds won't be so stiff.

Mark Montague is industry rate analyst for DAT Solutions, which operates the DAT&ref; 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.