DAT sees a growth spurt in spot truckload rates compared to contract rates

As the trucking market continues to see tight capacity, coupled with healthy demand, there has been an interesting story going on as it relates to the national average for spot and contract rates for the three-month period ending in January, according to data recently put out by DAT, a subsidiary of Roper Industries.

DAT’s key thesis is that average spot and contract rates have “diverged sharply” over the three-month period covering November, December, and January, with the gap having accelerated in recent weeks, due to gains in spot rates, not only for van activity but also for the three major equipment classes: van, reefer, and flatbed.

“If we look at spot market rates year-over-year, vans are at $2.26 per mile versus $1.67 per mile, which is a 35.3% jump in rates,” said DAT industry analyst Mark Montague. “It is incredible to see that big of a jump in rates. For the contract marketplace, which has been so stable in recent years, we are now seeing a difference in the line haul van rate [which does not include fuel], with January 2018 at $1.79 versus January 2017 at $1.68, which is a 6.5% increase. That is in line with what it could be for the full year, when you factor in both big shippers, medium shippers and smaller shippers…each of which might have a little bit different experience.”

When asked what the drivers are for the annual gains in spot and contract rates, Montague explained that even a year ago the spot market was moving away from the low point of March 2016 and April 2016, noting that by the end of 2016 the spot market was tightening. And after a lackluster first quarter in 2017, that tightening really intensified, with a stronger load-to-truck ratio in March 2017, with that having doubled since then.

“Even before the hurricanes, we were seeing evidence of change in the market,” he said.  “There was a pretty good run up really until December 2018, when the whole world changed as the ELD mandate took hold…and we immediately saw a 10% jump in rates everywhere in the country. I don’t think the expected impact of ELD was overhyped. If anything, it was underplayed, but, of course, part of it was that capacity dropped out. There was not as much last minute freight for Christmas and e-commerce. A lot of capacity drifted out of the market and it started to drift back into the market in January, which is why we saw a little bit of easing in January, while volumes are not substantially different compared to a year ago.”

Looking ahead, Montague said it is possible there will be a softer node in freight demand and rates in February, which he expects will re-accelerate due to the April 1 deadline for full ELD enforcement.

Along with that is also the spring freight season, which increases demand for construction, flatbed, and van freight, as well as the beginning of the produce season, first starting in Yuma, Arizona and the Imperial Valley in California and heading into northern California as the spring moves into June, he said.

“These things will tighten overall demand for freight before we get into the beginning of the import season in May and June, so we don’t think there is going to be much relief from the April 1 ELD deadline until we get into the second half of the year,” said Montague.  

Given the current market fundamentals, with carriers clearly having the upper hand over shippers as it relates to pricing power, Montague noted there is a lot of pressure on contract rates to rise, observing that for all of 2017 compared to 2016, contract van rates were only up around 2%.

As for how shippers navigate this current environment, he said that the ones with best practices related to loading and freight payment communications have typically had good experiences with their contract rate renewals. But shippers and receivers with long loading times could see 8-10% or higher rate increases.

“There is a strong push on the carrier side to punish those types of situations,” he said.

Another thing to keep in mind, he said, was that the segment of freight that was disproportionately impacted by the ELD mandate was for two-day trips in the 500-to-900 mile length of haul range, where rates seemed to jump more than any other lengths of haul. And for shorter trips fewer than 200 miles and very long trips over 1,500 miles were the ones least affected, with the latter being a reflection of a shift towards increased intermodal usage by shippers.